Start with a financial model

My last article suggested how data could be used as one of the tools to correct misconceptions surrounding technology.  Of all the data you could use as leverage, the one that gets the most attention, generates the most questions, and will have the largest impact on IT transformation, will be those around cost.  Building an all-inclusive financial model for IT is the first step on the path to running IT like a business.

Get it right, and you will forever change the course of the company.

Get it wrong, and … well, we can’t afford for you to get it wrong. [And, not having a model is still getting it wrong]

Leveraging IT as a strategic weapon must begin with a complete understanding of the costs to operate the business. This should be granular enough so that business unit leaders can see the direct implications of decisions they make on IT costs, and therefore on the profitability of their product. Without this model, business units are operating blind, and are likely making assumptions about profit and loss that will lead to poorly executed strategies.

Creating a fully realized model is not easy.

You may not have the data to model every aspect of the services you provide.

You may not have access to some financial data you need to include in the model.

You may not have a staff that can dedicate time to do this work.

You may think you don’t know enough about finances to do a model justice.

You may not know the end state, the metrics you will need, or what to do with this when you’re done.

Squash these thoughts!

There are easily dozens of reasons you could find to convince yourself not to get started right now. Push through all of this and begin. Your business partners are heading down the wrong path without this data.

Start with a simple model.

For example, entire costs divided by server count.

Analyze the results.

Add in small changes to the model. Maybe you can break down the entire server count by the 4 major segments of your company. Maybe you can separate the total software spend from the big bucket of costs.

Iterate. Iterate. Iterate. You’re model will evolve and so will the questions you ask next.

The goal in creating this model is three fold:

  1. Present IT as a consumption based portfolio of services,
  2. Change the lexicon of the organization to being speaking of IT in value terms,
  3. Lay the foundation for future, game-changing initiatives you are going to execute.

If you believe, like I do, that IT has a massive role to play in the future direction of the company, then the responsibility is on you to provide a transparent financial model of technology costs. Without a model, you will be stuck in a defensive position, an endless cycle of cost cutting pressure, with little hope to influence and transform the business.

Next week I will share the specific goals I outlined when I kicked off the work to build the IT financial model my team created at AOL.


In a twelve part series about IT business transformation, James LaPlaine explores the need for the modern technology leader to be a catalyst for change, leverage IT value as a corporate strategic weapon, and lead the way for complete financial transparency. Utilizing this approach, today’s technology leader can provide the foundation for the company to build better products and services and gain approval for technology led initiatives that often struggle for executive support and funding.

Part 1 – IT is a strategic weapon

Part 2 – Moving IT from Cost to Value

Part 3 – Addressing Technology Misconceptions


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