Financing IT versus managing assets

1st February 2011
Simon Baker

There’s something smelly about financing IT projects in return for a contracted return on investment. It’s not that there shouldn’t be some expectation about return. There absolutely should. But given the uncertainty and the risk, isn’t financing IT projects more like a funding venture? Isn’t it more about managing risk to achieve reward (the desired outcome or better) rather than managing cost and schedule? If it is, then the question to be asked more often is: What types of benefits are we seeing for this round of funding, and does the potential return at this stage warrant additional funding? And not: Are we on schedule and within budget? In this case, the IT department needs to replace specifications and sign-offs with measurements of risks and outcomes.

If funding an IT venture is an investment then clearly the company is the investor. If a business sponsor commissions a new product (application, Web site or something else), that business sponsor becomes the investment manager. As such he is responsible for the business outcome; he is continually challenged to justify the venture in terms of costs against the realized and potential benefits throughout its lifetime; he is ready to bear the costs directly, i.e. he manages the budget and does not let IT manage it on his behalf. With ownership of the venture and responsibility for its outcome, the business sponsor is more likely to become an active participant rather than a passive customer with an eye on the contract with the IT department.

In Rich Dad, Poor Dad, Kiyosaki defines an asset as something that provides positive cash flow. He says many things we consider to be assets are actually not assets. If you own your home there’s equity in it but it’s more likely to be an expense than an asset because you’re paying a mortgage, council tax, utilities, etc. Your home isn’t putting money in your pocket. If you own property, however, and rent it out profitably then it’s an asset because it’s creating cashflow for you.

Following delivery, the business sponsor manages the product as an asset of the company and performs ongoing cost-benefits analysis to help realize the business case over time and to know when to retire the product. In a product stream, the business sponsor is effectively running a ‘small’ business within the company, perhaps within a portfolio of products. A portfolio of assets can only be created if we build the right things. The effort and expenditure in IT must be justified by emerging evidence of business and operational benefits. Pandering to the business people with the most influence, that just want their ‘darlings’ built is misappropriation of funds. If IT investments are not to become liabilities then we need to build the things right.

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