Cost-Justify and Better Manage Your IT Investment

When companies talk about cost-justifying their information technology (IT) investment, what are they really talking about?

Are they talking about the cost of servers, infrastructure and people in the form of technical staff or consultants?  Perhaps, but that is only a small part of justifying your IT investment.
When you think about your IT investment, you also need to consider the following:

• What kind of value does management see in IT, and how does technology fit into the company long-term commitment?
• What is your organizational setup?
• How does your business operate?
• Are you a centralized company or distributed across the entire United States?
• What kind of standards or procedures do you already have in place, and what do you need to maximize the technology you already have?
• What kind of technology tools have you already invested in, and what tools do you need to take your technology initiatives to the next level?

Continuity to the Business Plan

At Winning Technologies, we’ve worked with companies all over the United States and made some scary observations. We see technology staff spending money on technology-neat little gadgets, software and the latest and greatest hardware-but without any thought of the continuity to the business plan. Typically, there is no connection between the business plan and the technology that is in place or used. We see technology staff simply reacting to the requests of the user community versus applying a business plan to technology objectives.

Technology initiatives should be tied directly to the business plan, which means that a business plan should be in place before developing a technology plan. Why? Because technology should be a tool for reaching the strategic objectives of the organization-technology is no longer just a cost of doing business. Technology and its proper use can and does affect your bottom line, whether positive or negative.

Technological implementation should achieve a tactical goal for the organization, and that goal should be measurable by improved workflow or operation of the organization to meet strategic business goals. Most companies in the construction industry are behind the technology curve, which means we are not using tactical technology initiatives to meet our business goals and needs. Applying technology to meet tactical goals is going to require operational and capital investments. And you must realize that it is more expensive to catch up than to stay up with technology. Part of your investment should be in developing a strategic plan for how your organization is going to stay up with technology.

How Management Views and Uses Technology

Management orientation into the world of technology is critical to maximizing your investment in technology. How your management team views and uses technology will set the tone for how your entire company views and uses it. Many CEO’s tell me they want to be a technology-based company, to which I respond, “That is great! What kind of technology do you use? How often do you meet with your IT person or IT consultant to talk strategic development of your IT initiatives?” Typically, they don’t meet with their IT staff or consultants or at least not on a regular basis.

Having been the CIO for a large general contractor, I found the interfacing between the CEO and the entire management team was critical to my success as the person held responsible for supporting the company’s IT initiatives. The management team’s ability to set priorities, see the long-term objectives and get financial feedback was critical to the design and implementation of the strategic IT plan I had developed. I wanted to turn the IT initiatives I had developed into a financial profit center for the company. However, to do this sometimes meant not meeting the personal objectives of individual users to meet the long-term company goals. To survive the backlash of not meeting individual user initiatives in favor of corporate goals, I needed the management team and the CEO’s support to show that my objectives were supported for the betterment of the entire organization.

The Human Factor

Organizational setup can be defined in many ways, but the first thing that comes to mind is user organization. What do users want from an IT initiative? To save time? Accomplish more each day? Make their job easier? Access information easily? These are all part of what I call the human factor. The human factor is that unknown and typically unaccounted for factor within technology that determines if users will actually use the technology the organization puts in place. Users typically get caught up in the new gadget or fun item they think will make their job easier and faster. These items very well could accomplish those goals; however, you must weigh the corporate value and risk to new gadgets and consumer goodies that come on the market. Until security catches up with the technology, you may not want to integrate the new technology into your environment. There are times the systems in place will not interface with the new technology, but more importantly, ask, “Is this an enterprise application or a single-user application?”

Technology that is implemented on a per user basis can be very costly on the back end and have very low return on investment. Why? Instead of supporting one type of system and managing the users that use that technology, you are managing a potential one to one ratio of a multitude of systems. The cost and administration time to do this is very high and time-consuming (a good example of this are handheld devices). We have clients that have users with Blackberrys, some with Treos and some with Palm devices, as well as many others. This is all based on user preference versus a corporate strategy of managing technology to maximize return on investment while keeping the cost of administration to a minimum. We recommend that companies that want to deploy handheld devices make a strategic decision on which make, model, brand, etc. they want to deploy as a corporate solution and then require the users adopt that technology.

