How to Contain Information Technology Costs

Transcription

1 How to Contain Information Technology Costs Kelly Summers, CHCIO Vice President and Chief Information Officer September 24 th, 2015

2 AKA How will YOU know if our time Presentation together was worth Objective it? Did you learn that your CIO wants to be a clinical and business partner? Did you see several techniques in which your IT spend can be aligned with the strategic objectives of your organization? Did you learn that your IT organization isn t just a financial sink hole of expense that exists for its own objectives? Did you learn how your IT organization can reduce costs and improve operational performance? 2

3 Biggest Barriers Within the CFO/CIO elationship Insufficient understanding of IT issues among finance executives: 44% Absence of a clear set of key performance indicators (KPIs) to link financial performance to the IT agenda: 42% Incompatible processes and tools: 36% Courtesy - 3

4 IT vs Non IT Leaders spending perspectives The McKinsey & Company survey found both IT (62 percent) and non-it leaders (65 percent) view improving effectiveness of business processes as a top IT priority. However, views on priorities split from there. IT executives' second most common IT priority was improving cost efficiency of business processes (44 percent), while non-it executives' second IT priority was providing managers with information to support planning and decision making. Additionally, non-it executives were more likely to expect increased spending budgets for IT than IT executives. Forty-five percent of non-it executives expected an increase in IT budgets or operating expenses compared to 28 percent of IT executives. Sixty-six percent of non-it executives expected an increase in IT spending on new investments, compared to 52 percent of IT executives, according to the McKinsey & Company report. Courtesy McKinsey&Co 4

5 How to control IT Costs via 1. Enterprise Strategic Alignment 2. Disciplined IT Governance 3. Execution and Adaptive un/grow/transform Strategies 4. Summary 5

6 1. Enterprise Strategic Alignment Definition: The ability of management to create a strategic fit between the position of an organization in its related markets and the design of an appropriate infrastructure to support its execution. (Henderson, 1993) Purpose: To create superior economic performance. Challenge: By nature, strategic alignment is an ongoing planning and implementation process to insure the timely, cost-effective, functionally-effective implementation of business initiatives. 6

7 1.1 Enterprise Strategic Alignment BUSINESS-IT ALIGNMENT EMAINS TOP CIO ISSUE esearch on three continents shows that business/it alignment continues to be the top issue for CIOs. Although this issue has been a top-five CIO issue for the past decade, the alignment perspective (indeed, the definition of aligning IT with business) has evolved to a highly strategic business-value level, versus the previously tactical, transactional level. 7

8 1.2 Strategic Business/Technology Alignment as Manifested in Projects is Not an Over the Wall Process. The old way... Customer Input Business esponsibilities equirements The Wall IT esponsibilities Design Build Test elease Problems: equirements change while project is underway. Little customer input except at the beginning. Throw it over the wall mentality. What was built did not look like what was desired. Doesn t allow for technology input into the business or innovative use of emerging technologies. 8

9 1.3 A New Approach, using Strategic Alignment Principles, Starts with Collaborative Strategizing. Business esponsibilities Business Strategy Constant Collaboration IT Strategy IT esponsibilities Business Plan Business Competencies Business Governance Business Architecture IT Plan IT Competencies IT Governance Technology Architecture 9

10 1.4 IT Strategic Planning Process Map. 10

11 IT BUSINESS Change what you do Do what you do better (Excluding Production Matl s & Merchandise) elationships, etc.) 1.5 Strategic Alignment via a Value Map Approach PLOTTING OU POJECTS ON THE VALUE MAP WILL ALLOW A QUICK ASSESSMENT OF ANY GAPS O OVELAPS BETWEEN THE BUSINESS STATEGY AND IT INVESTMENT ILLUSTATION IT S H A E H O L D E V A L U E I M P O V E M E N T evenue Enhancement Operating Margin Asset Efficiency Expectations Volume Price ealization Direct Costs (COGS) Indirect Costs (SG&A) Property, Plant & Equipment (PP&E) Inventory eceivables & Payables Company Strengths External Factors Acquire New Customers etain and Grow Current Customers Leverage Income Generating Assets Strengthen Pricing Improve Logistics & Service Provision Efficiency Improve Dev. & Production Efficiency Improve Corporate/ Shared Service Efficiency Improve Customer Interaction Efficiency Improve PP&E Efficiency Improve Inventory Efficiency Improve eceivables & Payables Efficiency Improve Managerial Effectiveness Improve Execution Capabilities Product & Service Innovation Marketing & Sales Account Management etention CrossSell/ UpSell Cash/Asset Management Demand & Supply Management Price Optimization Service Delivery Merchan dising Logistics & Distribution Production Materials Product Development Financial Management Business Management Procurement Human esources eal Estate IT, Telecom & Networking Order Fulfillment & Billing Customer Service & Support Sales Marketing & Advertising eal Estate & Infrastructure Equipment & Systems Finished Goods Work in Process & aw Materials Accounts, Notes & Interest eceivable Accounts, Notes & Interest Payable Business Planning Program Delivery Business Performance Management Operational Excellence Partnership & Collaboration elationship Strength Agility & Flexibility Strategic Assets (People, Technology, BP_0003 BP_0010 1/2 BP_0003 2/2 BP_0001 BP_0008 1/2 A BA_0004 1/2 A T T T T BA_0003 BT_0002 BT_0002 BT_0004 3/3 1/3 2/3 2/2 BT_0003 2/2 A BA_0002 2/2 T BT_0013 T BT_0010 BP_0005 Most investment focused on reducing costs For many projects, the costs (red area) are greater than benefits (beige area) D T D D D A A BP_0004 A BD_0001 A BT_0004 BD_0001 BD_0004 BD_0010 A 3/4 1/2 1/2 2/2 2/2 BA_0001 1/5 A BA_0003 1/3 A BA_0005 T BT_0001 1/3 T BT_0003 1/2 T BT_0007 1/2 BP_0004 1/4 BP_0009 1/3 BA_0001 2/5 A BA_0003 2/3 A BA_0006 T BT_0007 2/2 BP_0004 2/4 BP_0007 BA_0001 3/5 T BT_0001 2/3 D BD_0005 1/2 D BD_0006 BP_0009 2/3 BA_0001 4/5 A BA_0004 2/2 BP_0004 4/4 A C C C C D D D D D T T T BC_0001 BC_0002 BC_0003 BC_0004 BP_0002 BA_0002 BD_0002 BD_0007 BD_0008 BD_0009 BD_0010 BP_0001 BT_0002 BT_0006 1/2 BT_0001 1/2 1/2 2/2 3/3 3/3 Key Question: Where is IT contributing to create value? D BD_0003 D BD_0005 2/2 Few projects target Changing what we do versus Doing what we do better BA_0001 5/5 BP_0006 BP_0009 3/3 C BC_0001 2/2 T BT_0001 4/4

