James Ferguson CPA, CFO of Netspace Online Systems, shares his advice and tips for implementing a successful information technology (IT) governance framework, and evaluating the return on investment of information technology.
Q.
As a CFO, what challenges have you had with information technology within your business?
A.
The rapidly changing market that we operate within provides ongoing challenges to our operating systems. The original purpose for which a program was written or hardware was purchased three years ago may be altered to cater for new technology. It may have been built to handle 10M transactions and now handles 50M. The impact of this alteration can be minor, or it may be significant, hence considering them carefully and the impact of failure determines priority.
New technology is also a challenge. How will it integrate to our current infrastructure and how will we educate the support staff on it? Who maintains it post implementation?
Q.
How have you evaluated the value of information technology?
A.
With technology, return on investment (ROI) is based on:
Revenue - Improve the customer experience thereby increasing the customer spend per month or total contracted revenue. Developing products and services that customers want and are prepared to pay for.
Costs - reducing the cost of providing the service. The reduction of head count by automating data entry processes ensures efficiency and improves staff moral (eliminates mundane tasks). We purchased LCD monitors for the call centre staff 4 years ago when we started to run out of office space. We refurbished the floor and provided smaller desks, with an additional 30 staff being able to be accommodated, providing savings in rent.
Finally, the opportunity cost and timing of implementation is essential for the full benefits to be realised, developing a product internally may take 12 months, but an off-the-shelf product may be customised in two months. Will the man hours to develop it cost more in opportunity than the off the shelf solution?
Q.
What tips do you have for CFOs who do have responsibility for technology?
A.
Be clear in the benefits that you will achieve from any new technology. It may have all the bells and whistles, but if the benefits are not definable, then there arent any! What is the opportunity cost?
Do you know what systems are critical to your business? Who is responsible for maintaining them and who reports on them at a management level?
Do you have a back up plan for critical systems? Test it annually at a minimum.
IT staff like to talk in acronyms (ISP, CRT, LCD, CRM, B2B, B2C) and assume everyone else thinks the same. If you dont understand what theyre saying, never be afraid to ask them to explain it in English. No one else in the room probably understands either!
Quote: 'Success has many fathers, but failure is an orphan' unknown.
Q.
What IT governance framework do you have operating in your business?
A.
We have an annual budget for financial performance that includes maintenance and capital expenditure. This enables us to prioritise projects going forward, but is subject to change through due process.
Monitoring We have automated monitoring that notifies the management team by SMS, and this is reported monthly to the board. We also look at new technology to compare it to existing systems to gauge performance and potential competitive advantages in the market.
Projects All projects go through an ROI review to be approved. Upon development, progress is reported monthly in relation to the approved plan and timing for completion. After completion we look at the benefits promised in the proposal to the actual benefits received.
Q.
Does your governance framework assist you in getting alignment between IT spend and business value drivers?
A.
Our competitive advantage is based on providing a quality service, when our network fails, the minimum impact to our customers is what makes the difference. Monitoring and upgrading equipment provides us with this point of difference.
Another factor is the value added services that are offered to customers that they are prepared to pay for (or incentives for loyalty) enables us to improve the value proposition to customers.
Q.
What advice and tips do you have for companies developing and implementing a successful IT governance framework?
A.
Identify what IT systems are critical to your business, understand the impact of it failing, and define how you measure it. Have a backup plan.
Accountability Ensure someone is responsible for the system and how it fits into the current operations. As the operations change, they need to identify risks, and communicate to relevant people.
IT Investment should provide a competitive cost savings or increased revenue. Develop an ROI model to assess each opportunity to identify the most beneficial one.
Review Look at the long term business plans and overlay your current infrastructure to identify key areas of risk in achieving the objectives.