Consider Your Physical Business Layout

Organizational structure can be defined as the physical layout of your business.

• Is everyone in a centralized location?
• Do you have multiple locations across many cities or states?
• Are you in the same location with multiple buildings on a single campus?

Answering these questions will help determine what kind of technology best suits your business. Let’s use wireless technology as an example. When is wireless technology a good solution, and what kind of wireless technology is going to meet your needs? In the construction industry, there are many jobsites where there are no physical lines, which make wireless technology a great solution for getting a computer connection.

What kind of considerations and expectations do you need to manage to get the best return on your investment? First, you must take into consideration the technology itself. If you are planning on using a wireless broadband connection, then the user must understand that this technology is riding on top of cell towers and cellular technology. Much like a cell phone, the quality of service can vary from place to place and moment to moment. The quality of service is also going to dictate the speed of the connection. It is important to set and manage the user’s expectation of this technology and to understand that in most cases, it will not be like an office connection. On the office side, it is important to also consider the available bandwidth in your office to properly service the remote connections and the requirements of the programs the remote user is running.

Establish IT Initiatives, Standards and Procedures

As part of your organizational structure, you must set clear expectations of your IT initiatives, how the results are going to be measured and what kind of return on investment you are expecting. One requirement is to clearly define how and where your IT staff or consultants report through your management structure.  You must also consider whether you need someone from your IT department on your senior management team. Remember, today’s IT is part of your business.  IT is no longer a cost of doing business. Much like your finance department, construction and pre-construction areas of your business, IT should fit into the model and be held to the same levels of accountability.

Standards and procedures are critical to the success of any business and even more important when it comes to technology. Technology professionals have their own language which I call “Geek Speak,” and in most cases, senior management or decision makers simply do not understand what their technology providers are saying to them. Historically, technology staff has not been the best at communicating. We typically want to hide behind a computer monitor or in a cold data center and have users e-mail us their issues, then we e-mail the user back when our task is complete-maybe. Imposing strong standards of operation and expectations within your IT department will insure that your IT professionals will properly communicate with you regarding IT initiatives, as well as following corporate policies for using and managing IT resources.

To maximize your return on technology investment, you must first clearly state the purpose of implementing technology. Are you implementing a high-speed Internet connection so your employees can simply surf the Internet faster, or is there a strategic need to implement a high-speed Internet service? For example, is the high-speed Internet access needed to provide a more robust environment for remote users to access the project management system or accounting system? Are you trying to improve the efficiency of your e-mail system? What are the goals?

Now, what are the risks? Risks might be outside intrusions to your system; did you know that corporate espionage is a multi-billion dollar a year business? Your data is worth something to someone, so protect it because now that you are on the Internet with a high-speed connection, you are a target for outside influences. However, the biggest risk to your data is your own employees! Now that your employees can e-mail your data to someone off site, how do you protect yourself from the act and from any legal repercussion? There are software packages that monitor your system for large data transfers and stop them from happening, which will protect you from the act. But you must have strong policies in effect to protect yourself legally. Nothing will protect you better than having good company policies in place and enforcing them.

Current IT State of the Industry

What kinds of technology tools are construction companies using these days?  According to the 2006 CFMA Technology survey, this is the breakdown:

Voice Communications:

• 66% Cell phones
• 61% Cell phones/Two-way radios
• 41% Landlines
• 20% Blackberrys

Data Communications

• 85% Fax machines
• 55% Internet
• 23% Dial-up service
• 20% Blackberrys
• 18% Handheld PDA’s
• 10% WAN (Wide Area Networking) Technology
• 7% Mobile software
• 2% Rugged devices

It’s important to consider the types of technology tools construction companies use.  According to the results of the 2006 Construction Financial Management Association technology survey (CFMA, http://www.cfma.org/), (the figures are reflected in the chart on this page), we are running well behind other industries, and in some cases we are up to five years behind in our industry investment on technology. It relates to shifting the paradigm from technology being a cost of doing business to a part of your business. In some individual organizations, the numbers are much higher than these, and those construction companies show an amazing superiority when it comes to controlling costs, improving profitability and beating the competition for competitive bid jobs. It is the difference between taking action and thinking about it.

