CFOs Require Proof of IT Investment ROI

We have previously written that CFOs require proof of IT Investment from CIOs - Please see Demonstrating Cloud ROI to the CFO

CIOs are often left with the task of deciphering very complex technical ideas and concepts for the rest of the C-Suite. One of their most recent challenges has been to explain to the CFO exactly how transitioning to Cloud Computing for many applications will benefit their company. This may at first seem counterintuitive given the promise of cloud computing to reduce capital expenses and the overall corporate IT operational workload.  

There is often some frustration among C-Suite executives because the ROI projections for major IT initiatives are often wrong. Many times the ROI estimate is made by the CIO and represents a best guess that is quickly forgotten once the investment is approved by the CFO and the rest of the C-Suite.

Now a new study shows 57% of finance executives say their companies are ‘Fair’ or ‘Poor’ at ensuring Big Data and similar IT projects yield expected returns. The is according to the CFO Research/AlixPartners Survey.

Over two-thirds give their companies a ‘C’ or ‘D’ in measuring the returns; ‘keep-it-running’ IT costs seen as cannibalizing business-improvement IT monies.

The survey also shows that, despite massive IT investments in recent years, companies aren’t getting enough of the kind of information they need to successfully run and grow their businesses.  In fact, no less than 71% of the executives polled say their companies should have access to more robust business information for the money spent on IT.  In addition to desiring more robust information on product profitability (cited by 42%) and customer profitability (41%), there was also strong interest in having better access to information about customer acquisition (33%), revenue (32%), price elasticity (31%), customer attrition (29%) and promotions effectiveness (25%).   “The message from CFOs and other senior finance executives is loud and clear – companies are spending too much on IT, and they’re not getting the business information that they truly need,” said Meade Monger, managing director at AlixPartners and co-lead of the firm’s Information Management Services unit.  “This survey should be a sobering wake-up call for managements everywhere, especially those considering expensive IT projects of any kind.  At the very least, they should be doing rigorous proof-of-concepts before implementing any new project, and perhaps looking at bridge solutions before diving head-first into a new project.”

One big reason companies are over-spending on IT or spending on it in the wrong places, reports the survey, has to do with governance and discipline around IT programs.  For example, 72% of respondents said that factors other than a carefully considered business case (e.g., internal politics, personal persistence/willingness to be a “squeaky wheel”) influence the priority and funding of “improve-the-business” IT projects much more often than they should.  Meanwhile, when asked who in their company should have a greater voice in whether to fund such projects, 45% said sponsors from business or functional units and 28% said the finance function.  By contrast, when asked who today is primarily responsible for deciding funding, just 14% said business sponsors and only 7% said the finance function.  

By the same token, when it comes to “keep-it-running” IT spending, 62% of finance executives say that kind of spending is currently either kept at the corporate level (within the IT department) or only partially charged to business units, neither of which is necessarily optimal for controlling such costs.  Moreover, more than two-thirds of those surveyed (66%) say that keep-it-running and improve-the-business IT spending is budgeted together at their companies.

“IT that’s not helping grow the business should always be treated as a cost to be managed, and not directly allocating those costs to users makes it that much harder to manage them,” said Bruce Myers, managing director at AlixPartners and co-lead of the firm’s IT & Applied Analytics Practice within the firm’s Information Management Services unit.  “By the same token, comingling budgets for both kinds of IT too often leads to the cannibalization of new, high-value-add IT spending for low-value-add, but entrenched, IT spending.”

Cross posted from mycfoview.com

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Bill has been a member of the technology and publishing industries for more than 25 years and brings extensive expertise to the roles of CEO, CIO, and Executive Editor. Most recently, Bill was COO and Co-Founder of CIOZone.com and the parent company PSN Inc. Previously, Bill held the position of CTO of both Wiseads New Media and About.com.

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