You must report on the right metrics to defuse the explosive combination of budget pressures and business expectations.
In April 2008, Forrester published the report “The Five Essential Metrics for Managing IT” This has become one of our most popular docs in terms of readership and reader feedback. Principal Analyst Craig Symons lays out 5 IT metrics that are extremely relevant to IT’s business stakeholders: investment alignment to business strategy, business value of IT investments, IT budget balance, service level excellence, and operational excellence.
Why are we bringing your attention to this report now? Because business execs are trimming capital and operational budgets wherever they think it will have the least impact on business, and IT is a prime target. Because of a lack of transparency in many IT shops, the tension between IT budget cuts, and business expectations for technology are fraught with risk for CIOs and other IT execs. The risk is that cuts in IT’s budget are seen by the CIO’s peers as “IT’s problem to solve” – but these same business peers will see cuts in project delivery or IT service levels as yet more proof that the CIO’s organization isn’t capable of supporting their needs. Look at what these business execs were saying in July of 2008 – and this is before the budget pressure was on.
The only way CIOs can turn this tension to their advantage lies in what metrics for IT they use in discussions with their business peers.
The 5 essential IT metrics bring these tensions out in the open, by:
- Highlighting how business strategies will be affected by cuts in discretionary IT investments, via investment alignment to business strategy metrics.
- Making the connection between IT investments and overall business return on investment, via the cumulative business value of IT investments metric.
- Clarifying what portion of the overall IT budget is discretionary (thus, easier to cut) vs operational, which can only be cut by reducing the services business gets or investing to reduce overhead. This is shown via the IT budget balance metric.
- Publicizing, in business relevant terms, how well IT is meeting business operational needs, with service level excellence metrics.
- Indicating what it takes for IT to sustain its quality of service – and where the gaps are –indicated in the operational excellence metrics.
To meet the challenge of delivering value despite budget pressures, you should
- Aggressively revisit your IT measurements – and decide if they are relevant given today’s business pressures. Make this the top of the agenda for your next IT management meeting – and assign ownership for these metrics.
- Bring these metrics to meetings with your CEO, CFO and business peers. Make it clear what the metrics show, and tell them this is how the contribution of IT to your business should be measured.
- Bring to IT budget governance discussions a clear message as to trade-offs – what business gains vs what it loses depending where cuts are made. The decisions on what to spend where are business decisions – your role is to make the impact of these decisions transparent.
What do you think? Are you using measurements like these? Are they improving the business discussion?