Before you budget: 5 benchmarks to consider

Budget season is once again upon us, and as IT leaders, we are often faced with a stark realization about the prior year: Despite our best efforts, last year's budget seems now to be some distant reminder of last year's strategic priorities, which had to be abandoned to address this year's emergencies. Once again we vow to redouble our efforts for the next budget cycle and not repeat our mistakes.

Obviously, many factors play into budget preparation, including the strategic priorities of internal and external customers, IT infrastructure cost and operational reviews, negotiations of budget limits and expectations, and your own gut instinct -- honed over many years -- for what can reasonably be accomplished given your IT organizational restraints. One way to bring focus and direction to your strategic planning and budget exercises is to use outside benchmarks to learn how your IT organization compares to others within your revenue range and industry in terms of cycle times, staff productivity, and cost effectiveness. Benchmarks help determine reasonable targets and priorities -- especially if your organization has a "do more with less" mentality.

To aid in this planning exercise, APQC has been collecting benchmarks of IT organizational performance since late 2005. This research focuses on general IT processes, including the following:

• Manage the business of IT-financial, portfolio, supplier, and staff management;

• Develop and manage IT customer relationships-marketing, customer satisfaction, and service levels;

• Manage business resiliency and risk-disaster recovery, regulatory compliance, and security;

• Manage enterprise information-content management and enterprise information architecture;

• Develop and maintain IT solutions-creation and maintenance of technology; solutions including development, testing, enhancements, and retirement;

• Deploy IT solutions-communication, training, scheduling, and distribution of IT releases;

• Deliver and support IT services-infrastructure services such as assets, inventory, network, facilities, and help desk;

• Manage IT knowledge-strategies, processes, and repositories

To date, APQC's most significant findings pertaining to budgeting and strategic planning within the IT organization are the following:

1. When managing electronic information, integration pays off.

When comparing the linkage between integration of information and overall IT expense per employee, the benefits of integration in term of expense reduction are striking. Those respondents who reported having completely unlinked information sources or repositories in their businesses also reported spending over $11,000 on IT expenses per employee per year. Conversely, those that reported having fully integrated information repositories reported spending only $5,400 per employee on IT-related expenses. For various intermediate levels of integration, the costs fell as the level of integration rose.

Why the difference? Think single sign-on (SSO) as an example. The most likely and obvious reason is that information stored in fewer places requires fewer resources (hardware, software, and personnel) to manage it. Integration reduces the need to store related or overlapping information in multiple systems with varying degrees of accuracy, thereby reducing any type of data reconciliation or troubleshooting exercises.

Although not captured in the cost comparison, there's also the added benefit of having customer, product, and resource information readily available in real time from a single source. This enables organizations to perform better data analysis on a wide variety of cross-department information, which may result in a wide variety of benefits.

2. Standards matter in project performance, but not issue resolution cycle time.

Those who reported having standards (infrastructure/architecture) enforced at the department level also report delivering, on average, 60 percent of their projects on time or early. Those who report having standards enforced at the enterprise level deliver over 70 percent of their projects on time or early. This shouldn't come as a big surprise since having enterprise-wide standards makes integration projects easier and also allows architects, project managers, developers, and support staff to more easily understand (and reuse!) prior work. It also provides a basis for forming an ROI on standardization projects at the enterprise level.

Surprisingly, the research also showed no correlation between where standards are determined and enforced and the time to resolve highest-priority problems. For those reporting that their standards are determined and enforced within individual departments, the average cycle time for issue resolution was 6.75 hours. Those who reported enterprise-wide standards also reported an average issue-resolution time of 6.86 hours. If one of your key objectives is to reduce resolution times, the decision regarding who owns/enforces the standards is irrelevant as long you have them.

One important footnote is that, of those who have adopted standards enterprise-wide, those who have also extended those standards to outside partners (customers, suppliers, etc.) report an issue-resolution cycle time of only 5.33 hours, on average. Why the reduction of over 20 percent? One reason may be the simplification of troubleshooting integration-related issues when using a common set of standards across the affected partners.

3. Hybrid IT organizational structures perform the best.

Many of us don't have the luxury of choosing our IT organizational structure. If you are one of the fortunate few, keep this in mind: Hybrid structures appear to perform best in terms of IT expense per employee, project performance, and issue-resolution cycle time.

Respondents with hybrid structures report having a significantly lower IT expense per employee ($7,300) on average when compared to purely centralized ($9,300) or decentralized ($9,800) structures. In addition, hybrid structures tend to deliver a higher percentage of projects on time or early (70 percent) versus centralized (65 percent) or decentralized (55 percent). Also, hybrid structures are able to resolve issues faster (4.7 hours) compared to centralized (14.1 hours) or decentralized (5.33 hours) structures.

The difference in hybrid-IT-structure performance can be attributed to several factors. The most salient is putting operational processes where they belong within a specific organization. If an IT organization is centralized but has a widely dispersed company structure to support, resolution time will undoubtedly be affected for any resolution requiring on-site presence. Similarly, a completely decentralized IT organization is more likely to have resource redundancy that would impact cost.

4. To SOA or not to SOA?

Before you pitch that big service-oriented architecture (SOA) initiative, consider the following: Although 43 percent of respondents report having at least one SOA service in production, this same group reports having, on average, only three services in production. By far the majority of these services are internally facing. Those who have taken or are planning to take the SOA plunge report dedicating, on average, 5.5 percent of their budgets toward their SOA initiatives.

What does this mean for SOA adoption? It's still early, and those who have adopted an SOA approach appear to be performing internal pilot projects to determine their effectiveness. Of those who are adopting, they are targeting known internal applications and processes. In addition, they are committing to multi-year implementations in terms of budget planning.

If your organization is on the early adopter side of the wave, you are likely to either have an SOA initiative in place or to be planning for it shortly. However, if you're in the "wait and see" camp, the effectiveness is still being proven, and widespread adoption is still hard to find.

5. Process measurement reveals cost reduction possibilities.

Looking for ways to cut costs in your IT organization? According to the measurement of budget allocation by the eight IT processes outlined at the beginning of this article, top performers in terms of cost spend less on enterprise information management and application deployment. This shouldn't be misconstrued as a particular organization having less information to manage or few applications to deploy. This does mean that top-performing organizations in terms of cost have found more efficient ways to manage their key information and deploy applications both in terms of process and technology expenditures.

The first step in understanding where your IT organization excels and where opportunities exist is to benchmark your processes to get a baseline of your current state as compared to industry averages. Benchmarking can then be used as a measuring stick for year-over-year improvement. At APQC, we preach process measurement as a way to understand how an organization can more productively spend its resources to improve cost effectiveness, staff productivity, and cycle time. To learn more about how to measure your IT organization by participating in APQC's IT research, visit www.apqc.org/osbc/surveys/it.