In 2000, the US-based CIO Magazine Tech Poll reported a 22%
annual growth rate in IT budgets. The same poll has recorded growth
rates of less than 2% from January 2002 to the present.For the past two years, chief information
officers have persistently predicted a resurgence in IT spending.
But the harsh reality is that chief financial officers now dictate
IT spending, and they will throttle IT budgets until there is hard
evidence that IT delivers profits.
How CFOs can extract proof of IT profitability
is a source of puzzlement. During the years of easy IT money, the
established procedures for capital budgeting could not cope with a
growing appetite for computerisation. Now that companies have
slammed on the brakes, CFOs are searching for new ways to harness
IT.
The most elaborate scheme yet is the one the
US Office of Management and Budget (OMB) conceived for constraining
the US$57bn-plus in annual federal IT spending (or $32,000 per
employee).
OMB efforts, conducted under the federal
enterprise architecture and e-government strategies, are scripts
for imposing order and uniformity on an IT landscape which
comprises more than 100 independent agencies and includes more than
5,000 major projects. The OMB plan reflects the thinking of many
CFOs and is, therefore, worthy of attention. It would do the
following:
1. Impose a standard method for
classifying IT expenses. An elaborate business-reference
model defines how to describe the business operations of the
federal government. The purpose is to capture information about any
duplication of efforts.
2. Prescribe a self-appraisal method
for characterizing the performance of IT. The emphasis
is on identifying system deficiencies. The purpose is to identify
targets where IT spending must be examined.
3. Require classification of
government-wide standard IT components to enable consolidation of
application development. The purpose is to set the stage
for centralised procurement of software and services.
4. Direct IT organisations to conform
with a technical reference model for reuse of technology.
The purpose is to establish favourable conditions for creating a
shared infrastructure that would save money.
5. Require the submission of a
"business case" for every project. It is through the
scrutiny of such business cases that the CFO intends to assert
budgetary controls. OMB officials have already declared that "771
projects in fiscal year 04 budget [for $20.9bn] are 'at risk' and
will not be allowed to proceed." So how do OMB budget examiners
sort out which of the 5,000-plus projects are at risk?
The so-called business-case forms have been
conceived by auditors for budget examiners. For each project, the
CIO of the organisation must fill out a form containing 132
detailed questions about the best IT practices conceived by
consultants.
The checklist covers topics such as
demonstrated fit with business strategy, linking to management
plans, support of a modernisation strategy, demonstration of
low-risk acquisition methods, proofs of strong project management,
closing of performance gaps, assurance of security over a project's
lifecycle, privacy protection, paperwork reduction, management of
risk-adjusted lifecycle costs and many others.
For good measure, the business-case forms
require documented confirmation of compliance with a long list of
regulatory and legislative measures.
To sort out which projects are at risk, the
OMB follows a routine procedure. First, each item for every project
is rated on a scale from one to five.
Second, all of the scores are added up,
regardless of their importance, though a poor score in a few
selected areas (such as security) will automatically disqualify the
entire project. If the scores fall below predefined levels, the
project is classified as being at risk and scheduled for further
examination. Projects with low scores will not be funded.
How effective is the OMB methodology in
delivering the stated objectives of savings through sharing of IT
resources? One way of judging that is to examine the OMB schedule
of fiscal 2004 government-wide sharing of IT.
If you remove unique Homeland Security
Department projects, you end up with only 0.21% of the total
federal IT budget as benefiting from synergy through sharing. I
guess that leaves the OMB, like many CFOs, with the
hatchet-on-a-pole method of IT budget pruning and management.
Paul Strassman is an IT
consultant and former chief information officer at the US
Department of Defense, space agency NASA and Xerox.