Starting points for the quantitative CIO: downloadable basic tools

Much as in any field, IT executives constantly have to seek a balance between idealism and pragmatism. Given a particular problem and the range of possible solutions, do we insist on “doing it right”, or do we buckle down and “just get it done”, even with gaps?

There’s obviously no single right answer, which is what makes IT consistently so fun and frustrating at the same time. Over time, though, my own approach has typically been to focus on the continuous improvement aspect of “doing it right”: whenever possible, get something going as a start, then hone it over time as you learn more about the problem and your situation.

Using spreadsheets as a management tool definitely falls on the “just get it done” side of this spectrum of approaches. Spreadsheets are seductively easy, omnipresent, and usable by people with a variety of skill sets and technical savvy.

But there’s a host of downsides: spreadsheets are frail creatures. Errors can creep in fairly easily, even for experienced users, as data and circumstances change, and spreadsheets are especially prone to the incursion of silent errors and omissions when undergoing revision.  And once implemented, in all their imperfection, spreadsheet-based solutions can broaden and become large-scale, long-term systems (I’ve seen this happen again and again).

Yet, I feel that every technology executive should be maximally fluent in spreadsheeting: simple tracking, analyzing, modeling alternatives, understanding costs and risks. The technology provides a readily available, easy way to knock out quick and dirty models that can clarify one’s thinking and approach enormously. They work well, as long as you keep in mind that the spreadsheet is usually a stop-gap, for those times when you are faced with a glaring need and you don’t have time, budget, or staff to implement anything deeper right away.

In an early blog post, I listed the seven areas where a quantitative approach is especially necessary for the technology executive:

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Valuable vs. fun: learning to love IT Asset Management

My attitude is that if you push me towards something that you think is a weakness, then I will turn that perceived weakness into a strength.

— Michael Jordan

As with so much in life, so it goes with IT: the parts that are fun aren’t always valuable, and the parts that are valuable aren’t always fun. Let’s talk about a hugely valuable side of IT that isn’t really much fun at all. And when it’s not fun, that means that it’s often neglected, and thus turns into a great weakness.

IT assets (hardware, software, systems, services) represent a major investment for most firms today. For “new economy” companies in particular, the cost of such resources (both bringing them on board and maintaining them as corporate assets) often exceeds expenditures in any area other than wages and benefits.

It’s astonishing, then, that firms (not to mention IT management specifically) don’t always embrace the ongoing hard work required to maximize the value of those expenditures and minimize the corporate risks involved. All too often, I see IT asset management (ITAM) neglected by IT executives because, well, it involves a discouraging amount of drudgery to do it right, especially over the long haul. This neglect occurs even more often when an executive succumbs to the latest faddish push for IT to focus on strategy and innovation to the detriment of fundamentals.

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A rational CapEx purchase and tracking process for IT

How often does someone in your company (often the CIO, or the CTO, or the head of infrastructure) end up running through the halls, waving a purchase order that “has” to be signed off that very day, or else key systems will allegedly go dark? Maybe you’re in the fortunate situation of being in a company where this frenzy doesn’t happen, but in my experience, that’s unusual.

I’ve written before on the importance of technology carefully shepherding its fiduciary responsibilities. Nothing contributes to the IT stereotype/stigma as much as a loud demand for a major purchase, at the last minute, justified solely by dire predictions of doom, and topped (often) with acronym-laden technobabble. Amazingly, it’s not that hard to avoid this situation, if you exercise a little forethought and planning.  The benefits of doing so are indirect as well as direct: you can change perceptions of IT into being viewed as a partner of business concerns, rather than as a troublesome, risk-fraught, and confusing cost center.

It all goes back to Management 101: plan the work, then work the plan. Surprises are a bad thing. Not only do you need a solid plan, but then you want to diligently track actuals against that plan. None of this is exactly a radical idea, yet I’ve served as an executive now in at least three different companies where none of it was happening before I arrived, with respect to capital expenditures.  To the extent there was a capital expenditure plan for the year at all (as opposed to just one big CapEx number!), it had been thrown out the window by February. Sure, this can and does happen in fast-paced Internet companies in particular, but the rankling thing was that no one really was tracking the changes against plan, or could envision how funds were shaping up for the year. Even if a plan has undergone radical changes, there still needs to be a current plan. Walking in, any executive (not to mention any auditor!) should be able to see one or two core documents that detail that current plan, as well as the progress against it.  If that’s not there, then the technology area (and by extension the whole company) is just operating by the seat of its collective pants, and that’s not acceptable.

