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The pressure to support growth without extra funding requires IT departments to get their finances in order

The economic downturn may be all but over, but the pressure to cut the cost of IT operations still weighs heavily on CIOs and IT directors.

According to analyst company Gartner, enterprise IT budgets fell 10% on average in 2009, they were flat in 2010 and will rise by just 1% in 2011. That means IT budgets will be around 9% lower next year than they were two years ago.

But unlike in 2009, when the priority was simply survival, businesses now need to grow. The job of the enterprise IT department is therefore to support more business services with hardly any extra resources. That means any new investments must be accompanied by an equivalent reduction in existing cost.

However, most organisations cut the slack from their IT departments in the wake of the credit crunch, and so there are few ‘low-hanging fruit’ left to pluck. If they are to make substantial and sustainable cost reductions, therefore, CIOs need to build a clear view of the financial structure of their IT organisation, if they have not already done so.

Beyond projects

Financial management has always been a part of an IT executive’s responsibility, but their experience is typically in project finance. Though essential, this experience may not be sufficient when it comes to balancing finances across an enterprise IT organisation, says Phill Everson, who leads the IT effectiveness team at accounting giant Deloitte.

“As IT professionals mature in their careers, they typically receive project management training, and financial management will be a part of that,” he says. “But when you reach a certain level of authority, you are suddenly managing operational spend as well as project spend. From that point, understanding the distinction between profit-and-loss and cash accounting really starts to matter.” (See: Back to basics).

He argues that the classic chart of accounts that is used to manage the profit-and-loss of IT operations may not provide the clarity required to make significant changes to the IT department’s financial structure: “If you’re thinking about redesigning the IT organisation, as opposed to simply doing the same thing for 10% less, then you need to look beyond the chart of accounts, and disaggregate the various costs into their component parts.

“CIOs can certainly account for their finances,” he adds. “But what they may not be able to do is describe the true cost of their operations.”

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