Monthly Archives: July 2010

I spoke to a group of IT managers a while back and the theme was consistent, “We need to cut costs and do more with less.” My immediate thought on the matter was that “some things never change”.

You might be surprised that many companies go through what I call a “tradition” every year, a “cycle of events” you might say. You can almost gauge the time of year based upon what comes down from the executive wing.

The cycle of events (assumes a calendar year budget and operational plan)

• In August or September we start developing our operational budget for the next year.

• In December (hopefully, but not always), we finalize the budget for the new upcoming year.

• The first three months of the new year, it’s smooth sailing. Or, as they say in Australia, “No worries.”    🙂

• In April of the new year, the first quarter results are released to senior management and Department managers.

Now the fun begins

Budgeting is not an exact science; any CFO or CEO will tell you that. However, many managers (including IT managers) try to be so exact that they budget much too tight to have the possibility of achieving their financial forecast for the new year, , , they leave no wiggle room or buffer to deal with unexpected surprises that might occur.

Another cause is that during the budgeting process, the departments are squeezed by upper management to reduce their budget expenses in order to achieve the forecast number the company wants to show for growth and profitability in the company.

I won’t go into how to budget so you avoid the problem of budgeting too tightly (that’s another article), but the message here is that what often happens after the first or second quarter results come in is:  senior managers wake up to find they are already “behind the 8-ball” in terms of meeting the company’s financial projection, , , they are at risk in achieving their budget.

The budget was so aggressive (so tight), the company is already falling behind the financial performance it had forecast.   NOT GOOD !!

Fairly quickly, the CEO and CFO begin to strategize the “corrective actions” the company can take to meet the year’s financial objectives. These financial objectives are the main drivers for the two highest executives of the company, and essentially the scorecard for their performance. So, you can see why they are very interested in doing things to insure the company will “make its numbers.”

It’s an uphill climb to make the budget numbers for the year if they are already getting “behind the 8 ball”, , , so they have to do something tangible and do it quickly.

The reaction
The easiest decision and often the decision made is to estimate the budget deficit problem and then go require each department to cut a certain percent of its ongoing operational expenses to help the company achieve the number. Additional approaches might include simply cutting “discretionary spending” for the remainder of the year. This usually includes things like stopping or limiting new hires, training and education, travel, contract work, optional projects, etc.

To employees of the company, this change of plans can be unsettling and appear to be caused by a lack of planning in the company. The actions result in issues that prevent their professional growth or impede their ability to be successful. It’s viewed as a “real bummer” and can adversely affect morale.

Anyone who has been in a company where a unilateral directive comes down to cut 10% of your expense knows the feeling of “having to do more with less”. What I forgot to mention is that even though the expenses are slashed, many companies still expect to accomplish the initiatives planned for in the original budget, , ,  truly a “get more done with less” scenario.

Get ahead of the power curve
Failure to anticipate this typical cost cutting cycle to pop up is a mistake. There are a few things you can do to offset this cycle of events:

1.  Place budget buffers in your plan. It will help you make your financial commitment every year. Surprises always occur in every operational year, and it gives you room to find cost savings in your department without having to cut muscle when the “cut costs” call comes down, , , and it will.

2.  Be proactive in implementing a cost saving strategy in your company. Companies always need to find cost savings. As an IT manager or CIO, you are in one of the best seats in the house to create change that can improve profitability and productivity. IT is literally a lever that can affect significant financial improvements within the company.

3.  Begin now in creating a management track record of prioritizing initiatives that improves profitability. As an IT manager, your actions create one of two images of you for senior management of your company. The first view is of a manager who understands business needs and proactively seeks ways to do things that provides tangible business value results. To the CEO and CFO, tangible value is almost always translated into some sort of financial impact.

Or, you are viewed as a manager who probably performs well and who is sharp technically but who doesn’t necessarily understand what it takes to run the company profitably. The right business decision often does not coincide with the right technical solution.

Let’s put it this way, the primary responsibility of senior management is to create and maintain a viable business. In most companies, that means they have to be profitable.  There are many parts of the company competing for a limited company asset called cash. Your company executives have to make tough decisions when the numbers aren’t being met. More often than not, the decisions end up impacting IT negatively because IT is viewed as a cost center and not an organization that can create financial leverage for the company.

However, there is light at the end of the tunnel, and it’s not a train coming down the track.

