By Steve Ranger, 20 September 2005 09:00
NEWS Companies are spending a mere eight per cent of their IT budget on projects that actually bring value to the business.
And most organisations have no idea of the benefits of their investments in IT because they are unable to measure them, Butler Group has claimed.
The analyst house said managers must make more effort to measure their IT investments and attempt to boost the proportion of the budget spent on new services.
Butler Group senior research analyst Mark Blowers said that too much management time is spent on controlling costs rather than focusing resources on initiatives that will improve the business.
Blowers said in a statement: "Those IT departments capable of measuring performance are in the minority. Small wonder then that IT remains isolated, misunderstood and treated simply as a cost centre by senior management."
"This absence of measurement means that most organisations have no idea whether investments in IT are providing increased efficiency, added value or competitive advantage," he added.
The analyst group's new report, Measuring IT costs and value - maximising the effectiveness of IT investment, said too many IT execs forget to focus on what can create value for their organisation - but that without this it is impossible to formulate an effective IT strategy.
Blowers said: "Organisations have become quite competent at measuring IT costs but not the value. It is imperative that IT management is able to gain an understanding of the level of IT spending that brings value to the organisation."
Butler Group blames a lack of tools and methods as one reason for the failure to measure IT properly and said business cases and balanced scorecards can be useful for IT execs trying to get their message across.
"The challenge for IT management is to supply services that can support the organisation's growth requirements, whilst minimising the amount spent on running IT," he added.
Comments
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1. Chris Purrington
This article raised a number of interesting issues around IT expenditure, not least the fact that only eight per cent of an organisation's IT budget is spent on projects that actually bring value to the business. This backs up previous research from The Standish Group, which found that two thirds of software projects worldwide are considered failures, that more than half exceed budget and that 84% suffer from over-runs.
Surely the biggest issue facing the IT industry today is IT waste - the issue of the wasted time, effort and, ultimately, money that is dispensed annually on software development? With many businesses employing antiquated requirements management systems (Word documents for example) and the emerging trend for offshoring developments adding further time-zone and language complications, effective project management tools are more important than ever before in ensuring less is wasted within the software sector.
A new, more collaborative approach is required in order to make IT projects succeed, where companies use high-level business process models accompanied with change management tools to automate the flow of tasks and decisions that need to be made, particularly within software development. It is essential that the CIO can keep track of developments particularly when stakeholders (analysts, architects, developers and testers) are increasingly spread out all over the world.
2. Simon Allen
This would not surprise me BUT ...
1) Who are the people that decide whether an IT project has given value?
2) Are all the projects of the Marketing and Publicity departments going to be judged by the same criteria?
3) Since the rest of the company knows how to do our job (they regularly tell us exactly what hard and software they have seen advertised!) can we inspect THEIR work?
4) Will they now agree not to change their minds after they have signed the final specification?
3. daniel kennedy
I would be very interested to see and understand how these results and figures given in this paper came about.
My understanding is that they did not have or lacked the proper tools and methodology to correctly measure the value of IT. We are all aware of the gap between business and IT but who is to decide the value and how do you measure this correctly?
Companies like my own work hard to give our clients value for money.
Only the business who receives the services can tell you if they get value for money from the service provider. In the end one way or another it always comes down to money!