Pricing and profit margins appear to be trending topics, which is normal at this stage of the business cycle. North American companies achieved high levels of profitability coming out of the last recession by staying lean, but this trend has run its course. Margins are being squeezed, and companies are looking for ways to add to the bottom line.
Topics: Planning, Sales, Operational Performance Management (OPM), ABC, Analytics, Business Performance Management (BPM), Financial Performance Management (FPM), Sales Performance Management (SPM), Activity Based Costing, costing, FPM, Price optimization, profit, Profitability, S&OP
What does it cost to run an IT department? That’s an easy question to answer, but for most companies, why it costs that amount is not. IT departments often complain that most of their budget is devoted to funding daily operations and basic maintenance (“keeping the lights on”), but often, one big overlooked problem is the chargeback process that most companies use to assign IT department operating costs.
Topics: Operational Performance Management (OPM), ABC, Budgeting, chargebacks, Business Intelligence (BI), Business Performance Management (BPM), Financial Performance Management (FPM), Activity Based Costing, innovation, IT cost
One of the major issues IT executives face is how to charge their departmental costs back to each part of the business according to their usage. It’s a touchy issue that can be the source of end-user disenchantment with the performance and contribution of the IT organization. Ultimately, charge-back friction can hobble IT’s ability to make necessary investments in new capabilities and become the primary cause of misallocated IT spending. The two risks are related: Unless an IT department can calculate the real costs of the services it provides to specific parts of the business and charge for them accordingly, it is almost impossible for line-of-business department managers to assign priorities to the “keep the lights on” part of the budget, so even low-priority maintenance or upgrade efforts can crowd out all but the most pressing needs. The issue of allocating IT department costs spills over to Finance, which typically handles the allocations in budgeting and profit calculations. As a first step toward establishing an effective means of funding the IT function, I believe the finance department must establish better methods of allocating IT costs. Eventually the proper allocation of IT costs also becomes an issue for senior corporate executives as well because it has a direct impact on how effectively a company uses information technology.
Topics: Performance Management, Operational Performance Management (OPM), ABC, Budgeting, Analytics, Business Analytics, Business Intelligence, CIO, Enterprise Software, Business Performance Management (BPM), CFO, Financial Performance Management (FPM), Activity Based Costing, Allocations, CEO