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30 January 2007

Justifying IT investment 4: summary

By Andrew Clifford

You can justify any IT investment by measuring where you are now, modelling the benefits of making improvements, and putting an overall value on running your IT well. This seemingly simplistic approach is an effective IT management tool.

Over the past three weeks I have covered an approach for estimating the financial value of purely IT investments, often known as IT infrastructure. This method involves:

  • Using system governance to capture IT management objectives, translate these to measurable criteria, and score existing systems to get a baseline.
  • Using a model which calculates costs from the volume of IT, its relative difficulty, and unit cost.
  • Calibrating the model by estimating what reduction in IT costs you would get if you met all your objectives perfectly.

This lets you translate any IT change into a financial benefit, which you can use as the basis for justification.

This methods works because it does not look at individual changes in isolation.

When considered in isolation, it is almost impossible to answer the question "What's the benefit of an Oracle upgrade?" But it is much easier to answer the questions: "What value do we put on good IT management?" and "To what extent does keeping on current versions help IT management?" and "How much would an Oracle upgrade help us keep on current versions?" Breaking the question down lets us base the justification on the value of good IT management in general, without being dragged into specific technical details.

To summarise, this approach to justifying IT investment:

  • Estimates the financial benefit of IT investments. It shows which investments are worthwhile, and which are not. It allows purely IT investments to be compared with other business investments.
  • Provides a balanced view, across all systems and all IT management objectives.
  • Indicates which changes need to be made to which systems to achieve the predicted return. It shows (and can track) the required follow through.
  • Provides an auditable, repeatable process.
  • Can be fine tuned, by varying the basket of criteria used to calculate scores, and by varying figures for unit cost and difficulty.
  • Is flexible enough to be used for real-world scenarios, such as modelling the benefit of upgrades at the same time as an increase in the number of systems.

You can not be sure that an individual investment will pay back. A lot of IT investment is a bet, that by spending money now you will not have to spend more money later. But overall we know that there is a value to managing IT well. This method helps you translate the overall value into a benefit case for individual investments. Where investment is a bet, this method tells you the odds.

The method is not perfect, but it is understandable, rational, and directionally correct. It is far superior to waiting for disasters to happen. It is more honest than tacking IT infrastructure investment onto business projects. It allows IT to present a case for the work we know needs to be done, but can not otherwise make a case to do. It gives us the tool we need to manage our IT proactively, and to stop it slipping into unsupportable legacy.

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