The term “black swan” is a popular metaphor used to describe an unpredictable or unforeseen event that results in extreme consequences. Black swan events are typically rare, but for IT services and projects they have become too frequent for comfort.
Research from McKinsey reported a staggering 17% of IT projects go so bad that they threaten the existence of the company. It was a poorly planned IT modernization effort that contributed to the 2002 bankruptcy of Kmart.
Additionally, McKinsey reported on average, large IT projects run 45% over budget and 7% over time, while delivering 56% less value than predicted. So, what is happening? Why are competent IT leaders consistently losing to negative risk?
Majority of IT leaders struggle to accurately budget and forecast
A recent survey of IT leaders sheds a little light onto this predicament. Research shows it might be the “unpredictable” part of the equation that significantly contributes to cost overruns and budget surprises.
62% of IT leaders say they can’t accurately budget and forecast costs, and 78% say they can’t accurately budget and forecast demand.
Despite an inability to create precise IT financial plans for IT projects and services, 68% still say delivering business value is their number one priority.
Unpredictability limits IT value
As IT leaders step up to the stage in 2017, they lack a critical factor for success: an approach to IT budgeting and forecasting that enables them to credibly align IT investments to business strategy.
The prevalence of IT leaders unable to accurately budget and forecast is alarming, and the research shows it’s a problem across both IT services and IT projects.
Without the ability to create trustworthy plans, IT departments can’t control capital, run, and carryover costs for projects. Nor can they model the impact of IT service demand, thus resulting in unpredictable spend that starves other services and projects of funding.
When you talk with IT leaders struggling with this problem, it becomes clear the obstacle is not a lack of data, but rather a lack of tools to bring the data together in a way that enables better decision making.
Last year, Stephanie Rendon, Director of Finance and Information Management at CHRISTUS Health, found herself faced with this very situation. Rendon and her team spent countless hours validating and wrangling spreadsheets from budget owners, rather than focusing on the analysis of the financial data needed to add value to the plan.
Rendon shared, “One of the primary challenges we face in IT financial planning is creating a single view of our investments across resources, services, and innovation." Rendon continued by pointing out that because her team couldn’t provide a combined view of operational and investment costs for both projects and services, they were unable to justify the inherent value, as well as properly assess the effect demand has on specific areas of the budget and the impact of real-time adjustments.
Like many IT leaders, Rendon couldn’t accurately budget and plan because the data she had lacked sufficient granularity and was spread across multiple teams and disjointed spreadsheets. Unpredictability in IT spend skyrockets when your IT financial plan cannot be viewed in a single system of record.
To learn more about how CHRISTUS Health turned their planning process around with Apptio IT Planning, download the full case study now.
Improving IT services and projects with better decision-making tools
This latest research and infographic exposes a glaring problem limiting IT’s ability to deliver value to the business through projects and services. The good news is it also opens up a big opportunity for a dramatic improvement in how IT provides value to its business partners.
James Pleis, Cargill’s IT Finance Lead for Global IT has seen it first-hand. “With Apptio IT Planning, not only do we become more accurate in what we forecast and what we do, but we can finally answer business questions, like ‘Are we doing the things that we said we were going do?’ We can have more value-based discussions. That’s where the opportunity lies.”
Download the full Cargill case study and find out how they uncovered big opportunities and saved $20 million in IT spend.
With better financial planning, IT can deliver services and projects to their business partners on time and on budget, with the promised scope and capacity.
CHRISTUS Health and Cargill join the ranks of thousands of other companies struggling to drive business value through IT services and projects.
It’s time to shift IT away from being a black swan function to being a value-creation function. Building more predictable IT financial plans is a step in the right direction. The best laid plans don’t always have to go awry.
Ready for your IT strategy to deliver value to the business? Download the executive brief, Nailing your IT Financial Plan now.