CIO struggles: Communicating effectively to your CFO or C-Suite

During my tenure as a CIO, the yearly budgeting season was always a source of apprehension, primarily due to the inevitable query from the CFO or the C-Suite Team about the tangible benefits of our ever-expanding IT department or justifying new project initiatives/investments. This is a common concern for CIOs, who often grapple with justifying IT investments, especially when these expenditures constitute a significant portion of a company's total revenue, ranging from 1% to over 50%.

 Answering the value of IT investments is particularly challenging for many IT departments. The crux of the matter is that IT develops systems primarily utilized by other departments to boost sales, cut costs, or gain a competitive edge in the market. Typically, an IT leader might respond with a broad statement about how the IT department has supported corporate strategic objectives through various projects. Unfortunately, this claim is often unsubstantiated by complex data. So, the question remains: how should a CIO navigate this situation? 

 IT as a Strategic Business Component 

 To address this, there are two primary strategies. The first involves transitioning from a model where IT absorbs all development costs to one where these costs are allocated to user departments based on resource usage. In this scenario, IT functions as a zero-cost department, sidestepping annual budget complications. The drawback, however, is significant. This method can fragment the automation agenda, making it department-centric rather than a cohesive company strategy. This is particularly problematic with company-wide systems like AI, where the impact spans all departments. Moreover, in a charge-out system,   

IT must issue bills to each department covering development, infrastructure usage, and overhead costs. This billing process can strain inter-departmental relationships significantly if the expenses exceed budget projections. Furthermore, this approach risks incentivizing departments to seek external IT solutions, potentially leading to disjointed internal systems and undermining the company's unified automation strategy. A More Effective Approach A more effective method is to assess IT's efficacy, holding it to the same standards of corporate oversight as other departments. Like how the advertising department's impact on sales is evaluated or HR's salary system is compared with industry standards, IT should be scrutinized similarly. 

 The effectiveness of IT can be gauged through post-implementation audits of significant system projects. These audits, conducted a year after a system goes live, involve a thorough analysis to verify that the objectives and ROI were achieved. The audit process can be complex and time-consuming, especially if the original project team has undergone changes. For example, a project implementing a new customer relationship management system could be audited for its impact on customer retention rates and sales cycle times. Another example might be deploying a new enterprise resource planning system, where the audit could assess improvements in supply chain efficiency and reductions in operational costs.

 Involving Cross-Departmental Leadership and the Operations Director

 Crucial to this approach is the involvement of cross-departmental leadership and the Operations Director in the auditing process. This collaboration ensures a comprehensive and multi-perspective analysis of IT projects. For instance, the Operations Director can provide insights into how IT initiatives have optimized operational processes, enhanced efficiency, or reduced bottlenecks. Consider a scenario where IT deploys a new inventory management system.

 The Operations Director and leaders from the logistics and procurement departments could collaborate in the post-implementation audit. Their collective insights would evaluate the system's direct impact on inventory management and its broader implications for supply chain efficiency and procurement processes. 

 Involving the Risk Committee 

 An integral part of this approach is the involvement of the organization's risk committee, typically a part of the board. This committee is crucial in supporting IT investments and recognizing and mitigating risks associated with these initiatives. Their participation ensures that IT projects align with the organization's broader risk management framework and contribute to its

Security and resilience. The user department and IT might be hesitant to conduct these audits for various reasons, including potential discrepancies in the initial ROI projections or reluctance to revisit past decisions regarding headcount reductions.

 The ideal approach for conducting these audits is through an independent body, ideally part of the company's financial division. Having been involved in the initial ROI calculations, this group can ensure a neutral and accurate assessment. By adopting this method, the user department and IT are held accountable for their commitments, and the CIO can confidently respond to queries about IT investments. For instance, the CIO could report to the CFO or the C-Suite Team: "This year, we launched 10 projects, resulting in a 25% increase in sales and a 15% reduction in expenses." Now, that is a positive impact of such a conversation, not just with the CFO or the C-Suite Team but across the entire organization.

CIO thoughts :) 

Grammatically edited with Grammarly and OpenAI. (2024). ChatGPT (4) [Large language model]. https://chat.openai.com

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