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The technology trap: The right questions to ask before making an IT investment


By David Stein

CFOs in charge of overseeing IT investment strategies now have a new name to describe their responsibilities: technology evangelist.

That’s according to a recent survey of 1,275 global executives commissioned by Accenture and Oracle. Sixty-seven per cent of respondents said their CFO strongly champions the use of emerging technologies to deliver innovation and growth within the finance function.

It’s a title not to be worn lightly. With many companies’ IT departments now reporting to the CFO, an increasing number of people are counting on senior finance executives to lead their own function’s new technology investments and those of the entire organisation.

How can CFOs – whose technical knowledge is often not as strong as that of their IT colleagues – prepare themselves for these critical decisions?  

The starting point must be a holistic assessment of how IT projects can work together to achieve a company’s strategic goals, said Jeanne Ross, director and principal research scientist at the Center for Information Systems Research at MIT Sloan School of Management in Cambridge, Massachusetts, who’s written extensively on the intersection between technology and finance.

Technology should do two things: help standardise processes and integrate data across those processes. For finance executives who fail to focus on projects that accomplish both of these requirements, the risk is sub-optimisation. “You could end up with something very, very cool that is totally unimportant,” Ross said.

In making IT investment decisions, here are some key questions for finance executives to ask:

What are your company’s critical capabilities?

Choosing the right technology solutions starts with understanding your principal business strategies. For example, if forming a comprehensive customer relationship is important, then every IT project should align with the strategic goal of integrating customer data.

This may seem like common sense. But according to Ross, many companies haven’t articulated – and then followed through on – this simple premise.

UPS is among the companies that have, Ross said. In the early 1990s, the parcel delivery company realised that information about packages was just as important as the packages themselves. In response, the company built a single database housing all of its package data. Since then, UPS has made sure other projects complement this core IT strategy.

Once capabilities are identified, a project’s particulars can be considered, said Byron Patrick, CPA/CITP, CGMA, the CEO and co-founder of Simplified Innovations, a technology service provider for accounting firms.

“You need to make a list of project must-haves – the minimal requirements. And then a list of nice-to-haves,” Patrick said. This helps simplify the evaluation process – and eliminates costly features that don’t appear on either list.

Which past projects generated the intended value?

Examining past successes – and disappointments – can help finance executives judge whether the business case before them is inflated.

Ross cited USAA as a model. The US financial services company evaluates whether every IT project has realised its business case. This exercise helps project managers rethink what was originally requested and be more realistic for the next project.

“Even in the middle of a project, [USAA executives] want to know, ‘Are we going to make it?’ If not, they’ll stop the project,” Ross said.

Setting realistic expectations is important to avoid disappointment. “Just because something is more expensive doesn’t mean it will work better. And just because there are cost savings doesn’t mean it’s better, either,” said Patrick, who sells IT services but is also a current and past buyer of technology solutions.

Value drivers besides reduced expenses shouldn’t be overlooked, Patrick added. Mobile IT solutions, for example, provide the increased flexibility required by a global workforce, helping to retain quality personnel.

How much will it cost to run year after year?

Companies often make the mistake of focusing on the initial investment, which isn’t always the most costly part of a project, Ross explained.

Rather, recurring expenses turn out to be the real cost drivers. Licensing, maintenance, and staff training all contribute to the full budget to implement, Patrick said.

“I like to have my clients project out the total cost of ownership three to five years,” Patrick said. “That way, if there’s going to be a hardware lifecycle refresh, they can factor that into the cost of the system.”

It’s the responsibility of finance – and particularly management accountants – to help IT departments understand what’s driving these ongoing costs, Ross said.

How can I help IT deliver what’s requested?

Although it’s important for finance executives to have a general understanding of a project’s technical components, that’s not where they can have the most influence.

“You must focus on the business impact. You don’t have to learn the technologist’s job,” Ross recommended.

Despite this division of responsibilities, finance and IT must work closely together, setting up regular check-ins. “If you wait for the final product, it’s a recipe for disaster. You must be fully engaged in the process,” Ross added.

It’s critical to connect with the end users, who ultimately have to live with the purchasing decision. Patrick said small groups and one-on-one conversations can provide perspectives on the work flows any new system would be designed to improve.

Finance executives need to remember that while technologies constantly evolve, the fundamental questions remain the same. “Not getting [the answers] wrong can have a huge impact on an organisation,” Ross said.

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Tips for staying informed

Technology experts Jeanne Ross and Byron Patrick share additional advice on reaching the right IT decisions.

Know the risks: From safeguarding data security to partnering with a vendor that may not stay in business, identifying risks is key. The biggest risk? Not delivering the value expected from the business case, Ross said.

Nail down the metrics: Work with the technical teams to identify how to measure success post-implementation. When it comes to the unit costs of IT services, Ross advised, the price should come down each year.

Reach out: Don’t hesitate to ask questions – from internal groups or management accountants outside the enterprise. “Experience is the very best thing,” Patrick said.