June 15, 2012 By Mark Ball
The current economic environment presents many challenges for government IT executives, since reduced budgets and increased financial scrutiny make it difficult to manage existing operations and still have room to make new investments in new technologies. To succeed, executives need to maximize their return on information technology (ROIT) for current and future IT projects. An ROIT focus pushes the organization to make the most efficient use of its capital, by managing and driving performance metrics that maximize financial value.
The ROIT concept is simple: A project’s financial benefits must be greater than its costs in order to deliver positive returns. But calculating a project’s specific ROIT is notoriously difficult, since not all IT investments produce measurable financial benefits. Still, this shouldn’t prevent IT executives from measuring and influencing the fundamental drivers of ROIT, cost savings and productivity enhancements, to optimize the value of their IT portfolio. Here are six practical suggestions to enable government IT executives to boost their agency’s overall ROIT:
1. Analyze your IT spending. Savings opportunities can be identified by organizing IT spending into categories and analyzing the results. How much money is the agency spending with its largest IT vendors? Are there areas to consolidate spending into fewer vendors to achieve scale economies? Are there categories with too few and/or monopolistic-behaving vendors, where competition can be introduced to reduce costs? A thorough understanding of the agency's IT spending will highlight areas where savings can be achieved and vendor performance can be improved.
2. Introduce value contribution metrics. Common IT performance metrics such as system availability, trouble ticket resolution and response times are important measures of operational stability, but they may not capture whether an IT project or asset is actually delivering value. Value contribution metrics, like cost savings, productivity gains, customer satisfaction and cycle times, can be powerful indicators of the benefits delivered to the government agency. Smart IT organizations continuously revisit their performance metrics to confirm that they are aligned with the agency’s strategic goals and enable management decisions.
3. Manage asset utilization. Periodic utilization audits of IT assets will confirm whether the number of units under maintenance isn’t greater than the number deployed and used. Underutilized IT assets result in increased maintenance costs or untapped value. If there’s a significant gap, IT executives should either find ways to increase utilization, via user training or management communications, or renegotiate maintenance terms with the IT vendor and “true-down” the number of units owned.
4. Consider lease versus own decisions. Often a third party can manage IT assets and provide additional solutions more efficiently, more economically and at higher quality than the agency’s IT organization. “Pay by the drink” business models also offer additional flexibility and scalability. Cloud computing, outsourcing and other mechanisms can be leveraged to shift the costs of owning and maintaining expensive IT assets to a third party. However, IT executives should weigh the strategic implications of these opportunities, including their effect on management control and business risks, against the economic implications.
5. Empower an IT governance committee. An IT governance committee should be engaged to evaluate the IT portfolio’s performance against the value contribution metrics and to drive future investment decisions. The committee should include executive stakeholders from other departments and should be given sufficient authority to hold IT accountable for delivering results. When properly engaged, the governance committee can serve as an advisory council and an important ally for IT in forging deeper relationships agencywide.
6. Encourage innovation from employees and vendors. IT executives should establish collaboration mechanisms for employees to share creative methods for improving results, as well as vendors, since they know what techniques other clients use to achieve maximum value from their products and services. Strategic vendors should be invited to present new ideas to boost the agency’s ROIT.
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