September 13, 2007 By Shayne C. Kavanagh
Photo: Oakland County, Mich., CIO Phil Bertolini and CFO Laurie Van Pelt
The concept of "shareholder value" has been influential in the private sector since it was introduced in the 1980s. This philosophy directs businesses to maximize earnings and growth, which should then be reflected in stock price. Further, it implies critical behaviors such as evaluating all strategic decisions based on their potential to create value and only carrying assets that positively influence value, according to Ann Senn and Kenneth Porrello in Decoding the CIO-CFO Relationship. The private sector has recognized that close cooperation between the CIO and chief financial officer (CFO) is essential to helping IT projects and assets maximize shareholder value.
A similar dynamic is occurring in government organizations focused on creating "public value." Public value is the combination of cost-effective program delivery and achieving outcomes of value to constituents.
Technology is a key lever for creating public value. Just to cite a few examples, it can help control costs through automation, provide consistency in service through process management and through business intelligence, it can better identify citizen demands as and whether those demands are satisfied. CIOs and CFOs in leading public-sector organizations are working together to use technology to create public value.
A Relationship That Maximizes Value
It's impossible to maximize public value for the tax dollar without close cooperation between the CIO and CFO. As Phil Bertolini, CIO and deputy county executive of Oakland County, Mich., said, "No CIO can be truly successful without a close partnership with the CFO. Our CFO finds the resources the county needs to make the best use of technology and helps me keep the discussion about technology squarely centered around the value it produces, not just cost."
Identifying Sources of Value and Funding
Simply put, the CIO identifies technologies with potential for creating value and the CFO finds a way to fund them. In most public organizations, the citizens place comparatively little value on IT investments when weighed against more visible assets like parks or facilities. This means the CFO's support is vital to a regular IT funding mechanism. For example, in Las Vegas, the CIO and CFO created an internal service fund and chargeback system that supplies a dedicated source of funding for IT. This has allowed IT to provide a consistent level of service, as well as make improvements to the city's capabilities while avoiding over-politicization of the allocation process.
This isn't to say that Las Vegas pursues an opaque funding strategy - in fact, it's quite the contrary. In Las Vegas and other governments, IT governance makes IT decisions more transparent and brings the CIO, CFO and operating departments together in a forum where they can make joint decisions on allocating IT resources.
The CFO's involvement in IT governance emphasizes the need for a positive return on investment (ROI) from projects. Though this certainly helps derive greater benefit from projects in an individual department, it has much greater implications for overcoming "stovepiped" departments - a problem endemic to government.
Because participants in the governance process know that funds won't be allocated absent a positive ROI, they are more mindful of potential synergies between departmental projects and other opportunities to reuse technologies when proposing projects to diffuse costs and multiply benefits, thereby improving the ROI.
For example, in Nevada County, Calif., the Public Health Department received a homeland security bioterrorism grant to implement an interactive voice response (IVR) system to rapidly contact first responders in an emergency. In some governments, this grant may have simply led to the system being implemented within the department. However, in Nevada County, the grant was used as a springboard to create much greater public value. Through its IT governance mechanisms (e.g., joint review of project proposals), there was a shared recognition of the potential value of IVR for a host of county functions by both the CIO and CFO.
By directing a little extra funding toward this project (20 percent more than the baseline project cost), the county transformed an otherwise isolated project within a single department into an enterprise platform. To illustrate, the library used the IVR to discontinue 35-cent, late-notice postcards in favor of an 8-cent automated phone call. Similarly in the community development function, county inspectors can now phone in inspection results, including the remedial actions required of the permit holder. Construction contractors can access the results immediately and then use the system to schedule a reinspection.
The close involvement of the CFO is also important for technologies that cross departmental boundaries - a more common occurrence as government tackles increasingly intractable problems that can only be addressed by a multidisciplinary approach. It can be difficult to coordinate funding and resources across department boundaries because the centrifugal forces inherent to government can work against cooperation. The CFO can marshal resources and promote cooperation for these types of projects.
