Yesterday, I was talking with a Finance VP from a ~$30USD retailer who's the "IT Controller". The topic of the conversation was IT cost allocation options. She has been charged by the CIO to figure-out how enterprise-type IT spend should be allocated. OK so far? Well... We discussed a few options:
1. Do allocate anything. Keep all spend centrally tracked to allow the greatest control and accountability.
2. Allocate everything. Only retain that spend which is infrastructural in nature.
3. Allocate all capital projects to the P&L the project will support and retain all other spend to allocate across the enterprise.
We quickly settled on option #3 as the most likely. Then we talked about how the "enterprise spend" should be allocated. This is important because P&L owners don't like to be charged for anything they can't see return on. Well... Companies have to have HR systems, Finance systems, and Supply Chain systems to execute the business model. The company has to pay for them; think "condo fees".
So, couple of options there... Allocate on a per employee basis. Allocate on a % of revenues basis. Or, allocate on a geographic/SBU basis. Several factors to consider here. To what extent will you be burdening the new growth areas of the company to pay "condo fees"? Will you crush or stifle growth? How much technology "utility" is mapped directly to an employee, e.g. traders, insurance agents, doctors offices, etc? And, how is the enterprise structured related to SBUs...loose holding company or tightly governed unit of interoperating units?
This CO is not able to map technology to the employee per se. They are in a HUGE growth mode with lots of folks working on new growth areas with little to no revenue associated with the strategies...yet. And, they have a significant need to invest in IT in geographies where they're just entering... Which option do you think they chose? We'll allocate costs on a % of revenue basis to ensure we don't crush new growth. Additional rationale is that IT is a growth enabler. You would expect the highest benefit from IT to be felt where revenues are largest today.
Neat conversation! (I get to do this all the time! Cool!) --juddd
1 comment:
Neat blog! I am working on something similar at work and have encountered a lot of problems stated in your blog. these are very interesting conversations for sure. does activity based consting come to your mind when talking about IT investments/expenses?
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