Can IT measure its own financial performance?

For decades now, IT has been like the metaphorical shoemaker's children. It provides all kinds of analytical tools for other areas to gauge their performance. But when it comes to measuring its own performance in business terms, IT has lagged behind.

The issue of IT's inadequate financial accountability is coming to a head for several reasons. One is obviously the weak global economy. When times are tough, everybody is forced to be more diligent about accounting for their spend and their value.

The other two reasons are more specific to IT. First, as technology becomes increasingly strategic to the business, C-level executives are coming to grips with the reality that IT ought to rightly be viewed as a profit center rather than a cost center. But a profit center has to quantify its value and map its costs to that value. Most IT managers can't tell you the fully burdened cost of owning a server, let alone the business value generated by that server.

Second, the emergence of turnkey cloud services is putting pressure on IT to make a larger number of rational, fact-based decisions about what to outsource and what to keep in-house. This is not your father's outsourcing -- where big chunks of IT were completely offloaded onto a service provider. Nowadays, IT is being offered highly granular offloading decisions. Do you just need ready compute capacity available from a PaaS provider for periods of peak utilization? What's your threshold? And what would the right price be? How about SharePoint servers? Do it all as SaaS? Or just the marketing department's because their utilization peaks and troughs so wildly?

Most IT organizations are not very well-equipped to deal with either of these accountability issues. They struggle to develop financial metrics that will enable them to properly report about their performance to C-level executives in plain business language. And they struggle to make sound economic decisions about which cloud services offer them the biggest bang for the buck.

We can all probably understand why IT struggles with measuring its own financial performance. It's certainly not easy to quantify the value of an application server. Nor has there been much motivation to develop value metrics over the last two decades as the main challenge has been to sate the seemingly insatiable thirst of the business for more applications and faster infrastructure. And if we're honest, we might also admit that we don't necessarily have a real desire to be accountable, since that might expose us to some criticism about not really doing as good a job as we'd like everyone to think we're doing.

It is time for IT to figure out how to understand its own financial performance and communicate that performance to executives. Failure to do so will hamper IT funding and limit the ability of the business to leverage technology strategically. And those are outcomes that neither IT nor the business want.

How do you measure the financial performance of IT? Have you adopted any new tools or practices lately? Are they working for you? Share your experiences, insights and opinions below!

Chris O'Malley is CEO of Nimsoft. He has devoted 25 years to innovation in the IT industry -- most recently growing businesses in cloud and IT Management as a Service solutions. Contact Chris via the comments below or via Twitter at @chris_t_omalley.


Copyright © 2012 IDG Communications, Inc.

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