For example, the Ogden, Utah, "Good Landlord" program sought a comprehensive approach to reducing crime and improving the quality of life in rental units. This required cooperation between several city departments and working closely with landlords. IT's role was to help define the problem (data analysis showed that rental units used three to seven times more public safety services than owner-occupied housing) and enable better information sharing between departments. The CFO's role was to coordinate the budgets of each department so the necessary personnel and resources were directed to the program and so that the city could track costs. Because of this cooperative and coordinated effort, officer dispatches to these properties were reduced by 8 percent and serious crimes went down by 12 percent.
Realizing Value from Dollars Spent
After funds are spent, the CIO and CFO must cooperate to ensure value is realized. At the most basic level, purchasing procedures must be aligned with IT strategy. For example, all purchases must be consistent with agreed-upon technology standards, and all purchases should be consistent with long-range technology plans. This requires that purchasing staff work closely with IT staff to review requested purchases. However, there are more advanced ways the CIO and CFO can work together.
The first is setting chargeback rates. Chargeback rates can harness marketlike forces to motivate usage patterns of IT that are consistent with the organization's overall IT objectives. Setting chargeback rates requires a clear understanding of the service level that IT will provide to its customers. Working through the governance structure, the CIO and CFO, along with the other participants, must consider how extensively technology will be used in business processes, as this will impact the resources required by each employee to fully participate in those processes.
For example, will employees have access to systems like group calendaring, e-mail, customer relationship and document management? Providing these capabilities entails costs, which should be included in the chargeback. If the CIO and CFO have a mutual understanding of enterprise process automation goals, then technology can be provided at an appropriate level and charge. This provides the basis for economies of scale and service consistencies, which result in greater value production.
The second is assigning accountability to technology investment results. This usually requires changes to business processes and employee behaviors. Only the operating department that is the end-user of the technology, not the CIO, can effectively make these changes. In many cases, the CFO has direct control over the organizational subunits that are end-users of a particular technology. Even in cases where the CFO doesn't have direct control, the reality is that he or she can often wield more influence over other departments than the CIO can. The CFO may have greater access to a chief administrative officer or CEO who has the formal authority to prompt changes; or the CFO may be able to more easily modify an internal control environment that's hampering the adoption of technology-enabled best business practices.
As technology becomes an increasingly important part of government business, a solid strategy for managing IT assets will be needed. The CIO's interest in IT asset management (ITAM) is self-evident. The CFO is responsible for accounting for and reporting on all of the organization's assets, and effective ITAM requires cooperation from multiple departments, especially where the IT function has a decentralized character. The CFO is usually better positioned to secure that cooperation.
Aligning IT Spending with Benefits
As IT becomes more prevalent, it has a larger impact on short- and long-term spending plans. When formulating annual spending plans, the CFO and/or his or her representatives should be included on the governance committees that review and prioritize the business cases for new technology projects. This is key to aligning annual spending on technology with the benefits available. The business case process describes available value, while the participation of the CFO provides a linkage to funding decisions.
CIOs and CFOs who work well together are most enthusiastic about improving long-range planning - a discipline that hasn't traditionally been a strong point of public management. The CFO's support is critical to building long-range IT asset management and replacement plans because for the plan to work, funding must be made available.
The CFO benefits from cooperative, long-term planning because it provides a clearer picture of the total obligations of the organization, enabling the CFO to devise more effective strategies to maintain financial sustainability.
Roanoke, Va., plans to convert from analog to digital radios at a cost of between $10 million and $15 million - or about 10 percent of the city's total five-year capital improvement plan. IT and finance will work closely to ensure that the project is completed before the effectiveness of the existing radio system degrades, while balancing other high-priority, nontechnology spending needs facing the city.
Decreasing Resources, Increasing Demands
The combination of decreasing public resources and increasing service demands is well documented, especially in the area of hiring new personnel. Las Vegas, where the population has grown by almost 50 percent over a 10-year period, hasn