CIO’s and IT managers who establish track records of prioritizing IT initiatives that improves profitability have a very good opportunity of being hit less or even passed over when budget reduction requirements are passed out.

When you gain the trust of the CFO and CEO to make prudent decisions that are consistently cost justified and add value to your company, they view you as a business partner. Believe me when I say that they need internal partners who can help them achieve the company’s objectives, , , they need their IT department to be a true business partner.

Establishing a track record where you become known as a manager who understands the business comes first and helps target prudent technology initiatives that provide business value is extremely important.

Those who establish these track records tend to get more leeway when cost cutting measures are handed out. Put yourself in your senior management team’s shoes. Wouldn’t you be more lenient with someone who has consistently helped the company reduce costs or deliver some type of business value over time as opposed to the manager who always needs more money for technology projects that aren’t fully understood or appear to have little to no value?

I’m sure you would, and so would I.

I wrote a book titled, Technology Cost Saving Strategies. Let me give you some insight into it:

1.  Why did I write it? I developed the material for my IT Manager Institute class because I wanted to include a session that would provide insight and tools to help each participant recoup more than the cost of the entire program (registration fee, travel, lodging, and other expenses) within a short time of returning to their company.

Initially, I was going to discuss my “Top 20” list of cost saving opportunities. After spending time on the idea, reviewing my “archives”, etc., I had over 50 cost saving strategies that I have used to save companies hundreds of thousands of dollars. Granted, I didn’t create all of these strategies myself, but I’ve used them successfully to save money, some of them for many companies.

2.  Why is the book priced so high? Simple answer. I’m very confident in these 50 strategies because I’ve used them and I completely guarantee you will identify more than enough cost savings from the material to save your company thousands of dollars, no matter what level of IT management responsibility you have.

The book is intended to be a “thought catalyst” to help you start thinking aout possible cost saving opportunities in your company. The material can also be beneficial in developing your thinking about how to find cost savings, how to estimate the savings and how to go get the savings.

Not every strategy will apply to every company but every company will find multiple opportunities from the list of fifty strategies in the book.

All companies have cost saving opportunities. Some of the opportunities lie in “low hanging fruit” situations that are easy and inexpensive to get to. Other opportunities require investment and time but can reward you handsomely when the project is completed.

I have used several of these strategies in past CIO roles to save hundreds of thousands, even millions of dollars in companies. Yes, that’s right – millions of dollars in company expense reductions potentially lie in a few of these strategies for you just as they gave me the opportunity in past companies.

Remember, we are going after company expenses, not simply our IT expenses. There is much more opportunity throughout your company than in your IT budget. That’s why savvy executives will spend more in IT because they know there is more opportunity in other parts of the company than say a 10% reduction in the IT department, , , but they only recognize it if the IT department has displayed a sense of working on things that make a positive impact for the company.

Want to see your CEO or CFO’s eyes “light up”? Make a recommendation that costs very little but has tens of thousands of dollars in cost savings potential, or a technology initiative with a reasonable payback period that can improve EBITDA (earnings before interest, taxes, depreciation, and amortization) by half a percent or more and you will see what I mean.

IT managers and CIO’s who know where to look for cost savings, understand how to quantify the opportunity and how to go after it have a big edge on other IT managers who know how to spend the money but don’t appreciate the need to always be looking for cost savings in their company.

The need for reducing company costs never goes away, so I encourage you to take advantage of the need all companies have in this area. You may find as I have that your management team will ask you to actually spend more in IT if it allows the company to go faster because they value the leverage impact IT can have on the company’s financial performance.

Take advantage of the leverage your IT organization offers your company and “heads will turn”.

When you start thinking about your next great project, put your business hat on and think about it from a business vantage point, not from your technology perspective.

There are three key factors you must understand PLUS you must understand another part that is the most important part of all. Read on.

Three key factors

1. Cost –  Certainly, a key ingredient is going to be the cost of doing something. So, develop a good idea as to what the cost will be and be sure to include the full cost implication of your new venture, including start-up and all project costs as well as ongoing costs once the project is completed.
2. Effort –  What will it take in effort to get the new technology up and running? Time, resources, and the types of skills required all have important implications in delivering a new technology initiative.
3. Risk –  There is both risk in delivering something new, , , but there may also be risk in not delivering it or in delivering it later than is needed. Risk has a cost so be sure you understand the risk implications of your initiative.

