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the director should delegate the action items and get them completed
quickly, to experience the benefits in the subsequent month™s numbers.
• Give senior direct reports (usually operations and applications man-
agers) budget responsibility for their areas and hold them accountable
to hitting the numbers.
• When large variances occur, take fast action, as it takes time for
changes to be ref lected in the numbers. For example, if a vendor agree-
ment is modified, it may take 30 days to finalize the agreement and an-
other 30 days for the charges to take effect.
• Dithering and delaying decisions and ignoring high variances is a recipe
for disaster. The IT director has a fiduciary responsibility for the de-
partment and must make the necessary corrections to perform as prom-
ised to the rest of the management team. Delay may lead to senior
management or the IT steering committee making unilateral decisions
without the involvement of IT.
• If you are anticipating a large negative variance in the budget, enlist the
CFO as soon as possible to work with you to help correct the situation
and explain it to senior management and the IT steering committee.


Handling Out-of-Budget
Business-Unit Requests
After the operating budget is set, business-unit requests that might impact
the operating budget need to be discussed in the face of other investment
decisions the company is trying to make. While, as noted above, meeting the
committed budget is important, over the course of the year budget assump-
tions may change and some common sense and f lexibility can be necessary.
460 The Back Office: Efficient Firm Operations

Business units will often request projects that were not on their agendas
when the budget was completed. As outlined in Chapter 15, projects should
be evaluated on a business case basis and, if approved, executed. Large proj-
ects will likely hit the capital budget if approved and not affect the operating
budget. Business-unit project requests should be documented, along with a
business case, and sent to the IT steering committee for review and approval.
Every new request must be considered in relation to the current operating
budget and the capital budget. Possible outcomes include:

• Project is covered by the current capital budget and approved.
• Project is not covered by the current capital budget but is higher prior-
ity than another project. Downgrade the priority of the second project
on the list of backlog projects and replace with the newly approved
project.
• Project is not covered by the current capital budget. It is a high priority.
There are no other projects to displace. New funding for the IT group is
needed. The business case is sound, so additional funds are approved to
complete the project, and the ongoing negative capital budget variance
is approved (i.e., the capital budget is increased or some other nontech-
nology investment is displaced).
• Project is not a priority and has a substandard business case; therefore,
it is not funded and further consideration is not necessary.

IT budgeting and cost containment practices are critical skills for the IT
manager to master. Developing a sound budget, which provides a road map
for managing the department and can withstand business changes and eco-
nomic changes, is a challenge. Additionally, anticipating, understanding, and
forecasting the known variables about the business distinguish an average IT
director from a star performer. The average performer is reactive to the en-
vironment while the top performer has assessed the reliability of key as-
sumptions and the associated risks and planned contingencies accordingly.
Concepts presented in the chapter, such as prioritizing discretionary
spending areas and keeping this prioritized list handy, encourage the IT
manager to act quickly and decisively to negative budget variances. Finally,
ensuring that IT assets are deployed against revenue generating and cus-
tomer-facing activities help ensure that budget dollars are f lowing to the
highest value activities. Companies whose IT managers routinely ensure
this, as well as the business value of IT investments, see much higher pro-
ductivity and profitability from IT investments.

IT Steering Committee Concept
The IT steering committee is composed of senior IT management and senior
business leaders who meet on a regular schedule to review, discuss, prioritize,
461
Information Technology

and resolve IT projects, issues, and strategy. Used properly, the IT steering
committee is one of the most effective tools for creating the high-performance
IT department. The steering committee conveys business priorities to IT so
that IT management can direct resources to the highest priority business
functions in real time. The committee provides approval, oversight, and
high-level steering of projects, as well as finalizes project priorities based
on IT demand management analyses. It also reviews proposed operating
and capital budgets, IT operations service levels, and IT performance met-
rics. The committee has the membership and authority to facilitate the res-
olution of any organizational roadblocks to IT effectiveness. Perhaps the
most important responsibility of the committee is to improve communica-
tion and business relationships between key line personnel and IT man-
agers, facilitating better informal communication between groups outside
of the committee. This chapter outlines the typical charter, responsibili-
ties, membership, and ongoing operations of a properly functioning IT
steering committee.
Exhibit 17.10 illustrates the communication f low and outcomes of the
committee. Exhibit 17.11 displays the demand management process. The IT
Steering Committee meeting is on Tuesday™s.




