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Why Financial and Business Knowledge Matters in IT

Frank Wegner is a Physicist and IT industry veteran with over 18 years of experience in software development, IT architecture, project management, and consulting, and mentoring. He joined VMware in 2006 as Technical Account Manager helping large customers transforming their IT into a more agile and cost efficient IT service delivery. A key element of this work is to link business needs to IT architectures, and helping customers using advanced concepts like software defined datacenter elements to drive the business value.

In this blog I explore ways to make IT more relevant for business. If you are an architect or IT leader it is very helpful if business trusts you and your work. You want to bridge the gap which typically emerges between IT and business. Getting away from the perception that IT just produces costs can be liberating, because once business accepts IT as a partner it will be much easier to satisfy both parties’ lives. So how do we get there?

I have spent many years in IT working on lots of customer projects. Over time I saw patterns emerge, patterns of success, and patterns of failure. Let me tell you some stories to explain why understanding and taking care of the business is important to be successful in IT from my point of view.

Why technical KPIs can be dangerous

A CTO once wanted to drive his companies’ business forward. After researching analysts’ reports he decided his company needs a private cloud infrastructure. So he defined a goal for his VP of Infrastructure to build a cloud. The VP did exactly that. As the timeline got tight the scope was reduced, functionalities like backup were not implemented. In the end the goal was reached. They built a private cloud. But the business did not accept it due to missing critical features. The goal for the VP of Infrastructure was not defined well, because it did not reference business needs. When you focus too much on technology and do not regularly check back with your business these failures can occur.

When things go the wrong way – coping with 3rd-party providers

Other examples of disconnects between business and IT surface when the business circumvents their own companies’ IT offerings. An IT manager I once met complained that the business ordered servers at some 3rd party cloud provider, but not from his department. The business found his servers too expensive, and provisioning times too slow.

Lower your IT Service costs

Do not get left behind with your corporate IT. Tackle the challenge. There are many ways and many potential strategies. Let me focus on IT Service costs for now. What do you do when you have the task to reduce cost?

My first advice is to be honest. This may sound simple, but I often find this to be a big hurdle. Challenge your existing cost model. Check your assumptions. Do not drop costs from your calculations, because you do not know them or because you are not directly responsible for them.

When you do not know the exact costs then use industry average data matching your region’s cost profile. You want to adjust the costs in iterative cycles. So you need to be able to quickly view the effect on your total costs when you tweak the cost of a unit.

Once you have visibility into the unit costs and all other cost details you can look for cost drivers. The pareto principle applies here, too. A few elements typically account for the majority of costs. This story shows that sometimes creative solutions can be found once you know the true cost drivers:

At a company the business complained that the email service provided by its IT is far too expensive and costs are going up each quarter. After an analysis they found that the biggest cost driver was the SAN storage. Instead of simply introducing a tighter quota or replacing the storage with a cheaper solution (and worse SLA) they decided to offload email archives to less expensive storage, and they worked with their legal department to reduce the amount of time emails have to be kept. In the end the costs of the email service went down while SLAs were not compromised.

There are many more examples how knowing the detailed costs makes sure that the IT projects you start actually have a positive impact on the business.

But when I look around I see very few to none IT departments having a good overview of their cost structures. IT controllers and CFOs may have a global view. But breaking the total costs up into individual unit costs, and identifying trends of rising costs in certain units, and setting up IT projects accordingly – all this seems to be too hard for most companies. IT architects typically do not have this detailed financial data. So IT projects are started when a cool technology is to be rolled out, or they are break-fix projects to achieve higher scalability or better stability. But it is more of a hit-and-miss when it comes to actual cost reduction achieved due to a project.

Achieving cost transparency

How do you get the required financial insights into the hands of the right people in consistent and meaningful ways? The most often used tool today is Microsoft Excel and its powerful formulas. But this tool can become hard to manage as environments get more complex. Additionally, a selection of tools from different vendors with different backgrounds is available on the market. Yet, in my experience only very few companies have found a comprehensive approach and solution, which actually helps driving decisions. Many companies drown in data collected and produced by Business Intelligence solutions and data mining factories. But the reports all those well-established tools produce neither get into the hands of senior IT executives with the granularity they need nor does the data show the complete picture.

One option I suggest you should check out is the VMware IT Business Management Suite. The Standard edition will help you identify cost drivers in your virtual environments. It calculates your cost profile from the vCenter inventory. Industry average data is provided when you do not have your own data. Due to its ease of use it very much facilitates the iterative approach to tune your cost model.

frank3Once you have tamed the main cost drivers, and you have established a solid base you can start evaluate new technologies like software defined-networking, or software-defined storage, or even a software-defined data center and estimate the impact this could have on your business. Cost transparency is essential when you evaluate new options for your IT services.

If you would like to dive deeper into this area then you might want to look at the other components of the VMware IT Business Management Suite. You’ll find tools for forecasting costs, budgeting and planning, service provider cost comparisons, SLA management and much more.

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