How to convince business that IT is not a cost center?

Question

Apart from many cost cuttings that have taken at my workplace (a non-IT, financial company) for the past 18 months, something that has affected developers like me directly is that new projects have been shelved and few existing projects are being outsourced (have been told that outsourcing makes the cost variable). All these sometimes at the cost of layoffs. I sometimes have to justify business managers the need to have new projects or to continue in house development of software. I have never been in this situation before and find it extremely difficult to convince business managers who think that IT dept is just a cost center (which it is...thinking in a traditional sense). If you guys have something to share that would be good. Thanks.

Answer 1

Like everything else, you have to show a benefit to the business. You could say "we need clowns! Every office needs clowns in this day and age", but unless you add "to improve staff morale and therefore productivity", you'll rightly be shown the door.

There's no reason why IT shouldn't be considered in the same way. If projects are being cancelled, perhaps there was no real need for them in the first place. (like many features of dev projects, sometimes you cut them from a release even though they are "essential", and when you later come back to them.. you realise they were pretty rubbish)

So - you will have to show actual, tangible benefits. For example, writing more code to help people do their jobs - possibly they don't need it as they do their jobs perfectly well at the moment. Suggesting you port everything to Linux and remove your dependency on the vast sums you spend on Microsoft licences, you might find yourself in a pilot project to investigate the validity of such a move.

Answer 2

A good point for in-house development is that the software created will be customized absolutely for the needs of the company. Furthermore, the inner workings of the software will be fully understood by the IT department. If some problem arises, it can be fixed quickly and with low cost (I know, the latter is arguable and depends on the situation).

Answer 3

Well if it's any consolation, your not alone. Most shops only see it as a cost center instead of looking at it as a investment vehicle. That's sad as in these cases the shops are often not using IT to it's fullest potential.

Tell the managers what has been done to date and how it has helped the organization's cut costs, increased the number of services delivered and/or time to deliver them and how the current software projects could do even more.

Discuss their current issues and how it could be solved with your team. Work up Return on Investment (ROI) scenarios with them so they can see it's not just a sunk cost but a real business investment that will help bring competitive advantage to their business. Go back and do this for some of the existing projects that are possibly on the chopping blocks.

Business manager's understand $ and how they get their job done. If you can approach them with your projects on these two items in a positive light they might reconsider.

Good Luck!

Answer 4

get the hell out of there I would say.

it's sad but management rarely cares about long-term goals. they look at profit and loss statement and take off any expenses that won't hurt profit in following 3-6 months. for all they care is to cash out options, some nice bonus and move on to destroy another company.

I wouldn't waste my energy of dealing with that non-sense and find employer that thinks long-term. IT is the most important cost center of any business. you can have bad support department or bad HR but when IT is bad, then company is practically dead.

Answer 5

You also need to convince management that the processes that are truly unique to your company such as workflows for your sales team or product development methods that your staff has developed are the ones that need to be considered worthy of custom implementations. This may mean using SalesForce.com or other platforms, but the steps for these processes are not found else where and should be modeled by the company's IT staff.

Billing, general ledger and other accounting functions are problems that have already been solved and commodity products should be used to implement those processes with no customizations. Payroll should be outsourced. HR as well. Reporting tools should be placed in the hands of power users but report proliferation should be controlled by management so you develop a library of several hundred reports that break with the next upgrade of Cognos.

Answer 6

The problem is that your mismanagers have fallen for the tripe out of the Harvard Business Journal. In particular, one book titled Does I.T. Matter. I recommend that you get a copy and figure out specific counters to the hypnotic (at least to the clowns that end up in mismanagement) messages in that book. My guess is that this mismanagement fad will take a generation to fade back into irrelevance (like TQM or ISO 9000) leaving lots of wreckage behind. If you have a university nearby with a business program, look for the HBJ in the library and you should probably devote an afternoon every few months getting some idea of what new idiocies are going to be coming from your Pointy Haired Bosses.

Answer 7

A lot of times, you can convince the boss that developing in-house will produce a higher quality product. But you have to remember: the boss has no personal attachment to your code. What matters is selling a product. If it costs 5 times as much money to develop a product in house than overseas, you need to be prepared to prove that you'll sell 5 times as much product to recover the cost -- I don't think you could do that. I don't think you can even prove that a high-quality product will sell more than a buggy one.

If you convince the boss to spend another $5M to develop in-house, you need to offset the cost by a) firing a floor of employees or b) letting the company fold up. What's the sensible option here?

At the very least, the most that you can tell your boss is that quality is directly proportional to cost. I've worked with offshore outsourcers, and in my experience, the lowest bidders produce garbage. I had the opportunity work on a project where the offshore developers produced really amazing, high quality code -- and they only cost $50/hr per dev. Maybe all it takes is for you boss to get burned a few times by cutting corners before he realizes "holy crap, I guess developers really aren't commodities.

Answer 8

Unfortunately, solutions that reduce costs within IT do not change the view that IT is a cost center; it only makes it a somewhat less expensive cost center.

Learn how to do an accurate and convincing cost benefit analysis. This link can help you get started. Also, learn something about preparing a pro forma for a large project. The pro forma models the anticipated results of the transaction, with particular emphasis on the projected cash flows, net revenues and (for taxable entities) taxes. (from Wikipedia) Templates are available.

You should include compliance and risk management in a proposal and cost justification, but do not attempt to quantify customer satisfaction and retention. My experience is that management will only accept values like that from the big firms that do these things.

Do not use any technical word, acronym, or phrase that has not already appeared in something like CIO magazine. You will lose your audience if you start to make them feel ignorant. Nobody likes that.

Finally, be aware that a success could mean people will lose their jobs. Most of the time, a project will be cost justified because fewer people will be needed to do a task. Being responsible for that can feel kind of unpleasant.

A good project management division should be doing this stuff already, but they are not IT, and they don't always know what is possible or how to quantify it. Getting to know some of those people helps; it is the easiest way to get your proposals before management through an established channel.

It does sound like a lot of trouble, but it does work quite well, especially if you have been studying the politics in your organization and pick the right people to convince. It doesn't matter how big or small your employer is; anytime three or more people get together, there are politics. It helps a lot if you remain aware of it.