All of these things are key in evaluating any new IT initiative, but they are still not the key issue you need to look at, because none of these elements will actually help you get the project approved.

Each of these attributes (Cost, Effort, and Risk) deal with “WHAT”, , , the key piece is “WHY”.

The “WHY” factor
The element of an IT initiative that gets your recommendation funded is the “WHY” factor. “Why do we need to do this?” is far more important than understanding what it takes to get it done, , , although you will need this information as well.

If you can’t explain “Why”, then just forget about getting approval.

Ask yourself the question, “If I don’t understand why something needs to be done, would I spend money and effort to do it?”.

Probably not, , ,  hopefully not, , ,  you certainly should not!!!

This is exactly how your senior manager thinks about any recommendation you make, , , if he can’t understand “why”, it is very difficult to decide to spend money and put forth effort on something.

The “Why” factor is all about cost justification and the benefits that will be derived by doing something, , , and these benefits should be a business benefit, not necessarily an IT organization benefit.

Two key elements of “Why”:

1. Cost justification –  something tangible has to be presented that makes the project worth the cost and effort.
2. Benefits –  A business benefit must be articulated. Remember, it is all about the business, , , not about the technology. You focus your discussion on the technology and the business manager who must decide to spend the money or not will simply not hear you.

Learn to focus your recommendations on “WHY” and you will see that it has much more impact in getting your recommendations approved. Develop a solid track record of delivering cost justified initiatives that have business value benefits and you will be golden. It will turn the “No” and “Maybe” decisions into “Yes” votes of confidence.

I saw an article on TechRepublic today about “future trends in IT to watch” by Jason Hiner. His information is usually pretty good and is worth noting as he has actual operational management experience as well as being an editor in the publishing business.

Below is an excerpt. To read the full article, CLICK HERE

1. The consumerization of IT –  More and more pressure on It as corporate employees continue to use more of their own technology and resist corporate standards
2. The borderless network –  The completely isolated and protected network is no longer a reality in today’s business environment.
3. The cloudy data center –  Many companies of the future won’t have a data center, , , it will be in the clouds somewhere.
4. The state of outsourcing –  Many IT employees may work in your building or work virtually on your technology, but they will be paid and managed by an outside company.
5. The mobilization paradigm –  Smartphones and iPads are just the tip of the iceberg of what’s coming.

These are all issues that face our IT organizations and some of the things we need to think about, , , the reality is that most companies will deal with one or more of these issues in the next two years.

Project failure usually means the project missed it’s delivery date or exceeded the planned budget. It could also mean it did not meet the client’s expectations, but we will focus on delivery timeframe and budget in this article.

Before we start, just a bit of background: I’ve been involved in hundreds of software installation projects in my career. The ten reasons listed below are what I’ve seen as the most prevalent causes of failure.

Software installation projects fail for many reasons. Most of the time, failure can be prevented if you are aware of what to watch out for. Here are ten key reasons why many software installation projects fail:

1.  Failure to check vendor references
One of the easiest things to do but is often bypassed is to check a software vendor’s references. Ask for a complete list of references and talk to or visit several clients to validate what you are trying to accomplish is actually being done by their clients. Solid client references equals credibility in my book.

Ask for clients who are actually using key features of the software that you have deemed important for your business. Too many times, new features are described to be part of the vendor’s functionality but when you start implementing the software you find it works very different than how you thought it did. A client reference will often provide valuable insight that helps you understand these nuances.

Take time to check critical feature/function and talk to clients about their implementation experience with the vendor. If there are problematic issues, learning about them before starting the installation is when you want to hear about these type of issues.

2.  Unrealistic expectations
Often, operational units of the company are dead set on certain functionality without even understanding what and how the feature actually works in an operational setting.

Another scenario is the concept that the new software will eliminate all of our old problems and make it all better. More often than not, there are no silver bullets that solve all your problems, , , or if they do, they create additional issues you must deal with. You want to try and understand these dynamics early in the project.

A third situation exists when users want so much feature/function, they don’t realize the amount of complexity they may be introducing into their work environment.

Take a close look at what the expectations for a new software program are and be sure the due diligence investment is made to fully understand the ramifications of these decisions. Learning these implications at the front of the project is much easier than learning mid-stream or at the end of a project, , , that’s usually painful.

