Traditional approaches for measuring organizational or project performance typically focus on the identification and collection of metrics or key performance indicators (KPIs). Improvements are then measured as changes in these metrics. While this approach is better than not identifying any performance measures, it typically falls significantly short in terms of measuring progress associated with IT spending reduction efforts.
The reasons for this are two-fold. First, IT cost cutting efforts are often about shifting IT investments to higher value, rather than cutting hard costs out of an IT budget. In these cases, the overall IT budget itself may not decrease, nor is a decrease perhaps even desirable; yet cutting unnecessary cost is the goal. Second, savings from improvements in IT efficiency often manifest themselves across many areas outside of IT, from customer service quality to individual employee productivity, itself often hard to measure for many types of functions or roles.
For these reasons, a basic IT spending maturity model as illustrated below represents a good, foundational mechanism to determine how efficient an IT organization is and what potential exists for efficiency. By first identifying, perhaps even quickly and somewhat subjectively, what the existing capability is from a maturity perspective, the organization can then define what it needs to accomplish to move itself to the next level.
Level 0: Total Chaos
The organization possesses little or no awareness of its IT spending, does not contemplate its level of investment in IT, and leaves individual leaders to determine for their own sub-organizations how to best address its IT requirements.
Level 1: Opportunity Awareness
The organization recognizes that IT costs are driven by the outcome of planning and decisions made across the organization, but possesses little or no visibility into what the costs actually are and little or no control over the spending, except at the individual sub-organization level.
Level 2: Spending Visibility
The organization has implemented systems and processes to gain IT spending visibility by function, project, vendor, and product/service type to enable more effective decisions. The organization has begun to take advantage of smaller-scale opportunities to save such as obtaining volume discounts by pooling spending, but has yet to make large scale changes to the manner in which it manages its IT investments.
Level 3: Spending Control
The organization has implemented effective controls over IT spending through policies and processes enabling the organization to leverage a variety of economies of scale in the acquisition of technology and technical resources. The organization has also centralized a variety of foundational IT services such as user help desk support and data center resources and operations.
Level 4: Lifecycle Planning
In addition to IT acquisition controls and centralization of foundational services, the organization has centralized application development and integration activities and leverages standard methods for system lifecycle and infrastructure management. The organization is also making short, medium, and long term IT spending decisions based on a number of drivers such as business objectives, growth rates, project initiatives, and desired asset/resource utilization.