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Evaluating information technology can be a challenging aspect of the CFO role. Your organization is likely inundated with requests for new IT features, and understanding the true value of many of them requires technical knowledge you may not have. The spending possibilities are nearly endless, and many CFOs have reason to be cautious. Perhaps you’ve been burned in the past, too, convinced by your CIO to sign off an expensive software package that failed to deliver.
In this arena, there are competing fears. You want to avoid spending money on IT solutions that don’t ultimately deliver the promised benefit or that cause unneeded disruption. You also can’t afford to reject an IT request that would have given you a competitive advantage (or worse, one that allows your competitor to gain the upper hand).
Evaluating IT is a tricky business. Here’s our CFO’s guide to evaluating information technology.
Communication from the CIO or the tech team is one of the big pain points CFOs face. There are a few reasons for this.
Apples and Oranges
The first communication difficulty is one of dialect. It feels like the IT folks are speaking a completely different language than the finance folks. To a certain degree, they probably are. Your IT group is focused on enabling the company to do more through technology and on increasing your business’s capabilities. Your group spends its time considering the financial aspects of the business. There can be inherent tension there.
In some businesses, it’s even worse. In unhealthy businesses, the CIO and IT team pursue technology innovations that don’t truly align with the company’s needs. They lobby to purchase software that adds capability you don’t need and solves problems you don’t have. Similarly, the CFO and the finance team in an unhealthy organization can fail to see the value of a spend or defer a purchase long enough that a competitor gains an advantage.
Either side of the equation—IT or finance—can become too narrowly focused on its own objectives. When this happens, the company loses out.
Finding Common Ground
CFOs and CIOs need to find common ground, a shared language that focuses both on the ultimate goal: making the company succeed. Ask bigger questions. Which of the company’s (not the department’s) goals will this IT spend help achieve? Is there a less expensive alternative that will still meet the company’s goals? What metrics will we gain by implementing this solution, and how will those benefit the company? Are there any metrics that can show how the proposed investment will improve a process? If those metrics show that an investment is failing to deliver, can we get out of the contract?
Questions like these are all rooted in a “what’s best for the company” mentality. Find a common language using questions like these, and avoid conversations that only benefit finance or IT.
Establish a Clear Approval Structure
The likelihood of conflict between the CFO and CIO increases greatly in organizations without a clear approval structure. To determine whether that’s your organization, mentally answer the following questions.
Depending on the size of your organization it may not be sensible for the CFO to approve every spend. Individual projects may have their own needs and budgets. If that’s the case, a clear approval structure is still crucial. Who on the team can make purchasing decisions? What criteria kick the decision up to a higher level?
In the end, to have a clear approval structure your business needs both a clear vision and strong, clear communication between the finance and tech teams and their leaders.
Visualize your Strengths and Vulnerabilities
Another central problem with evaluating information technologies is prioritization. Everyone wants a piece of the budgetary pie, and it’s your job to allocate it. You need a way to determine where your priorities ought to lie. This is challenging in complex organizations due to the number of requests and the varied nature of those requests.
Creating a visualization of your IT strengths and weaknesses can help you plan and prioritize. What can IT presently do for you? What are the known vulnerabilities? What systems or programs are on their way toward obsolescence? What functions or abilities does the organization view as needful but doesn’t have currently? Are there information technology solutions for those functions or abilities?
Mapping out your strengths and weaknesses gives you a clearer picture of which moves are strategic.
That’s it for our quick CFO’s guide on how to evaluate IT spends. If you want to learn more on this topic, or for assistance with a wide range of IT-related questions, contact us today.