With the rapid development of information technology, IT capital planning and investment control has become increasingly important for enterprises. Proper IT investment management can help companies optimize their IT infrastructure, align IT goals with business strategies, and maximize the value of IT spending. However, ineffective IT investment control can lead to budget overruns, resource mismatches, and failure to deliver business value. In this article, we will explore some effective IT capital planning and investment control examples to help companies make prudent IT investment decisions.
Establish a formal IT investment review board
Many companies find it beneficial to establish a formal IT investment review board consisting of key leaders from IT, finance, and business units. This board evaluates all major IT project proposals based on criteria such as alignment with business goals, return on investment, risks, and resource requirements. By centralizing the oversight of IT spending, companies can take a portfolio approach to balance risk versus reward and shift funding to initiatives that will best support corporate strategies. The review board also provides checks and balances to avoid ad hoc purchasing decisions.
Classify investments into different categories
An effective practice is to divide proposed IT investments into different categories such as mandatory strategic investments, productivity improvement investments, customer-driven investments, and research investments. Each category has a different approval criterion depending on factors like strategic urgency, expected financial returns, and payback period. This allows the company to align the level of business case rigor and financial analysis with the investment type. For example, strategic projects may receive accelerated approval while discretionary investments undergo more extensive cost-benefit analysis.
Require detailed project-level business cases
For significant IT investment requests above a monetary threshold, companies should require project sponsors to develop detailed business cases justifying the spending. These business cases force managers to analyze financial and non-financial benefits, potential risks, staffing and training requirements, viability of solutions, and ongoing support needs. By reviewing well-documented business cases, the IT investment board can make informed approval decisions that support the most promising initiatives aligned to business objectives.
Incorporate total cost of ownership
When evaluating IT investments, companies need to look beyond just the initial project budget and consider the total cost of ownership over the system lifetime. Important factors like ongoing licensing fees, upgrade costs, support labor, user training, and retirement/disposal expenses need to be incorporated into the total cost modeling. Considering the total cost rather than just project price enables more accurate predictions of the investment payback period and long-term returns.
Require post-implementation reviews
Wise IT investment management requires a feedback loop to validate that projects delivered their expected benefits and returns. Thus, companies should require project sponsors to conduct post-implementation reviews 6-12 months after system deployment. These reviews examine metrics like usage rates, user feedback, business process improvements, and expense/revenue impact. Comparing actuals versus estimates helps refine business case assumptions and improves future project estimation. Continuous reviews also identify underperforming systems that may need remediation or even early retirement.
Through techniques like creating an IT investment board, requiring detailed project business cases, categorizing investments by type, incorporating total cost of ownership, and conducting post-implementation reviews, companies can make more informed IT investment decisions aligned to business strategy. Prudent IT capital planning and investment control example lead to improved returns on technology spending.