The Right Technology and IT Staff Can Grow Your Business Exponentially

During my time as a CIO, I was invited to a meeting in which we thought we were going to be awarded a big $100 million plus job. To our surprise, we were informed that we did not get the job. This meeting took place with one group in our main office and the other group representing our company and the client in one of our remote offices. The two offices were fully connected, and the meeting was taking place via video conferencing. During this meeting, it was discovered that the client had provided multiple versions of the drawings to the bidders and the client was working off the incorrect versions. Once that was discovered, we were able to print the correct versions in wide format in the remote office and work through our bid in detail utilizing video conferencing, document management and proper version management to ultimately win the bid. The appropriate use of effective technology won that bid!

Also as a CIO, I saw an opportunity to increase the value of our IT department while cutting costs and actually creating profit in the process. I wanted to cut costs by $375,000 per year and turn that into a profit of better than $150,000 per year creating a total fiscal swing of more than $525,000 annually with nothing more than a printer. How did I do this?

The company I was working for was outsourcing the printing of wide-format drawings, a very familiar process with a general contractor. We were printing about 2.5 million square feet of drawings a year at a cost of about 15 cents per square foot. The monthly use of outsourcing on average cost about $31,200. I wanted to spend about $300,000 to bring the wide-format printing in-house, manage the printing process by going to print on-demand printing and billing our subcontractors and customers for the cost of the printing.

Due to our investment, our printing costs dropped to about 4 cents per square foot reducing our cost of printing from $31,200 per month to $8,300 per month, and we were billing our subcontractors and customers 10 cents a square foot. This created revenue of $20,800 per month and a profit of $12,500 per month or better than $150,000 per year. Our cost of $375,000 was eliminated. This required only a single printer which benefited both the company and our customers by lowering printing costs of drawings.

Our jobsites and subcontractors were located all over the country, which led to the decision to post our drawings on the web so that customers and subcontractors could view, download and print to bid on our jobs. We developed a website and entered into an agreement with a nationwide printing company.  This allowed people to select a city, the printing company location and the drawing they wanted. They could then pick up the drawing where and when they needed. This is an example of how an IT staff that knows your business and are involved with the overall management of the business can have insight into developing technology strategies on how to better serve the overall goals of your business.

Organizations must realize, like other parts of your business, technology is a business and you must hire the right people to fit those needs. A good technical staff does not necessarily make good technology managers. In today’s business-based technology world, you need someone with the knowledge and background in business management who also possesses a solid working knowledge of technology. Whether that person is in-house or a consultant, find the right person to manage your organization’s technology effectively.

Measuring ROI

Technology can be difficult to manage, and it can also be one of the most difficult areas to calculate a return on investment. However, it is not impossible. What are some of the things to consider when measuring your return on investment? First, is the project cost-saving or revenue-generating? Different goals require different measurements to determine the success of the project. What will be the financial outlay for this project-cost of hardware, software, training, implementation of services, staffing and management time? Benefits can be much harder to calculate because many are valuable but intangible, such as improved communications, reduced risk, improved efficiency, improved end user productivity and competitive advantage. You must also consider the cost of not making the investment in technology or improving your current technology.  Although what you have may be working, if you are not keeping up with technology trends, are you falling further behind the competitive curve by not making the investment in improving your technology? Even if you are not investing in technology, your competition is!

Technology today is truly competitive weaponry, and properly applied to your business model, intelligently implemented technology can give your business a huge advantage over your competition. Technology is a key part of your business, and those who embrace technology will continue to rise to the top and leave the rest behind. Technology is a business and should be treated as such. It should be held to a higher standard rather than simply keeping the computers up and running. It should play an active role in the strategic plan of your business and a major role in the implementation of that plan. Most companies overlook the impact technology has on their financials because technology results are typically soft cost returns-the investment is a hard cost, but the return is soft. However, IT can make your bottom line look better if used properly to improve your business.

Construction Business Owner, July 2007