Debunking the myths of IT price benchmarking

There's a myth in IT that the chief information officer will only report into the chief financial officer in times of fiscal constraint.

The stereotypical narrative is of a relationship fraught with friction and competing priorities, where finance and IT are pitted against one another and IT ultimately loses out because its ability to spend and innovate becomes constrained.

The scenario is familiar territory for Mareida Mackenna, a senior director of 'IT finance' at risk and insurance giant Aon. 

"I think what happens is that if IT can't find a way to communicate to the business about the value they provide, then the easiest thing for a business to do is to have your CIO report to the CFO," Mackenna told iTnews on the sidelines of the TBM Australian Summit in Sydney.

"I've been in that [type of] organisation and all it does is constrain. You're not going to get value because all [finance] does [in this instance] is squeeze and they're just saying to IT 'you've got to be cheaper'. 

"But it shouldn't be about IT being the cheapest. It should be about providing the best service you can actually deliver."

At Aon, Mackenna officially sits within the office of the CFO but has "dotted lines to the CIO and the CFO". 

"My job is to make sure those two stay together and integrate," she said.

Her role is to work with IT to understand its costs and benchmark the value of products and services IT provides to the business. 

It's an area of work that - for Mackenna -  emerged in the financial sector during the 1990s. 

"I was in the investment banking area for 20 years before I came to Aon," she said.

"If you think about that type of organisation, they're spending tremendous amounts of money on IT. Everyone wants the latest, the fastest, the best. But the spend got out of control."

It was at that time, Mackenna said, that the 'IT finance' domain began to emerge.

Finance professionals like herself would go into the internal IT organisation, "partner with each of the people who owned storage, servers or mainframes and literally understand what the cost and drivers" were behind each aspect of IT.

The result was a set of data - unit costs and the like - that improved transparency and could also be used to benchmark against similar-sized IT organisations. Aon uses Apptio software to manage and track this data.

"I think a lot of times people don't understand IT, so they just think it's expensive," Mackenna said.

Benchmarking enables IT to either justify its costs or underpin a business case for improvement.

"If you're able to go to a benchmark and say 'we're more expensive', you can then say, 'we're more expensive because we provide better service to you' or because 'we're up 24x7' - you're paying for the things you getting," she said.

"On the flipside, if you are over the benchmark but your service is poor then you can have a conversation with the business and say 'we're really not at par, we need to improve', and make some good decisions."

Better priced than you think

Determining the unit cost of particular pieces of IT could have perception-shifting results.

"When I started at Aon two years ago, we thought we had 11,000 [physical and virtual] servers worldwide. We now have 17,000 servers," Mackenna said.

"We haven't installed 6000 more, it's just we found servers that people weren't tracking."

The result of that process was not just discovering "6000 more sources of data" that IT was paying for - it also made IT's unit cost per server a whole lot cheaper.

"Maybe you're not as expensive as you think you are," Mackenna said.

Another advantage of this kind of transparency, according to Mackenna, is that when faced with a situation where cuts need to be made, it is more obvious where they will do the least amount of damage.

"If there's a downturn - which has happened a lot of times in the financial industry - if you don't understand your cost base, you won't have the information to make quick decisions about where to find, for example, 10 percent in savings," Mackenna said.

"It's really just about being prepared and having the data to make good decisions when you need to." 

The TBM Australian Summit 2015 ran in conjunction with the CIO Strategy Summit.