Bart Perkins of Leverage Partners has a short and sweet piece in ComputerWorld titled "A Separate IT Capital Pool Makes No Sense." While I have certainly argued in favor of valuing IT projects (and their too-common overruns) in the context of the impact they have on the business (cf "The $1.6 Billion Web Site"), Perkins does a good job of breaking out some clear reasons why firms should not provide an earmarked capital IT budget. Several of his reasons are the obvious ones, and most all cache out to the benefit of holding all capital spending to the same standard, but he also identifies out some organizational benefits that occur when IT investments must stand on their own merit.
- Establish corporate priorities - This one can cut both ways. Perkins actually brings up an example with one of his clients in which the separate IT capital pool meant money that should have been invested in IT initiatives (because it would have generateda higher return) was instead invested in building new stores. Obviously, this can work in the other direction as well, as money earmarked for IT could be better deployed in upgrading plant capacity, for example. The key thing is that judging all investments, IT or otherwise, side by side and with the same measuring stick should result in a more rational allocation of resources.
- Facilitate Risk Management - Again, looking at the risk/return profile of all projects together makes more sense than simply handing a pile of capital spending to the CIO to determine where it will go.
- Exhibit Fiduciary Responsibility - Perkins suggests that shareholders want money invested in the way that generates the highest return, regardless of the organizational politics or divisions.
Those are the "hard dollar" reaons, but some of the ancillary and process benefits Perkins identifies are possibly even more important, in my mind:
- Improve the quality of business cases for IT projects - Naturally, with everyone in an organization competing for the same pool of capital, it would behoove IT to do the best job possible of making a business case. (Of course, the unmentioned issue here is that there should be clear metrics about the returns realized so that inflated return numbers don't skew decision making. I think all of us know that in a large enterprise, you can create a business case for virtually anything, even a really stupid idea.)
- Involve IT early in "non-IT" Capital Projects that have an IT component - Because the entire management team will be collaborating on any capital spending plans.
- Demonstrate IT's value to the business - I'm iffy on this one being a style over substance issue, but I think the gist is that if IT has to compete head-to-head for capital dollars with the business, it is more likely the business leadership will give more credit to IT for their support of the business, as compared to just getting a bucket of CapEx just "because."
- Distribute the Requests for IT Capital throughout the business - Because most IT projects are really part of a larger business project, it can be assumed that line of business managers would be more involved in making capital requests for IT related capital when it supports their business initiatives.
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