IT Finances

A high-profile dental health benefits provider had concerns about its overall IT spend – more than $13 million annually – and the lack of transparency and control over its IT-related operating and capital expenditures. Outside of providing more clarity to its current IT expense position, the firm was particularly interested in understanding how to put a robust business case process in place to ensure that all future IT investments that are made are appropriate and will provide the expected return (i.e. revenue generation, cost reduction, staff productivity increase, etc.)

Iron Key Group performed a zero-based budget engagement, whereby all IT operating and capital expenditures, including in-house and external staffing resources, were discovered and centrally documented and analyzed. Ultimately, each expense line item was classified based upon expense type, amount and need (Must Have, Nice to Have, Not Needed). By working closely with the relevant IT and business stakeholders, each expense was either eliminated, renegotiated or reclassified as necessary to ensure that the company was only incurring the expenses that it truly needed.

In addition to the zero-based budget exercise, the Iron Key Group team worked with the customer’s relevant IT and business stakeholders to review, document and remediate the following functional areas:

• The yearly IT budget development process and ongoing budget management/reconciliation process, including standard and ad-hoc accounting system reports. 
  • Are all IT expenses included in the company’s central IT budget process, or are some/all IT expenses carried by other business cost centers?
• IT capital expenditure approval standards and process.
• IT charge-backs to other business cost centers/entities (if applicable).
• IT project business case (return on investment) and prioritization process, including the management and justification of investments over time to ensure the investment is providing the expected return.
• The company’s IT-related fixed asset and depreciation schedule.
• The company’s IT-related accounts payable process to ensure that IT bills are classified properly, updated in the firm’s accounting system to the proper accounts, and that they are paid per the relevant predetermined commitments (i.e. net 30).

The positive results for this dental benefits provider were numerous and tangible. For the first time in its existence, the customer had a full and clear understanding of every IT operational and capital expense. Because of the zero-based budget exercise, the customer was able to realize a 16% reduction (or ~$2 million) in overall annual budgetary expenses without having to reduce the number of IT necessary services or adversely affect the service levels it committed to the company and its end-user base. For example, unnecessary functions, services and outdated/unused technology components were eliminated, inflated and one-sided license and maintenance contracts were renegotiated, and capital expenses reduced to only those that were critical or advantageous to the business. 

In addition to developing a detailed and transparent budget based upon actual need, the following results were realized:

• The company’s budget process for developing its yearly IT budget and managing it on a monthly basis was clearly defined and documented, and the relevant IT and business stakeholders are now on the same page with respect to what  expenses are being made, and how they are classified and managed. The number of adjustment entries into the accounting system have been virtually eliminated, and both IT and Finance have a consistent and accurate view of all IT expenses.
• The company’s fixed assets were properly classified and outdated assets were written off to ensure that the fixed asset repository was up to date and reflective of the new fixed asset classifications and overall process. Both IT and Finance have a much-improved fixed asset process (i.e. what assets are considered capital expenditures and depreciated over a clearly defined and fixed period) to ensure that all relevant parties have a consistent and accurate view of the company’s IT-related assets.
• The accounts payable process was modified and documented to ensure that all IT-related invoices were evaluated and provided the necessary approval and coding to ensure timely payment. The result was a more accurate representation of the company’s IT-related payable position, and an improved relationship  with suppliers and providers that manifests itself in such areas as better service and favorable pricing.
• The customer implemented a robust business case process, whereby all discretionary IT expenses were subject to scrutiny from a business perspective: what kind of benefit(s)  will the company see and by when? A new IT Steering Committee was  established that requires the participation of IT and business  decision-makers alike to ensure that the business was driving the IT investment process, and that all investments were transparent and managed closely to ensure the expected return.