Wednesday, February 23rd, 2011 - 11:07
Wednesday, February 23, 2011 - 10:03
To encourage industry-driven, competitive solutions, CIOs should focus on “what” rather than “how”. 5E decision framework is a methodical approach to identifying IT consolidation targets. With no reprieve from budget deficits and greater investment scrutiny, 5E additionally allows CIOs to formulate a strong business case. This post explores Expenditure- the first of the five Es.
Expenditure – the First of the Es: The basic principle of finance is a dollar spent today is more expensive than a dollar spent tomorrow due to cost of capital. Furthermore, tomorrow’s innovations will likely render today’s technology cheaper in future (think Moore’s law). CIOs, in partnership with their CFOs, should balance the need for consolidation today with savings that postponement can bring. Likewise, they should scrutinize the relative merits of cost saving alternatives. For instance, virtualization and cloud technology solutions will likely meet long-term budget objectives more effectively than simple hardware consolidation. It’s also possible, though rarely so in our experience, that a bold cost avoidance strategy best meets the mission critical needs of the organization. For investments that cannot be deferred, calculate the return on investment (ROI) with the following recommendations:
a) Don’t consider sunk costs irrespective of the magnitude of past investments.
b) Don’t understate indirect costs that are arduous to ascertain. Examples of such costs include faster provisioning and de-provisioning, improved compliance and risk profile, better availability through expeditious disaster recovery.
c) Consider benefits outside of the immediate unit with associated spending
d) Avoid double counting and overlaps
e) Interlock and reconcile all spending elements (total lifecycle – concept to end of life for all components of development, deployment, run and retirement) and benefits.
It is important that ROI calculations attempt to maximize the use of the scarcest resources, which typically is the capital. Finally, check whether the Pareto principle may be applicable i.e. large value may be achieved from consolidating a small number of diverse resources.
Ravi Bansal is a project executive and a strategist at IBM Global Business Services. He is a proven business leader with experience proposing, leading and delivering multimillion-dollar business solutions. In addition, Mr. Bansal is a strategist for IBM federal’s cloud computing and smarter government initiatives. He authored 5E framework for targeted IT consolidation and the strategic framework for cloud alliances. He is passionate about cloud computing, cleantech, next generation business strategies and most importantly, helping clients articulate vision for their business.
Mr. Bansal is one of IBM Americas’ top consultants and has also been inducted in IBM’s delivery excellence circle. Over years he has been honored with numerous awards for outstanding business performance and exceptional client service. Outside of direct work responsibilities, he is involved in an eclectic collection of giveback activities. Among other things, he was an officer of the Executive Committee of Metropolitan Washington Mensa, canvasser for IBM employee charitable contributions campaign and a guest speaker at business schools. Mr. Bansal is a graduate of The Wharton School of the University of Pennsylvania with majors in Finance and Strategy.