12 2 IT Governance Governance Charter Statement: To Guide and direct the overall technology development to support and enable <Your Health System s> overall strategies and objectives. With the accompanying role(s): 1. Act as a governance body ensuring alignment of technology priorities with clinical and business priorities. 2. Facilitate transformational value through the proper alignment of people, process and technology. 3. Oversee the implementation of the Clinical & Information Technology (IT) strategic plan and the delivery of IT high profile projects and initiatives.

13 2.1 IT Governance Project Justification Worksheet (example) OM Estimates Strategic Value Scoring 13

14 2.2 Project Submission Example Model N Upgrade Presented by: Sally Smith (Finance) Department Finance Government Pricing Project Type Upgrade Description Upgrade existing Model N version to the latest release; 5.2 to 5.4 Priority Complexity High Complex System(s) Application(s) Business Needs Met Model N, Oracle, SAP, MS Access Ensures that data flowing between SAP and Model N are correct and in sync Maintains compliance of current GP regulations New features, including multiple tables, will be used to ease the process and ensure the validity of Managed Care and Medicaid rebates. Built in tolerances to alert to varying differences in rebates. educe manual formatting of GP data for uploading to CMS website Timeline Cross- Functional Business Units Project Start: Q Duration: 6 8 months 1. IT 2. AP, A, Government Pricing, Cost Accounting 1. Executive Sponsor: Bryan Barley Scope Installation of Oracle database, redesign of database structure Upgrade, test, and rollout Model N software Stakeholders 2. Functional Owner: 3. IT: Nancy Connelly Strategic Value Scoring Scale Score Summary ough Order of Magnitude Year 1 Year 2 Total Mitigates isk evenue Generating Operational Efficiency Overall Value 590 Compliance with GP regulations Ensures validity of rebates Eliminates variance in rebates; may increase volume due to ease of use Decrease in manual formatting for upload process Capital $827,500 0 $827,500 Expense $172,500 0 $172,500 Total $1,000,000 0 $1,000,000 Notes Software and professional services 14 costs included. Confirmed CSC and hosting is not included and are TBD.

15 2.2 Project Portfolio - View

16 3. Execution and Adaptive un/grow/transform Strategies UN What are the technologies and associated expenses to UN your system? GOW What are the technologies and expense to GOW your system? TANSFOM What are the technologies and expenses to TANSFOM your system? Today I would suspect that most of you are spending 75-80% on UNning your system. An /G/T technique is by driving costs out of your UNning, you can invest those dollars into GOWing and TANSFOMing your systems. 16

17 3.1 Typical Key IT Expense Drivers - Examples Personnel Salary, benfit expenses. How? Efficiencies, Economies of Scale, ight Sourcing Maintenance IT h/w and software maintenance expense How? Leverage, Negotiations, GPOs, i.e. MedAssets, etc. Depreciation Capital depreciation How? Lease.vs. Buy, Managed Services Data / Telecom Data / Voice traffic expenses How? Leverage!, consolidating circuits, MWAN (Metropolitan Wide Area Networks) 17

18 Business Value 3.2 Business Value of Information Technology Overview (Financial Metrics) IT Investment Strategy Venture Transform the Business IT INVESTMENT FY 15 % of IT Plan FY 16 % of IT Plan FY 17 % of IT Plan FY 18 % of IT Plan Growth Discretionary Enhancements Non - Discretionary Core Grow the Business un the Business Transform the Business Grow the Business un the Business 5% 15% 80% 10% 25% 65% 15% 35% 50% 20% 45% 35% 18

19 4. Summary 1. Did you learn that your CIO wants to be a clinical and business partner? 2. Did you see several techniques in which your IT spend can be aligned with the strategic objectives of your organization? 3. Did you learn that your IT organization isn t just a financial sink hole of expense that exists for its own objectives? 4. Did you learn how your IT organization can reduce costs and improve operational performance? 19

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21 Kelly Summers, CHCIO Vice President and Chief Information Officer Maricopa Integrated Health System 21