“Understanding the value Information Technology (IT) brings to the organization drives the realization of IT as an asset, not an expense,” says William Miller, Founding Partner, Proven IT Finance. How employees interact with business processes and data can be a competitive advantage or a hindrance for the organization, he adds. 

Proven IT Finance is a solution provider at the marcus evans CFO Summit XXXII Spring 2017, taking place in Florida, May 11-13.

What does your comment above on the value of IT mean, and what do CFOs need to know?

Recognizing IT as an asset not an expense is a mind shift. It means understanding the fundamental dependency organizations have on IT to execute daily business, grow their existing business, control and contain costs, and access new markets. Technology houses the business processes and the business data within the very applications used to operate the company. Those business processes and how our employees interact with those processes through the applications are either a competitive advantage or a competitive hindrance. IT investment decisions must be considered across multiple years, not in single years, and we must understand the long-term impacts on costs and efficiency when investing in new platforms and technologies.

Why is the traditional approach to IT Financial Management (ITFM) broken? What would be a smart and pragmatic approach for CFOs to take?

Traditional ITFM approaches view IT through the traditional financial lens of salary and depreciation. Using traditional financial management techniques or labor arbitrage/ labor reduction or valuing depreciated assets over depreciating assets undermines the primary value of technology. The real value of technology is in asset utilization and currency. Recognizing, measuring, and tracking these new dimensions requires a different approach to ITFM.

Why should IT efforts be linked to business value?

Linking IT efforts to business value is the primary way non-IT segments of the business understand how IT impacts and improves their operations. Again, traditional measures, like ROI, rarely work in defining this linkage. Tracking and measuring the linkages requires an understanding of non-financial measurement, like utilization or changes in business processes, in order to be visible.

What does it take to build an enterprise-level ITFM capability?

Building an enterprise-level ITFM capability is easier than you think. You do not need a state-of-the-art system, years of development, or even a “Big Four” consulting firm. For many organizations, just getting the fundamentals in place drives tremendous value. You need a cost model linked to financial and operational data and some intelligent reporting. Even with the simplest forms of these requirements you can generate operational and financial insights that will significantly improve your IT decision making capabilities.

How can CFOs help maximize the value of IT and returns on IT solutions?

Traditional financial management tells us expenses are bad and we should seek to minimize them by optimizing business processes. Traditional financial management also tells us that assets are good and we should seek to expand our return on our assets. CFOs who recognize IT as an asset inherently derive better results from their IT spend than CFOs who consider IT to be an expense. CFOs should seek to optimize their IT assets and recognize that financial benefits from IT assets will likely manifest in non-IT cost centers of the enterprise.