High-stakes IT investments

One company recognized as a leader in IT financial management is Harrah’s Entertainment Inc. Ten years ago, the Las Vegas-based casino operator established an IT business office composed of finance and accounting professionals who manage the company’s portfolio of IT projects and its day-to-day IT operations.

The office works with application development and support teams to build detailed annual project budgets and monitor performance against those budgets monthly. It also works with Harrah’s capital committee to embed NPV and IRR calculations and systematically monitor IT investments, says Heath Daughtrey, vice-president of IT services.

In addition, the company is increasingly applying return on invested capital as a barometer of how its IT investments are faring. “We focus on return on invested capital as a key performance indicator when evaluating investment decisions.” Daughtrey says.

At Harrah’s, much of the training for its 275-person corporate IT staff has been focused on its portfolio management techniques, says Daughtrey. “At the core of portfolio management is whether you’re working on the right stuff,” he explains. That’s not just about measuring whether an IT project is meeting its financial targets but also determining its impact on operations continuously, he says.

Last summer, Harrah’s created a Financial Management 101-type course for staffers who have financial responsibilities, as well as new IT hires. The half-day session familiarizes IT workers with how Harrah’s IT group accounts for and manages its IT operations, sets and monitors project budgets, and does accounting. It teaches them how to read financial statements “and walks through many of the core financial and accounting concepts that we use,” says Daughtrey.

One of the ways Harrah’s measures the effect of its IT financial training is through efficiencies in its own annual IT budgeting process. The bottom-up data-gathering and development of the annual plan used to take two months to complete, says Daughtrey. Last year, the collection of all of the core data took one to two weeks. “That’s the best annual planning cycle we’ve ever had,” he adds.

Moreover, by incorporating detailed monthly and quarterly financial reviews of its IT financial performance, Harrah’s was able to bring its 2003 IT operating results to almost 0.4 per cent under the approved operating budget, says Daughtrey.

By the numbers

Among Fortune 1,000 IT leaders surveyed:

-82 per cent say estimating IT benefits is a major challenge.

-68 per cent don’t track project benefits.

-74 per cent don’t track actual financial metrics after making an investment decision.

-46 per cent say IT staffers lack sufficient working knowledge of financial concepts.

-89 per cent don’t use earned value to track project success.

-46 per cent say they lack good metrics for measuring value.

-28 per cent say they lack staff and resources to gather and analyze data.

Source: 2002 survey of 130 Fortune 1,000 IT leaders by the Kellogg School of Management at Northwestern University and DiamondCluster International Inc.

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