Digital: Restructuring technology costs

Key challenges

Organizations structured or in the process of re-structuring their departments into business units, and gearing up for digital, mandate each business unit to return a profit or minimize losses on a quarterly basis and report these results to their board.

As CIO or Digital Leader you must:

• Measure and manage how much IT resource is provided for every business process in every department
• Put in place a charging mechanism so that each business unit will be invoiced for the IT services it uses on a quarterly basis

Managing digital funds

• Traditionally IT has been managed as a cost-center
• The IT Head or CIO receives an annual budget and allocates funds to maintain the existing IT service
• It is a relatively straightforward task to manage once a cost reallocation model has been established:
• As reallocating budgets and controlling cost centres is not onerous if the correct checks and balances are in place
• However, changing to a business unit based P&L system presents a more sophisticated problem
• Accurately calculating the costs of digital (IT) , in total and split across the business is a difficult task
• Gaining agreement from fellow business managers about an acceptable charging mechanism is time consuming. Without a clear picture of IT resource usage, there are several ambiguities
• The challenge therefore for IT Head or CIO is how to accurately visualize, interpret and communicate the complexity of the IT resource so that the other BU Heads can understand why they are being charged for the IT resources they utilize

Blueprint for the digital future

•  The key to success in managing Digital business units is having an intimate understanding of how all your people and technology resources support and relate to the business processes with which they interact
• Create ‘Big Picture‘ diagrams provide a clear, simple and logical picture of your organization that will help you visualize and communicate complex business & IT relationships
• Allowing you to accurately attribute cost or percentage of cost to individual resources
• Build these costs into a comprehensive financial model, enabling true cost allocation modelling and analysis to take place
• ‘Big Picture‘ modelling will remove any ambiguities in IT resource utilization
• In addition to identifying opportunities to make efficiencies and reduce IT spend

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