A Point-of-View: Business Demand Rarely Influences the Allocation of IT Expenses

Author(s): Andy Woyzbun

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Senior Management often asks IT management three questions about IT expenditures:

  • Is the organization spending an appropriate amount on IT?
  • Are we paying too much for the individual services IT actually provides?
  • Do the services being provided by IT generate good value relative to their cost?

The challenge in answering these questions often arises from three common characteristics of IT financial management:

  • Decision-making. What is spent on IT is generally controlled centrally. The users of IT services have limited influence on the level and direction of IT spending.
  • Visibility of costs. The cost of individual aspects of IT is generally unknown, even to IT. Even where IT costs are computed and reported, they are often too aggregated to give insight into the actual cost of specific services.
  • Accountability. Even in those cases where IT costs are allocated to the consuming business units, the allocation is typically based on the relative size of a unit (e.g. number of staff, revenue) rather than actual level of consumption. Higher usage or special projects generally have little or no impact on a business unit’s own costs.

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