Business Units IT
• Business priorities • Project updates
• New programs • Project requests
• Results of business • Capex requests
• Technology needs • Competing priorities



IT Steering
Committee




Outcomes
• Business and IT alignment
• 4“8 week game plan
• Project approvals
• Solved issues
• Reprioritization of work


Exhibit 17.10 IT Steering Committee Communication Flows
Inventory of
all potential
projects




Approved
Project Project
In process
Commission
Project
Project
project
definition and completion
prioritized
projects
prioritization
approval
inventory
proposal and review
projects




462
Assess IT
and corporate
capacity




Exhibit 17.11 IT Demand Management Overview
463
Information Technology

Summary
IT is difficult to manage for most companies and even more difficult in pro-
fessional service firms because of high expectations of management, staff,
and clients. Here is a checklist of specific steps across five broad areas that
can be taken in dysfunctional IT departments to improve performance:

1. Improve IT management:
• Implement an IT steering committee as a “virtual CIO” to provide
advice and leadership to the IT director and help speedily resolve is-
sues between business and IT.
• The committee should be composed of the top five to ten senior
managers in the business; they should be required to attend every
meeting.
• Upgrade management talent in the IT department by hiring the
right director.
• The IT steering committee should source the candidates and hire the
new director as a senior manager instead of a senior programmer.
• Clean up the IT organization chart. This means no “f loating boxes”
and clean, clear lines of responsibility between applications man-
agement and operations without gaps or overlaps in coverage.
• Every staff member should have a shorter-than-one-page roles and
responsibilities document posted at his or her desk.
2. Add basic project management disciplines:
• Establish a single, well-documented master inventory of projects.
• Determine the ROI or business benefits for each project.
• Projects that do not improve revenues, reduce costs, or improve
control over the business should be ignored.
• Prioritize projects by their benefits, difficulty, and adequacy of the
current systems, generating a force-ranked list.
• Determine the intrinsic project capacity of the IT department.
• Limit the number of open projects to that capacity.
• Expect this number to be shockingly small and disconcerting,
but be comforted by the notion that the projects will actually be
accomplished.
• Assign a specific person from the IT department to be responsible
for the management and execution of the project, and have them re-
port progress in a five-minute update to the IT steering committee
on a weekly basis.
464 The Back Office: Efficient Firm Operations

• Each team lead must develop a clear work plan for accomplishing
the assigned project, with work tasks, time lines, deliverables, de-
pendencies, and required resources clearly defined.
3. Manage vendors:
• Determine which vendors are good, productive partners and which
are sapping the IT budget with overbloated fees and unproductive
products, services, or billable hours.
• Migrate business to the former and dismiss the latter.
• Insist on favorable contracts and pricing in return for vendor
exclusivity.
• Migrate the technology platform in the department to homogeneity
to facilitate ease of management and project execution.
• Negotiate hard with vendors for best pricing, and aggressively man-
age them after the sale.
• Ask vendors how they measure their own client-satisfaction perfor-
mance internally, and require them to produce a report card on
themselves at reasonable intervals.
• If they don™t know how to measure themselves internally, get them
out.
• If they do, hold them to the periodic reporting and help them im-
prove their services with clear feedback.
4. Fiscal management /budgeting:
• Recognize that most companies must generate $10 in revenues to
cover every $1 spent in IT.
• Build a reputation for saving the company money by “making do”
and reserve capital expenditure requests for must-have items. Al-
though more difficult, IT directors must become a business resource
for the senior management team by suggesting ways to lower the
company™s overall operational costs through use of IT.
• If budget variances appear, proactively explain them to senior man-
agement and provide fair warning for surprise capital or operating
expenditures.
• Build trust with the CFO by avoiding typical agency issues that ac-
company the budgeting process that give IT teams a bad reputation
for being focused on the constant acquisition of new toys.
5. Improve relationship with the business:
• Reduce finger pointing between IT and business users by initiating a
“seat rotation” that has key IT staff members sitting with the busi-
nesses they support one to two days per week.
• IT director should have a quota of two lunches per week with busi-
ness-unit managers, functional managers, or members of the IT
steering committee.
465
Information Technology

• Add effective business user relationship management to the appraisal
process for all IT team members.

With the right leadership in place, and enthusiastic engagement from the
senior management team, the IT department can lead the company in man-
agement excellence.

NOTES
1. Peter Ustinov, Quotable Ustinov (Amherst, NY: Prometheus Books, 1995).
2. R. Mack, Creating an IT Strategy: An Alternative Approach (New York: Gart-
ner, 2002).
3. Gary Hamel and C. K. Prahalad, “The Core Competence of the Corporation,”
in Harvard Business Review, Business Classics, Keys for Managerial Success
(Boston, MA: Harvard Business Press, 1990), p. 64.
4. See note 3, p. 68.
5. Louis Henri Sullivan, The Tall Office Building Artistically Considered
(Philadelphia: JB Lippincott and Co., 1896).
6. www.dictionary.com (October 16, 2002).
7. Potter Stewart, Associate Supreme Court Justice, Jacobellis v. Ohio, 1964.
18
Real Estate and Facilities
K. TODD PHILLIPS


Always bear in mind that your own resolution to succeed is more important than any other.
”Abraham Lincoln1

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