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Estimating what a project will cost is only half the battle; controlling those costs during the project and
after delivery is equally critical.
Building a better bottom line is just as important for an IT department as it is for the whole organization at
the enterprise level. Implementing sound financial management within an IT framework is broader than
simply being more efficient. Many factors are involved: an understanding of the main drivers of IT costs,
aligning IT spending plans with overall business strategy, using financial resources efficiently, viewing IT
expenditures as investments and having procedures to track their performance, and implementing sound
processes for making IT investment decisions.
Estimating what a project will cost is only half the battle; controlling those costs during the project and after
delivery is equally critical. In this article, we examine some methods to predict and manage costs, part of a
sound basis for overall IT financial management.
Fortunately, baseline costs can be easily controlled. Renegotiate vendor contracts, reexamine service levels,
manage assets effectively, consolidate servers, sunset older applications, maintain a solid enterprise
architecture, and practice good project and resource management. By so doing you can lower the percentage
of the IT budget allocated to baseline costs and keep them in line, avoiding problems with opportunity costs.
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Think of IT projects as an investment portfolio; the idea is to maximize value and appreciation. Baseline costs
are food, clothing, and shelter; we have to spend the money but it doesn’t have to overwhelm the budget.
The impact of all this hidden technology spending can be profound and prevents IT from being able to
control project costs. Architectural pollution from rogue projects can delay change, resulting in cost overruns
and lost opportunities. Business unit-sponsored systems eventually become the responsibility of IT,
increasing the cost of support and maintenance (there are those baseline costs again). Cultural biases in
business units may conflict with overall strategic goals, increasing costs and resulting in the destabilization of
information and knowledge. This is just as important for small companies as well as large; fundamental
business decision-making is driven by solid information, and if we don’t have it we can’t do it.
Institutional knowledge is lacking as to the result of major initiatives, the advice and counsel of IT is
routinely omitted or ignored, and business process change relies too heavily on IT ownership of those
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business processes. How often have you been called upon to estimate, if not virtually guarantee, a project cost
before the scope has been fully defined?
As an IT professional, whatever your role on a project, you must provide business managers with parameters
for setting funding expectations and force those business managers to explain why their assumptions are
valid. If you’re an IT manager, track all major development efforts throughout the enterprise and regardless
of your role, participate in the creation of a knowledge base of maintenance and support costs to drive future
verifiable and credible estimation. Don’t underestimate the future costs of maintenance and support and
whatever you do, don’t make the classic cardinal error: Do not, under any circumstances, pad budgets in
anticipation of an underestimation. Keep track of project costs as the project unfolds and communicate,
immediately and vociferously, the instant you detect even the potential for an overrun.
Try to postpone capital purchases as long as possible. This may not only provide time to negotiate better
costs, but an idea for a less expensive solution may present itself after the project has begun. Always control
project scope. Come to agreement as quickly as possible with business unit customers and sponsors as to the
overall project scope and put that in writing. Have an effective change management process for the inevitable
“just one more thing” discussions, which will limit or postpone until after project delivery the single biggest
reason for cost overruns.
Try to control human resource spending. There are only two reasons to use external consultants–to fill a
knowledge gap (we don’t know how to do something) and to fill a resource gap (we have too few to complete
the project on time). Negotiate the best possible rates and where possible, use fixed-price agreements rather
than T&M (time and materials).
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processes and systems, eliminating unnecessary costs in the process. Reprioritize and rejustify all IT projects
on a regular basis. Just because something made sense in January doesn’t mean it still does in August, so why
waste the budget? And outsource selectively. These are the costs that typically are the most controllable yet
too often lead to the highest cost overruns.
Absent a chargeback mechanism, business units tend to look upon IT as a giant free toystore. Put one in place
and those same business units feel free to go to the outside to get more competitive technology pricing, and
IT loses control and becomes marginalized.
If your company is going to consider this, there are ways to achieve both goals: making the business units
accountable and maintaining central technology architectural control. Internal IT must be competitlve with
external service providers. Periodic benchmarking exercises are key. Don’t underestimate the substantial
resources needed to effectively administer chargeback mechanisms to ensure that business units have all the
information they need and no one feels at a disadvantage. IT must have a clear understanding of all costs and
manage the demand appropriately. Use client satisfaction surveys and service level agreements (a good idea
no matter what the circumstances) and always show a balance between costs and benefits.
Enlightened organizations understand that IT is a value-added strategic business partner, and a successful
collaboration between IT and the business drives significantly increased stakeholder value. Establish, or if
one exists become a participant of, a strategy council to examine enterprise-level issues of strategy, politics,
priorities, and funding. Set up a business council to define priorities, oversee projects, and measure (and
communicate) project success across business units. This group must, of course, have the courage to cancel
projects when that becomes necessary; not everything that starts must finish. Put together a technical council
to develop guidelines and principles for technology standards and practices. These are three very different
organizational constructs, and while there may be some overlap in terms of participation, the mission of each
is mutually exclusive.
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Some quantifiable benefits of IT work can be improved operating efficiencies, enhanced personal
productivity, enhanced decision quality, and/or enabling or supporting organizational strategic initiatives.
What’s most critical is to ensure the credibility of any measurements used to justify IT investments and
provide after-the-fact valuations. You may be working on a project that will reduce a process from five person
-days’ worth of work to two. Does that mean three people are going to be fired, with the resulting
compensation cost saving attributable to your project? Probably not. Those folks will most likely be
reassigned, so don’t take credit for expense reductions that aren’t going to happen.
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