Managing IT Budgets to help foster Innovation
By Subbu Murthy, Ph.D., Chief Information Officer, Howard Building Corporation
In the past, presenting IT budgets was not unlike visiting the Dentist. We all had to do it,but hated it. We all tried to compare how well we did in reducing costs. We used metrics such as cost of IT per employee or percentage of revenues and compared it with our peers. For example, mid-sized companies spent around $15K per employee on IT and large companies spent about 20% less. These cost centered IT Budgets are a thing of the past in most companies. In construction companies like Howard Building, where margins are tight, technology has to provide sound value before we can jump into it. Most construction companies are in the early stage of maturity with respect to assimilating technology. Wikipedia has a great definition for BIM (Building Information Modeling) as an intelligent 3D model-based process that gives architecture, engineering, and construction (AEC) professionals the insight and tools to more efficiently plan, design, construct, and manage buildings and infrastructure. Most people regard BIM as the ultimate sign of maturity. Our experience tells us that BIM is great but one in a series of technology innovations that will change the construction industry.
From a technology perspective, construction companies can be classified into five levels of maturity. At the Basic level, technology usage is limited to office productivity tools and back office accounting. At the Developing level of maturity, Cloud based management of projects. Integrated projects/customer interactions with field/sub-contractor interactions. Building Information Modeling (BIM) is just an idea.
As the organizations mature to the Refined level, Estimation, Biz-Dev, Precon, Project Management, Field Management, Sub-Contractor Management, Finance are fully integrated across a seamless technology platform that connects demand to delivery with the GC, Customer and Subcontractors all operating on the same platform driven by BIM.
In construction companies like Howard Building, where margins are tight, technology has to provide sound value before we can jump into it
Most construction companies, particularly in the Mid-market have started to evolve from the Basic level to the Refined level. However, construction companies will need to move to Advanced level and the rapidly to the Innovative level to sustain their market presence. The Advanced level is characterized by design-initiated BIM, automation and analytics drive significant cost efficiencies across the enterprise with end to end visibility into trends giving the enterprise a strategic advantage. The Innovation level leverages state of the art technology including analytics-based management, block chain, robotics and virtual reality to help the enterprise stay innovative and nimble.
While the five levels of technical maturity help, from a budgeting perspective, In Levels 1 and 2, IT is somewhat cost-centered. In Level 3, enterprises begin to realize the value of IT, and then they reach Levels 4 and 5, they have transformed from a construction company into a information management company, and IT is treated as critical component of the value chain.
One challenge CIOs face is in defining value. The question naturally that comes is how do we measure value. In general, there are three types of value:
Real–actual benefits/value received that can be measured;
Algorithmic–where benefits/value is calculated algorithmically; and;
Perceived–subjective assessment of benefits/valuation.
While you can spend enormous resources in identifying value, we argue it can be done relatively quickly if you use a combination of the three approaches. Value centered IT is the practical way to align IT to organizations. Technology can provide a 360-degree view of enterprise to align resources to activities that provide most value to the enterprise. Value centered IT helps bridge the gap between business and IT, and tools are emerging to provide an elegant solution to help construction companies.
A word of caution: Budgets mean a lot to Construction companies. They are used to delivering on time and under budget despite significant scope creep. They achieve cost and schedule goals by managing scope changes effectively through change orders. CIOs need to recognize the importance of managing scope changes. The organization questions are always "we spend a lot on IT and what are we getting out of it". Innovation is one thing, and necessary–but must be in conjunction with business growth. CIOs need to demonstrate how all IT project, resources, and spend are directly aligned with defined business priorities–and to publish such updates regularly to keep it as an open dialog. When resources are then constrained–it is a business decision to make trade-offs, or agree to fund additional IT expenditures.