Zahl Limbuwala is CEO of Romonet.
According to Gartner, worldwide IT spending is set to grow to $3.8 trillion in 2015 as organizations look to spur growth in the wake of economic malaise. This tremendous investment gives a clear, simple image of technology’s value: As IT forms the backbone of more and more crucial business functions, its proportion of the overall business budget needs to increase. This often results in the CFO or CEO feeling like IT costs are spiraling out of control. They cannot risk foregoing investment and falling behind the competition, while at the same time they may have little idea whether this investment will add value to the business. For CIOs who need to justify their expanding budgets, understanding these pressures and being able to demonstrate the value of IT to the business is a key skill.
A Costly Business
To add to these increasing pressures, many CIOs are already finding that they are being made more accountable for more of the costs of IT. For example, operational costs, such as energy bills, are increasingly being charged to the IT department rather than coming out of an all-encompassing utility budget for the business as a whole. Given that IT will often be one of the most energy-intensive parts of a business, this can mean the department suddenly becoming responsible for a huge extra cost. For CFOs this makes perfect sense, as they can more clearly see exactly where resources and funds are being used. However, the CIO will see a sudden growth in IT costs with no corresponding growth in IT capacity. To prove the IT department’s accountability, a new approach is needed where IT costs are equivocally treated as business costs, and CIOs can accurately and consistently demonstrate return on investment for their decisions, rather than having to build budgets on trust and guesswork.
Find Some Common Understanding
In order to provide this information, CIOs need to know the exact unit cost of delivery of IT down to the individual service or application if they are to provide the CFO with a strong case for investment. For instance, take the growing use of data centers to provide IT infrastructure, whether in-house or via a colocation service. In such cases, the actual hardware running in the data center represents a small part of the total cost. Energy costs, cooling, networking and management costs all need to be taken into account, whether they are incurred in-house or form part of the charges from an outsourcing partner. Unless these are considered, the CIO cannot demonstrate whether IT investment will provide better value and the CFO cannot accurately understand the Total Cost of Ownership of IT as part of the business. With Gartner predicting an increase in worldwide investment in data centers, there is massive potential for error if any wrong decisions are made.
This level of understanding doesn’t just cover existing IT services and infrastructure: The approach needs to extend across future projects, such as building additional data centers. After all, expanding data center capacity is pointless if the CIO has no way of guaranteeing that it will benefit the business for the best possible cost. To give an example, some organizations have investigated building data centers in locations in sub-Arctic locations to reduce the need for cooling. Yet in order to invest with confidence, the business needs to be sure that the money saved on cooling isn’t offset by the cost of building and maintaining a data center in such a hostile environment. To make sure they’re guiding the business toward the best decision and making the best argument for investment, the CIO needs to understand the cost of each option to the overall business down to the unit level, and accurately predict the results of these decisions to the CFO.
Armed with this information, the CIO can then advise the CFO on the validity of longer-term strategic decisions, such as moving services to the cloud. The anticipated cost savings and improved efficiency promised by the cloud in recent years has put many CFOs under pressure to outsource more of the organization’s IT functions. The problem is they have had no true indication which option is the best to go for, or even whether it would make more sense to keep services in-house. If the CIO can predict the potential savings, if any, of moving to the cloud then the CFO can make the decision on whether to invest, with confidence.
Without this insight, the CFO can risk funding a move that ultimately proves costly to the business. One company that attempted to do things on its own was General Motors, which invested heavily in outsourcing IT services to later discover it was far more efficient for the business to have their IT services in-house. Understanding the exact savings outsourcing could provide, as well as what would happen to any existing in-house infrastructure now running at reduced capacity, could well have saved General Motors considerable time and expense.
Confidence In Investment
A large part of the problem for CFOs making investment decisions is that many IT services aren’t measured in terms of how they benefit the business. Instead of the efficiency and costs of individual data centers, the CIO should aim to provide the costs and benefits of individual IT services along with how investment in those services will benefit the business. Knowing this, the CFO can then make investment decisions with much greater confidence. Without this insight, unwitting CFOs and CIOs may find their businesses swept away by nimbler, faster competition that uses their IT services more efficiently.
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