Newsletters:

How to Recapture IT Spending

Feb 2, 2011
By

Matt Podowitz






The first article in this series about safeguarding IT budgets shared an approach to protecting IT budgets by reallocating non-value creating IT spend to efforts creating tangible business value. While that approach can protect or even expand IT budgets, it may not be enough. A second approach -- recapturing non-value creating IT spend -- can also be applied to preserve funding for critical IT services and initiatives that cannot be tied directly to business value.

Many companies view IT spending as an unrecoverable cost, but there may be many opportunities to recapture some of that spending from vendors, suppliers and customers:

  • Are rebates available for pre-payment or early payment of fees to IT suppliers or vendors?
  • Does the company maintain telecommunications to the benefit of customers or suppliers that can be recaptured as part of supply or sales agreements?
  • Does a division incur IT costs allocable to corporate as part of a revenue or cost sharing agreement?
  • Are there unclaimed or uncollected non-performance penalties due from IT service providers?
  • Has the company engaged in internal-use software development eligible for research and development tax credits?


    Most companies will have at least one and probably several opportunities to recapture some amount of non value-creating IT spending such as the examples bulleted above. The challenge will be not in identifying the opportunities, but exploiting them. Depending on the opportunity, IT executives may benefit from soliciting some assistance from other groups within the company using an "enlightened self-interest" approach.

    Many companies have contract managers or even entire contract or vendor management groups that are evaluated and compensated on a combination of success in mitigating vendor or supplier risk and savings achieved for the materials, products and services the company buys. Enlisting the assistance of such individuals or groups will be mutually beneficial -- IT executives may be able to avoid unpalatable activities like playing hardball with a favored vendor or supplier, and every dollar recovered by contract or vendor management will contribute positively to the metrics on which they are evaluated.

    IT executives aren't the only ones under pressure to demonstrate more value and drive out costs. Where any sort of an allocation or chargeback structure exists, there will be someone in the accounting and finance function responsible for minimizing corporate spend and ensuring that departments or divisions pay their fair share. By enlisting their assistance, IT executives will gain a valuable ally in both identifying and collecting potentially recoverable IT spending. Those responsible for allocation will be able to take credit for every dollar that becomes a divisional or departmental expense rather than a corporate one.

    Sales executives always are on the lookout for allocable costs that can be factored into multiple equivalent offers when negotiating purchase or service agreements with customers. Where IT executives can add a potential cost to be facto red into the sales price -- even if a portion of it is eliminated as part of negotiations -- a mutually beneficial opportunity is created for the sales team to convert pass-through costs to sales revenue and for IT executives to recapture some portion of non-value IT spend required to support delivery of the sales contract.

    Recapturing even ten cents of every dollar of non value-creating IT spending could have a significant positive impact on the funds available to IT to drive value-creating activities. IT executives can make the process even easier by not going at it alone.

    Future articles will explore additional means to protect IT budgets and enhance the value companies receive in return for their annual investments in information technology even further.

    Matt Podowitz is a strategic management consultant assisting entrepreneurial, middle market and Fortune 500 clients maximize returns on investment in operations and information technology and address business considerations in strategic transactions such as mergers, acquisitions and divestitures. He is a Certified Management Consultant and Certified in the Governance of Enterprise Information Technology, and specializes in leveraging business functions that historically have been viewed as cost centers to create tangible value for the business. Matt can be reached via the contact page on his personal business blog, ITValueChallenge.com.


  • Tags: IT budgets, IT/Biz Alignment, IT value, IT asset management, Podowitz,
     

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