Here are the minimum elements of responsible CapEx stewardship, in my view:
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Financial metrics for IT: the holy grail of ROI and how it misses the point: Part 2

As I promised in my previous post on this, and along the lines of the “intensely practical” goal of this blog, we’ll now take a look at the financial cost analysis for a specific project.  This is only an example, with details changed or obscured, but it is based on a real proposal from a few years back, analyzing whether to swap out an existing infrastructure element (a storage array) for a newer and more capable unit.

As I’ve argued before, any proposal like this should really analyze and present several alternatives – e.g., sticking with the status quo, changing to vendor X, or changing to vendor Y.  This example covers only one of those analyses, but I think you’ll get the point.  Here’s what I see a lot of IT people forget: your goal here is to analyze and communicate and recommend the best choice for the organization, not just to justify what you already want to do in your gut.  You need to be your own devil’s advocate in this process.  If you can’t clearly understand all the benefits and outline all the costs, you’ll make poorer decisions, no matter what your gut tells you.

So let’s dive into the practical.  Here’s the process: if you’ll recall, we want to look at hard benefits and hard costs of the proposal, and look at these over a five-year time horizon to get the big picture.  On the benefits side, we talked about how benefits break down into increased revenue and decreased costs.  Of course, the notion of actually increasing the company’s revenue based on an infrastructure change is unlikely, so we’ll leave that aside in this case.  The whole purpose of this particular example proposal is to decrease costs, both in real terms and in terms of making personnel more productive.  So let’s look primarily there for the benefits that will result from the proposal.

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Financial metrics for IT: the holy grail of ROI, and how it misses the point: Part 1

Let’s talk some more about one of my favorite topics, project portfolio management (PPM). A lot of literature on PPM tends to focus on evaluating risks and returns. An excellent article on IT governance last week in The Wall Street Journal had the following sage advice:

Create an IT portfolio by evaluating risks and returns. Just as an investor balances risk and returns in constructing a portfolio of investments, management should analyze the costs, benefits and risks of all IT projects to determine how to get the most benefit from the dollars invested in technology.”

I can’t argue with that. But I also like to talk about another major part of IT portfolio management, which focuses on juggling which projects can actually be resourced. It’s unfortunately easy to come up with ten distinct projects with positive return on investment (ROI), for example, in a situation where it’s really only feasible to do one or two of these a year. In some companies, the pressure to do any positive-ROI project becomes enormous, even if it means the company is biting off too much at once. So what to do?

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Avoiding the Rubber Stamp maintenance renewal syndrome

As I discussed last time, everything you add to your environment (hardware, software) costs money in recurring fees. Part of the job of the CTO/CIO is to sign dozens of invoices, each and every week, that approve payment for the various elements in your infrastructure that have come up for renewal. And hey, we’re all busy. Anyone who’s been pestered by the company’s usually indefatigable accounts payable department knows the perils of not having signed off an invoice in a timely manner: in other words, you can’t afford to let them languish. Problem is, it’s relatively easy to fall into a “rubber stamp” mode, scribble a quick signature, and move on to the rest of your busy day.

Multiply that by dozens of invoices a week, 52 weeks a year. A few thousand dollars here, a few thousand there: as the saying goes, pretty soon you’re talking about real money. Careful scrutiny of each and every expense takes time and effort, but my view is that it’s one of the major responsibilities of the job. The amount of company expenditures that flow through IT places an important onus on you, the head of technology, to constantly be thinning the carrots, so to speak.

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Budgeting maintenance and support for IT

What does IT do, anyway?

Well, among other things, IT spends money. In many modern companies, the expenditures made through IT are among the highest in the company, second only to salaries and marketing.

What does that mean? It often means that when cost-cutting time comes around (as it tends to do, in cycles, at most companies), there’s a particularly harsh spotlight that shines on IT expenditures, and a vast amount of pressure emerges to reduce these, quickly.

Unfortunately, the “quickly” part of that last sentence just isn’t realistic. A lot of IT expenditures can’t be turned off (or down) at a moment’s notice. In many or even most cases, the company has already signed (and paid for) maintenance agreements with hardware and software providers that typically last a year, if not longer.

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