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IT Spending Meets C-Suite Expectations

By Leslie Blair  |  Posted 2010-04-08 Print this article Print

Organizations search for ways to optimize the value delivered by it investments.

Given our turbulent economic environment, cost reduction is a top-of-mind issue for executives. Many organizations are aggressively working to reduce their technology spend; many are also working to drive costs out of their business functions by improving the way they use IT. And almost every enterprise is looking for ways to optimize the value delivered by its IT spend. Regardless of the desired outcome, cost-reduction imperatives are easier said than done.

In fact, a 2007 study by Tata Consultancy Services (“IT Effectiveness: Leading IT Practices in Successful Companies”) showed that 62 percent of organizations experienced IT projects that failed to meet their schedules; 49 percent suffered from budget overruns; 47 percent had higher than expected maintenance costs; and 41 percent failed to deliver the expected business value and ROI. Given statistics such as these, how can business executives expect to reduce their IT costs and reconcile their IT spend with the business value it delivers?

Many times, reconciliation of cost and value becomes a source of conflict between the business and IT organizations. As the role of IT continues to evolve—and new technologies continue to add capability and complexity to an already challenging landscape—it is critical for executives to come to terms with IT costs and develop a game plan to maximize the value derived from their IT spend. To understand how IT supports their businesses, executives need answers to the following questions:

• Do our IT projects reflect the goals and objectives of our enterprise?
• Are IT programs and project sponsors held accountable for the success of the programs?
• Is there a way to reduce IT costs without negatively affecting our operations?
• Are we realizing the value we expected from our information technology investments?
• What actions can we take to better predict and control our IT expenditures?


The answers to all these questions can be found by using a process commonly called “IT cost optimization.” This process can take many forms, but we believe the most significant and sustainable results are achieved when a strategic, data-centric assessment of an organization’s IT function is performed to uncover the roots of the IT spend. The result provides a transparent view of historic and current IT costs, and identifies practical and attainable ways to optimize it.

IT cost optimization is a process that identifies problem areas and then recommends changes to IT cost drivers that will achieve one or more of the following outcomes:

• Reduction: Reducing the cost of nondiscretionary items and redirecting that cost to discretionary/business growth areas.
• Redirection: Increasing the number of variable cost categories to allow flexibility in a changing economic environment.
• Reinvestment: Linking IT costs to specific business growth strategies and programs with measurable results.
Determining the appropriate target mix will optimize the IT spend and rebalance the IT investment portfolio.

Leslie Blair leads the Advisory practice for Ernst &, Young LLP’s West region. The views expressed here are those of the author and do not necessarily reflect the views of Ernst &, Young LLP.
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