Measuring the value of IT investments solely through an organization’s financial results can be a difficult task. Valuing IT often requires in depth knowledge of the organization’s IT structure and the uses of IT rather than the ability to simply calculate random metrics like ROI. Clearly, there could be factors other than IT that contribute to the growth of the organization. Nevertheless, IT often serves as a critical source for creating efficiencies and the development of a competitive advantage for many companies.
Initially, when IVK was a small organization, most of the IT investments (90%) were directed towards achieving business objectives by developing applications. These initial investments helped the organization gain some competitive advantage, and then later when IT operations gained scale, most of the investments (60%) were made for improving infrastructure. These investments in IT infrastructure were critical for successfully maintaining the applications which were developed initially. However, fewer investments have been made to develop new applications and respond to customer’s current needs.
Our memo presents a detailed view of IVK’s current IT investments/spending and explains how these investments are adding to the value of the company. Furthermore, we present the issues identified in the IT department’s cost management procedures and outline suggestions for improvement of these processes.
IT Spending – The current landscape at IVK
Last year, the money spent on IT services (strictly from the IT budget) was $29 million; $18.5 million of this was on an accrual basis. This is about 8 percent of sales which is an increase over the amount typically spent on IT and is due to the rapid growth of the company. Historically, the amount spent on IT was 5 or 6 percent of sales.
Of the $29 million spent, $3 million was on Capital Budget purchases, $5.4