CFOs and the increasingly powerful procurement offices they oversee are getting more heavily involved in corporate IT outsourcing decisions. But the finance team's priority--cost containment--can be at odds with the IT organization's goals for IT services such as innovation and access to talent.
"The challenge is that the CIO team often doesn't speak the same language as the CFO team," says Daniel Masur, a partner in the Washington, D.C. office of law firm Mayer Brown. "They don't speak in the same terms. They don't use the same concepts. And, as a result, they just talk past each other."
What's worse, the IT leadership is often unable to even compute the current costs for the IT services they want to send out the door--the starting point for any conversation with the finance group.
It's never been more important to know how to have a productive conversation with the CFO about corporate IT services strategy or risk being railroaded into a bad decision. Here are nine steps to take before making your outsourcing case to finance.
1. Calculate Your Current Costs You'll never make a compelling financial case for outsourcing if you don't know the current all-in costs for the services you want to hand over to a third party.
"It's astonishing how often we end up working on a deal where the response to the question, 'What's your current spend,' is that no one knows," says Masur. "The CIO team needs to be able to create a bulletproof business case. If they don't, they'll walk away without the approval they're looking for, and the CFO walks away without any confidence in the IT team."
"While CFOs are not typically interested in your transition plan for moving to single sign-on, virtualizing your enterprise servers or incorporating cloud computing into your future environment, they will pay close attention to the expected total cost of the deal over the next five years, the extent to which those costs are classified as capital or expense, how the projection compares to the current state, and how the anticipated financial performance compares with alternative models," says Steve Martin, partner with outsourcing consultancy Pace Harmon.
A solid financial assessment will take into account all relevant factors and risks: inflation, eflation, demand management, anticipated growth or contraction, and currency valuation, for a start.
For example, it's important to consider how the vendor calculates cost of living adjustments (COLA) and how that will impact costs over time. "Many IT outsourcing (ITO) vendors have different COLA rates that are country-dependent," says Mark Ruckman, outsourcing consultant with Sanda Partners. " If the ITO vendor is saving you a large amount today by offshoring to a country with hyper-inflation, the cost savings will quickly erode."
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