3.  Lack of planning
Counting on the vendor to handle the project is the same as the ostrich burying his head in the sand when trouble approaches. It doesn’t work.

The IT department and the user departments must be fully involved in the project. Clear tasks should be developed with specific responsibilities, timeframes, and prerequisites.

To insure success, there should be a project leader on both the vendor side and from your company. Planning is a dynamic process, not an event. Once the project is planned and started, you have to focus on it consistently and adjust as needed to meet your stated objectives.

4.  Lack of testing
The quick way to install any software is to simply load the software, build the files, and “turn it on”. That’s also the quickest way to disaster. It may surprise you that this actually takes place in many companies.

Testing and validating your assumptions is a critical step at every juncture of the installation. You probably need to:

• validate master file data
• balance and verify transaction data
• test certain features to validate configuration settings
• test certain operations to determine operational processes to use for productivity and best practices in using the new software.

Test plans should be defined so you know that every aspect of the new program works like you think it should when you “go live”. Otherwise, expect lots of surprises, , , and these surprises are generally not good ones.

5.  Lack of committed resource
Lack of committed resources can occur at any stage of the project. It can occur from the vendor, from the User Departments, or even from your IT Department. It can also result from unforeseen circumstances such as illness, reassignment, change of business priorities, etc. Losing a key resource can create a huge obstacle to the project and jeopardize timing and cost.

When developing the project plan, be sure to work through the staffing plan for both critical skill and timing of when those skills are needed. There is usually some flexibility in a big project but watch this one closely.

The project manager needs to anticipate needs constantly to insure the project is getting the right resources at the appropriate time to keep the project on track.

6.  Not establishing specific milestones
Large projects need to have specific deliverables that will be met at certain timeframes, , , key milestones help you gauge performance and stay on track. Part of the reason you do this is to help the team realize the success being made but also to set a framework that helps you manage big bottlenecks and to get certain prerequisite steps completed that position you to move forward.

7.  Unaware the project is getting off schedule
You can’t be aware of everything taking place, or not taking place if you aren’t having regular project status meetings. They don’t need to be long drawn out affairs but you need to validate on a regular basis (I like weekly) that people are getting the things done that they are assigned to get done. Otherwise, there is a high probability the project is getting off track and will not meet its due date.

8.  Not anticipating the bottlenecks
Bottlenecks are everywhere. A good project manager knows how to sniff them out and to anticipate issues that may lead to potential bottlenecks. Eliminating one bottleneck leads to two others which might even slow the project down more.

Great project managers are really good at identifying bottlenecks  and proactively putting things into motion that either eliminate them or reduce their impact to the project.

9.  Insufficient training
Training on how to use and manage a new software application is critical. In large complex applications, configuration management is especially important because the setup can have all kinds of ramifications and can even cause a department to lose hundreds of hours of productivity or large amounts of data.

You should include your smartest and best people in the configuration setup and management training and limit it to just a few people. You must determine how business application decisions will be made and who will implement such changes when it means changing the setup files or certain data definitions of your master files.

Large companies will have data administrators who are accustomed to these issues, but small companies are often surprised by the amount of work, knowledge, and effort required to manage a new software application.

10.  Plan that is too aggressive
Strong project managers know to build in buffers that help them deliver a project on time. They know that things will happen and that you are going to need extra time and extra money at some juncture of the project.

Projects that are built with schedule and staffing with expectations that everything will go just as planned are doomed for failure from the start. Murphy’s Law of “if it can go wrong, it will go wrong” was probably created by a project manager.

Summary
There are many other reasons that will cause a software implementation project to fail; but if you address this list of ten, your odds of a successful project will be very good.

I was talking with a company CFO about his IT challenges and one of the points he made rang so familiar. It’s something I’ve seen throughout my career.

His comment was, “I’m actually eager to spend money in IT, but it is frustrating when our IT Director asks for approval to hire a new employee or to buy new technology but doesn’t provide any justification for doing it.”.

This is something that occurs all too often.

Another comment I’ve heard from IT managers and CIO’s throughout my career is, “The company won’t spend any money.” or “I can’t get my projects funded.”

Interestingly, all of these comments are related and arise from the same issue.

