Starting an IT Cost Containment Program

By Todd Wasserman

A circle of mistrust exists in many companies: financial executives accuse their IT counterparts of being spendthrift, while IT departments envision the keepers of their budgets as being ignorant of true IT costs.

The reason for this is simple miscommunication. As CIOs and IT managers push for deploying new technologies and CFOs and financial executives attempt to rein in budgets, the two departments are often at odds. Bill Snyder, a research vice president with Gartner Group, notes that organizations, in general, have been more cognizant of runaway IT expenses since the early part of this decade. At that time, IT executives were told that they needed to better use technology to help further business aims.

The result has been pressure to provide better accounting for IT projects and costs and to develop more realistic timetables and goals for deployments. The mantra that many CIOs have been embracing is summed up in the following words: IT cost containment.

"'Clamp down' might be a strong way to say it, but there's been continuing pressure," Snyder says.

To relieve the pressure, analysts suggest that CIOs take the following steps to better delineate where the money is going in IT:

• Reduce 'hidden' IT expenses According to a recent Gartner survey of IT executives, 'hidden' spending accounts for 28% of budgets. Snyder says such expenses are directly correlated to a lack of a central buyer. Creating such an authority prevents 'rogue' purchases of equipment and software. But rogue buyers aren't the only hazard. Software developers who write programs outside the purview of the IT department can incur excess costs by linking to corporate data, which can create architectural and security issues. Costs can also be driven up by business units, which, frustrated with the pace of development, push ahead with projects by doing the work themselves or by hiring outside consultants.
• Keep better track of where IT workers spend their time Snyder recommends keeping closer track of IT professionals within the department by initiating time-tracking. While sometimes time-tracking services are built into software, initiating other forms of time-tracking can, of course, create a climate in which IT pros start to feel they are being assessed for their productivity. But Snyder suggests framing time-tracking as a tool to make the department more effective.
• Create a central repository of IT costs Snyder suggests it is best to lump all IT costs and assets together in one repository, which can be divided into IT asset costs, IT people costs and IT process costs. The idea is that, by putting all the costs in one bucket, it will be impossible to hide costs and dodge responsibility for overruns.
• Set up a project management office Aside from better monitoring IT expenses, analysts propose creating new layers of governance to be accountable for such costs. One idea is to create a project management office, which oversees large tech deployments and ensures that certain benchmarks are met during the course of the project. Such groups are more common in very large organizations.
• Empower a steering committee composed of both IT professionals and business executives  Another way to tackle the issue is one proposed by Craig Symons, a vice president at Forrester Research, namely: Create an IT steering committee. Symons defines such a committee as, "The highest IT governance structure responsible for making IT investment decisions." He says the committee should meet regularly to review IT-related financial issues and decide whether to approve or deny them and what priority they should be given. Unlike project management offices, which focus on each job, steering committees are concerned with all IT operations.

One issue with IT steering committees, though, is that they are often too IT-centric and not enough business executives are represented. A Forrester report, for instance, found that although 81% of such committees include the company's CIO, only 44% include business unit heads and 56% include business-function heads.

While Symons notes that steering committees are fairly common, he says they are still sometimes not reaching their stated objectives.

"The whole idea to me behind IT governance is to begin to shift to a more shared balance between IT and business," he says. "Then, you begin to split the responsibilities so that IT is really a delivery organization and business is responsible for the benefits IT provides."

Todd Wasserman has more than 15 years' experience writing for The New York Times, The Industry Standard and Business 2.0, among other publications. He is currently editor of Brandweek magazine.