So you thought IT managers had nothing to do with financial insights? Think again!
When Robert Frost wrote this poem Never Ask of Money Spent /Where the spender thinks it went/Nobody was ever meant/To remember or Invent/What he did with every cent little did he realise that the world of finance is not just the responsibility of the accountants but also closely linked with other groups.
The world of business as we all know today has changed the rules for everyone. Suffice to say that knowledge of finance and accountability to the same is the responsibility of every manager in an organisation and the IT manager is no exception to this rule.
The irony of the education system is that it does not incorporate the knowledge of finance in its technical courses. Like Frost, most assume that the world of finance is best left to the accountants and finance professionals. However, the reality seems different as every manager in an organisation, including the IT manager, is expected to have knowledge of finance. Most organisations, even today, view IT investments as a black hole, in which investments are made, but nothing seems to come out of it. Since investments in IT today, are considerably higher than many other areas of business and this further strengthens the case for IT manager to have better knowledge of finance.
It is but true that most IT managers dealing with the CFO or the finance department are faced with certain weird experiences. Certain finance related jargon that the CFO spells out, for instancerevenue and capital budgets, RoI, depreciation, etc, may sound like Greek and Latin to IT managers. IT manager may question, Isnt it a finance guys job? However, it is crucial for every manager to understand the finance language to do his job better, particularly, given that IT revolves around huge cost and expenses.
In most organisations, IT managers not only work in very close proximity with the CFO, but most often report to the CFO. Hence, it becomes crucial for IT managers to speak the CFOs lingo. If this fails, then the relationship is like a marriage gone sour, since the IT head thinks the CFO fails to understand the strategic importance of technology and the CFO thinks that the IT manager does not manage the budgets effectively and always wants more money. In the interest of the organisation, the IT manager takes the high road and learns the language and basics of finance.
Let us address examples of two very basic concepts of finance that an IT manager should be familiar with. Of course, there are many other concepts that are not only helpful, but absolutely essential for IT manager to be aware of, and that knowledge can be gained from doing a relevant course or additional reading.
Towards the end of every financial year, the IT manager, in consultation with the CFO, commences work on the next financial years budget. The basic budgeting concept needs to be understood well to make necessary budget decisions and in convincing the finance department about the required IT investments.
Knowledge about finance will help in orienting the finance department about various categories of IT expenses related to hardware, software licences and so on.
It is essential for IT managers to be aware of the accounting treatment adopted by the finance department for certain items, but also to review past performances of the department and future expectations from the rest of the organisation, as a guide to drafting a revenue budget.
Personally, I perform monthly, quarterly and semi-annual analysis of the revenue budget against the actual performance. This helps me in my planning and proper allocation of resources.
Any noticeable deviation from the budget needs to be addressed by the IT manager in consultation with the CFO. The CFO and finance department are there to help you and the IT manager must leverage this.
Any new technology deployment made to address a business issue, calls for the IT manager to justify the investment in terms of the benefits it can accrue in consultation with the CFO or other senior management.
Particularly, the Return on Investment (RoI) language is much appreciated, which is calculated by dividing investment by the cost of the investment and the result is expressed as a percentage or a ratio.
If an investment does not have a positive RoI, or if there are other opportunities with a higher RoI, then the investment, according to a finance or management personnel, should be not be undertaken. Although personally, a few years back, I did not conform to this concept for IT.
Many a time, the rule of RoI has become my solace for obtaining approvals for larger projects. This is a useful tool, albeit complex at times. In my view, this idea in IT-related projects is somewhat tricky, since in many of them, the actual gain from an investment may be difficult to prove.
But understanding of this concept as an IT manager will definitely help you in securing support and funds for the projects. The moment the IT manager starts to speak the language of finance with the CFO, half the battle for harnessing the CFOs support for the project is won.
The IT managers job is not as easy, since in most organisations today, small or large, IT-related project financing is based on RoI.
Necessity is the Mother of Invention
Over the years, I have come to realise, that the best way to harness the support for IT investments from both the CFO and other senior management, is to first ensure that all stakeholders are involved and agree upon the project. This is also good IT Governance practice. The IT manager needs to understand the business (and not just technology), and the strategic business goals of the organisation. Without this understanding, the IT manager will never be able to garner the support of the CFO or other senior management, resulting in failures of funding for most IT projects.
The IT solutions and investments in technology that are recommended by the IT manager need to align with the businesses strategic goals. Most IT managers in large organisations today will realise that the role of the CIO, which is the dream destination of every IT manager, is gradually changing to be more of a bridge between business and IT.
From my personal experience and interaction, I vouch that the CIOs speak more in terms of finance and business, than technology. This would make a perfect blend of finance and technology resulting in a happy marriage between these two business arenas.
* In turbulent times, IT is expected to do more with less which is decent and reasonable
* Finance controllers do find certain learnings to be critical for IT managers if they have to drive business results
* Prima facie, finance departments expect the IT teams to evolve simplicity in reporting and data flow having relevance to financial jargons, with clear dashboards.
Berjes Eric Shroff is Senior Manager IT, Tata Services Ltd.