Ten Practices for 2010 Your CFO Will Love
January 4, 2010 Irwin Teodoro
I have nothing against a chief financial officer. Being CFO is a tough position with a lot of pressures that can easily be misunderstood. That being said, it is the money people who generally stand in the way of engineers and technologists and the spending required to accomplish great things with IT. It is a common problem we all have–dealing with accounting, the CFO, or other non-IT management. Of course, our running joke is the CFO thinks of technology as a $499 PC they can pick up at Staples or OfficeMax.
CFOs don’t understand why $29 billion is collectively used to power and cool IT infrastructure; 50 cents for every dollar spent annually on servers. They do understand the “space crunch” that IT manifests at $2,400 a server and $40,000 a rack at $1,000 a square foot. They see the money going out the door. Then they read about “server sprawl” and the $140 billion in excess server capacity available in the United States–a three-year supply. No wonder they get so upset: You’re spending how much? On what?
So we walk away with the feeling they simply don’t get IT. But some of the problem belongs with those of us in the IT organization–we don’t communicate in the language of the CFO. And because we don’t, we shouldn’t act surprised when we get pushback on spending requests. This needs to change. Here are 10 areas where we, as the promoters of IT, can begin to communicate better with the CFO.
1. Think TCO, not ROI
Traditional ROI thinking won’t work anymore for us. To the CFO, return on investment is how much money you’re going to give back to the company. Let’s face it. Most IT projects–no matter how compelling–don’t bring “return” to the organization like an additional salesperson, a new marketing campaign, or a new product launch. Discuss projects with CFOs in terms of total cost of ownership (TCO). Repeat until you are blue in the face: IT projects are overhead. You get over this by demonstrating fiscal stewardship by showing that you are providing the lowest cost. To do that you must provide options, comparisons, case studies, and examples.
CFOs like what they hear about cloud computing as a cost saver. Don’t fight them on it. You can leverage what they are hearing in order to steer cloud spending on the right IT projects. All CFOs understand that you don’t want private customer records or sensitive financial data “in the cloud,” for example. Incorporate cloud or managed services for tactical, not strategic, applications.
3. Green IT
For all the talk about Green IT, are you not surprised that for CFOs it still has nothing to do with the environment? The reality is no green projects exist unless they have a better TCO. You can forget about there being a market to pay a premium for Green IT. Again, it is important here to build a case on typically hidden facts. What are you really paying for power, space, etc., that might help justify the business spend on green technology? Once you build a solid business case on facts, only then bring up the public and community relations intangibles of being a solid, environmentally conscious firm.
4, 5, and 6. Virtualize, Virtualize, and Virtualize
This subject takes up three spots because there are three key virtualization targets—servers, desktop, and storage. But again, the key here is how to justify and how now not to justify.
Let’s start with server virtualization, since it is the easiest to justify TCO-wise. The challenge is to provide accurate savings estimates upfront. In other words, don’t guess as to the savings. Many times virtualization projects are viewed as unsuccessful because the savings don’t match the upfront promises. This can be avoided by running a formal assessment before asking for funds. Collect real-world usage statistics to build an accurate business case. And don’t use low-traffic period estimates. If your IT use peaks during the end-of-the-month business close, then include that time period in your assessment.
Desktop virtualization projects usually require a multi-year business case. It’s tough to justify a full-scale virtual desktop infrastructure (VDI) program in the first year because of the upfront capital expenses. But VDI can extend the typical three-year desktop refresh cycle, reduce operating costs for support, maintenance and upgrades, and reduce subsequent year capital expenditures.
Finally, check into the new wave of storage virtualization products. They can lower capital spending by up to 90 percent.
7. Adopt IT-centric business continuity
Three major concepts–risk management, disaster recovery, and business continuity–have become blurred over the years because the responsibility of planning has been foisted upon IT leadership without the explicit participation of business leadership. (The CFO?)
This needs to change. And the change can come about by the adoption of new planning for business continuity that is IT-centric. By adding a couple of critical steps in the planning process line, the overwhelming burden of IT leadership to determine which business units are most important, what priorities should exist after a disaster, and how to ensure business continuity is removed. Decisions no longer will be made in a vacuum and will result in the optimal dynamics within the cost, time, and risk relationship for a particular enterprise.
8. Align with the Big Picture
It should go without saying that IT projects should align with the benefit to the organization’s core mission. Unfortunately, many projects do not. IT has to get this message out and communicate it beyond the IT group. To align IT with key business objectives, you have to understand how IT is the differentiation or delivery of the product or service.
9. Proactive Cost Reduction
DuPont is like a lot of big companies that learn the hard way. Organizations that retain documents beyond required retention periods will face higher costs and greater risks should that information be subject to discovery. So DuPont did a three-year internal study of document discovery requests. They learned that in three years, 75 million pages of text were reviewed. They also learned that 50 percent of the documents that were reviewed were kept beyond their required retention period. DuPont estimated the cost of reviewing documents past their retention periods was $12 million. For this particular example, e-mail archiving is a good way to demonstrate to CFOs that IT can be proactive in cutting costs. Always be on the lookout for these kinds of projects.
10. Reduce Data Center Costs
Modular data centers are becoming a way to cut costs. Google and other major players are starting to look to this model to avoid building and construction costs. The use of managed or hosted services should be another consideration. This combination can reduce capital expenses with incremental expansion. It can also bring about 40 percent lower cooling costs in one-eighth the space.
The relationship between the CFO and the CIO can sometimes have more debits than credits, but it is still definitely worth the investment in time and effort to highlight IT projects in terms the CFO will understand. This means working hard to determine the full financial impact of your programs, demonstrating that you are looking at the total cost of ownership, and considering the company-wide financial impact of your projects. While past performance is no guarantee of future returns, if you can successfully strengthen the relationship between you and your CFO, the return on investment–excuse me, I mean the total cost of ownership–can be stunning.
Irwin Teodoro is director of engineering for systems integration at Laurus Technologies, a leading provider of IT consulting and systems integration solutions. He is responsible for assessment services, integration of multi-vendor solutions, and coordination of professional service project for Laurus. Previously, Teodoro handled professional services and consulting roles for Sayers, EMC, StorageTek, and Comdisco.