The question of who approves IT investment should be an easy one. In theory, there should be a group a senior people that are both interested in the allocation of money and have the seniority to makes decisions. Unfortunately that’s not real life. In the real world, you have a group of department managers that are very involved with IT but don’t have ultimate authority. Those with ultimate authority are too busy doing other important jobs to dig in. Let’s talk about a few options to solve this.
The most common way companies solve this is to create an investment spend function. This is usually an arm of the Finance division. This group is allocated an overall IT change budget and comes up with criteria to allocate that money. That’s where the problems start. Usually the bean counters want to create an ROI criteria for all investment. While that sounds sensible on the surface, there are plenty of change ideas with no return on investment. These ideas get pushed aside in this model. Because the people approving have no technology background, the change budget gets steered only to shiny ideas they understand.
The next option is to have a pot of money allocated to the CIO and have that person make decisions. You’d think that this person would be in the best position to spend technology dollars. The problem is that there isn’t an infinite budget, so now the CIO is the person deciding on business priorities. While I think that the CIO is the defacto COO of every company, I still think this model is problematic. This creates a scapegoat for senior management if profitability targets aren’t hit and creates more distance between the engine of the company (IT) and the driver (the CEO).
The other common idea is to have the heads of all divisions come to the CEO with their investment spend demands and prioritize in that forum. In a perfect world, this sounds great. The problem is that these meetings would take way too much time. No group of senior leaders has the time or patience to get into this much detail.
So what’s the solution? The firm must clearly define the desired amount of tech spend at the front of the process. True regulatory spend comes first and should be ring fenced*. Every dollar after that is a choice. That choice should be made in tiers. First the CEO decides the macro priorities for the year. At that point, the CEO steps aside and let’s the people who get paid for this stuff do the dirty work. The CIO then schedules a session with the department heads (or COOs) with an understanding that it doesn’t end until decisions are made. That general idea lights a fire to get through this in a quick manner. Macro priorities get the first dollars after regulatory. Competing ROI initiatives are vetted to squeeze them down to just what is necessary. Where two initiatives have similar returns, the one that is driven by a manager with a track record of delivery get preference. Finally, all the remaining (non prioritized) initiatives are left to be funded by budget under run. Unspent dollars at the end of the year are treated harshly as this represents idle money. This should be deducted from that particular group in the follow year.
The first year, everyone will hate this process because it’s time consuming and requires everyone to lay bare their decisions with a wider group. They will also hate having unused dollars come back to haunt them. But without that pain, the investment approval process never improves. Stop protecting kingdoms within your organization and start making tough decisions together.
* Don’t let your Regulatory buckets turn into bloated bullshit. You don’t need platinum level solutions for all problems. Also, don’t allow seepage of non-Reg initiatives into this bucket or else the whole process is meaningless.