Spend Matters welcomes another guest post from NPI, a spend management consultancy, focused on delivering savings in the areas of IT, telecom and transportation.
Over the last decade, IT cost management has shifted from a CIO function to a collaborative responsibility shared by many stakeholders: the CEO, CFO, procurement, and business unit leadership. The reason parallels the evolution of IT in the enterprise from a business strategy supporter to a business strategy driver; and the ubiquity of IT as it impacts every facet of the enterprise. CIOs have emerged from an insular spending and management environment into one of increased accountability and oversight – and value creation.
At the same time, CFOs and procurement teams have become more savvy in the area of IT cost management and will play an increasing role in this function in the years ahead. I recently wrote an article for RISnews.com on six questions CIOs should expect to be asked by their CFOs in 2013. Below is an abridged version of these questions (you can read the full article here):
- Are we benchmarking our IT spending? There isn't a public list price available for most IT products and services, and pricing and terms for the same product can change drastically every year or two. CIOs should make sure vendor pricing is at fair market value, and that terms are transparent.
- How locked-in are we with our vendors? There are advantages to working with the same vendor over time, but keeping pressure on the incumbent is critical to maintaining an optimized vendor relationship. In other words, bring competition to the table.
- Are we choosing the smartest support option? Companies routinely overpay for and overbuy support. Consider downgrading or outsourcing to a third-party support provider. It's an easy way to save 50 percent or more.
- Why are we paying for fixed-fee engagements? Fixed-fee engagements are rarely fixed, especially with the learning curve associated with many new IT projects. In reality, overages are common and contracts are fraught with loopholes that allow for additional costs. Bid your professional services engagements on a time and materials basis.
- Do we need a Vendor Management Office or IT Controller? IT purchasing has become too complicated to be lumped in with other categories of sourcing – but, it also requires sourcing expertise that the average IT manager doesn't have. The solution? Many best-in-class companies have created Vendor Management Offices (VMOs) and IT Controller roles specifically designed to optimize IT purchasing.
- Are we internally aligned before we buy? Most CFOs have a horror story or two about a pricey IT project that went awry...and most would prefer never to experience that sort of financial bleeding again. One way to avoid these disasters is to make sure the IT organization has visibility into departmental needs to better predict costs and make sure the investment at hand is the best choice. Failing to maintain internal alignment opens the doors for vendors to approach specific departments and gain leverage in the negotiation process that puts your organization at a disadvantage.
Any CIO and CFO serious about improving IT cost management should start with the questions above. Cutting strategic IT initiatives shouldn't be an option, even in an unpredictable business climate.
- Jeff Muscarella, EVP of IT, NPI