IT managers who come from heavy technical backgrounds aren’t always taught the need to justify new technology expenses. A key initiative may appear to be totally obvious to them that the company needs to do something, but I can tell you that it is definitely not obvious to most CFO and CEO’s.

I can also tell you that I’ve never found it terribly difficult to get my IT initiatives funded. There are two very simple reasons for it:

1. I know that every initiative needs to be cost justified so they are.
2. My initiatives are always closely tied to the company’s needs and provide quantifiable business value.

Number 2 is not something I say lightly.  I make it a point to develop strategies and budgets that support the business needs and objectives of the company. I also communicate these plans to senior management of the company and gain their endorsement by validating that “these are the things we should be doing”. More importantly, I show the business value that the projects will deliver.

Cost justified initiatives that have understandable business value usually get the approval nod.

Senior managers have one goal that’s well above any other and that is to achieve the financial commitments made to their Board of Directors and stockholders.

Unexpected spending runs contrary to this primary mission. Most of us have a certain amount of distaste for surprises and senior executives are no different.  It’s a lot easier to add new staff when your operating budget anticipated the possibility of such a need and is included in the budget numbers.

I never recommend hiring a new employee unless there is ample justification. In fact, I’ve been known to be more reluctant to hire a new employee than some of the senior managers.

The key message here is that when you ask for something that’s not budgeted and planned for (and this will be rare in my case), my senior management team knows that I’ve thought through the issue and have plenty of justification (cost, benefit, etc.) that warrants the additional expenditure.

In addition, they know that if it’s above the budgeted operations plan, I’ve determined how to make up for this extra expense so I still make the plan.

Managers who don’t anticipate the “Tell me why” comment from their CFO or CEO will have difficulty in getting what they want.

It’s not the senior manager’s job to know why we need more IT staff or new technology. That’s the senior IT manager or CIO’s job, and those who can’t articulate the justification are the ones who make statements like, “The company isn’t willing to spend money in IT.”

I’ve joined companies where the outgoing CIO told me that he could not get anything done for lack of money. All I can say is that I never found it to be difficult at all to get those same senior managers to fund reasonable initiatives that helped the business.

The scenario I usually find is that there is plenty of money to spend on the right things. The problem is that the former technology managers were spending too much for things that were not critical to the business or that did not add real value. They were buying technology, , , not approaching technology as a business manager would and buying only what’s needed to help the company be successful.

If your senior management team isn’t willing to fund your requests, , , stop for a moment, step back and take a hard introspective look at the situation and ask yourself, “Why is this the case?”.

Be objective and remove any self imposed desire or emotion from your thoughts. Put yourself into the position of the business owner as if the money were to come right out of your own pocket. Would you still be doing all the things you are spending money on or would you revise your initiatives and do something different, , , especially, if payment came out of your own pocket?

I’ve performed due diligence on IT organizations of companies we were about to acquire and I’ve conducted IT assessments for many companies in a consulting role. It’s amazing how many times you hear comments like “reluctance to spend on IT”, “can’t get funding for our IT projects”, etc.

When I hear these things, I take a very close look to determine if the IT organization is really in sync with the business “owners” (senior management team). In most cases, they are not.

It’s not that IT managers do not want to do the right thing for the company. It has more to do with background and experience. For example, if a young CIO comes from a predominately network and infrastructure background he tends to focus in improving the network and infrastructure. All the while, the real problems may be with the business applications or Help Desk.

We tend to focus on what we know. Unfortunately, most of the people that are promoted to IT manager haven’t really been exposed to techniques of how to manage a business effectively. They are predominately technicians by trade, not business managers.

When you become a manager, it’s more about the business than about the technology. Technology is the means of making great strides and improvement, but without a real business need the best technology solution can be a waste of money.

The next time you prepare to ask for more money for more staff or new technology, ask yourself these questions so you know the answer when your CFO or CEO asks you:

1. What is the benefit?
2. What is the cost justification?
3. What will not making this investment do to us?
4. Do we have to make the investment now or can we wait?
5. Is it budgeted?  If not, why not?

If you have solid justification that meets the needs of the business, you will probably find yourself getting more of what you ask for.

Create a track record of making wise investments in the initiatives you recommend and getting tangible results from them and you will find the scrutiny and analysis of your recommendations become less and less. It’s a matter of trust and knowing that you only do things that truly benefit your company.

It’s all about earning trust and respect by producing positive results.