Aaron Worsham

We first talked about IT departments in general.  Then we looked more closely at how automation could lower the cost of running other departments, making IT a savings generating entity.  If I haven’t completely lost you as a reader by now then I think its time I wrap up this series by really pushing my luck.

IT departments can facilitate the generation of new revenue in non-technical companies, even during a recession.  Don’t let anyone tell you otherwise because there are far more examples in support of this than there are examples against.  I have worked in Telecommunication, Banking, Finance, Energy Brokerage and Publishing industries, none of which were pure tech players and yet each had found ways to let technology help them make money.  I remember working on a big trading board for an energy broker, the kind that floods traders with information as charts and graphs and video feeds, and wondering how people in the market could even do that job 20 years ago.  I came to realize that the technology didn’t make the traders job possible, it only made it easier.  But there it was, a huge symbol of IT’s contribution to the act of revenue generation in this company and I never forgot how different I felt being on that side of the equation for once.

If you read my earlier post you know that I have an altered perception of the differences between profit centers and cost centers.  Now in my earlier definition I said that a cost center was, in my opinion, an entity who’s operating expenses was not offset by the combination of allocated savings and allocated revenue.  Revenue, in the accounting namespace, is money paid to an entity through currency transactions or accounts receivable.  It is traditionally given over to sales the job of bringing in revenue for a company and most company’s accounting departments stop there with it.  Yet that is only part of the story, however.  It is a team effort when sales identifies a banking customer to upsell a new loan to by using a program written by IT for that purpose.  If sales gets all the credit and IT is just a column within overhead, then when budget reductions come it is far too easy to short sell IT and forsaken other future revenue generating opportunities.  While this argument could be levels at any department (sales wouldn’t have desks to sit on if not for office maintenance) it is a bit stronger when there is actual documented correlation between IT and sales on a project.  When that happens, it is my suggestion that companies take the time to allocate portions of future revenue related to that project to IT right in the beginning.

These project parings between IT and sales are most effective in slow markets, like the present.  When sales are good and people are busy little interest is paid to new ways to generate revenue, new markets, new tactics and so forth.  But when two consecutive quarters of negative growth sneak up on us, everyone in sales starts getting very creative.  This is the time when a good IT department can really prove their worth, though without the proper allocation that message may not reach the decision makers making the tough choices.

A quick bit about allocation itself.  It would be a compete mess to try to arrange accounting books to reflect what I am calling ‘credit’ for sales and revenue in IT.  That will never happen.  A simple reporting table that has these values stored and is accessible from any reporting system is all you need.  This method is sometimes called ‘back-billing’ in IT, though the implementation of that form is usually in the reverse,  with a much more narrow focus of time and materials being ‘billed’ to departments as a reflection of services rendered.  Better to highlight ITs strengths than to fixate on its costs.

So if you are a decision maker in your company and you are looking over your 2009 budget, I ask you to dig deep into your IT department’s past.  You may find that when times have been tough before, IT was there for you when you needed to save and they were there for you when you needed to sell.  Let’s give credit where credit due.

Photo attributed to david.nikonvscanon

I’m going to take a chance that my old accounting professors aren’t Sazbean readers because in this series of posts, introduced here, I will be violating some Generally Accepted Accounting Procedures.  If Dr. Burke or Mrs. Kim are reading this, please click on this link.

In most companies the mail room still does not generate direct profit for your company.  They are a needed part of making a profit, whether its delivering vendor bills to Accounting or customer’s letters to the sales departments, but they are not demonstratively profitable on their own.  Traditional cost centers like office services, HR, help centers, and Research & Development are the first looked at for cuts during a downturn in sales because their contributions aren’t realized on P&L statements.

With the cost of some IT departments landing in the double digit percentages of total expenditures, elevated by the high salaries demanded by experienced workers, it is easy to understand how the label ‘Cost Center’ is putting a giant bulls eye on backs of our hard working technology professionals.  Unless your company is a pure technology player, the chances are that your CFO has looked longingly at the options of down sizing or out sourcing part or all of your technology budget.

In this series of posts I will be setting up straw men and then knocking them down, because the idea that IT is still considered a cost center is a farce.  When tallied directly, IT will be the greatest difference maker between profit and loss in your company.

In the first of this series, we will look at how IT can reduce costs in every area of your company, boosting profits logarithmically over the department’s cost.  Then, we will discuss how IT should be the first place a company turns to help sales enter new markets, broadening the revenue potential of the company and lifting the bottom line directly.

Photo attributed to Monochrome