Justifying the IT Budget: the Cost of Not Spending

it_spend“Competitive and ever-increasingly sophisticated in the marketplace”[1] describes a company positioned for long term business survival.  Complacency takes the business nowhere but into irrelevance-land, which I think we can all agree is not where most business owners wish to end up…  it makes selling the company slightly more challenging.  Even in markets which were once firmly held to be localized are now open to new – and new kinds of – competitors, due in most part to advancements the development of information technology (IT) as well as how it is applied.  These days, competition is globally facilitated rather than locally, and it’s becoming the standard approach.  Welcome to the cloud.

New paradigms in IT capability and use are spawning huge shifts in what were broadly recognized normal or traditional business approaches.  This realization has created the need for businesses to radically change their view of IT investment and the value of IT within the organization and operation.  Yet IT is rarely an area which gains a strategic focus for investment within most businesses, and is frequently considered to be like a pencil or a particular chair… something the business needs but which has little impact on the company’s ability to compete better.  Au Contraire, Mon Frère:  Information technology is at the heart of business competitiveness, but justifying the desired investment is the great challenge.  Maybe it’s because the focus is always on the great benefits to be achieved with the spend, rather than looking realistically at the impact of not doing it well or at all.  Especially with information technology, there is a large potential cost to be paid for not spending adequately.

While business operations are sustained through IT involvement, economic pressures continue to weigh down business interest in funding IT operations. (which is weird, as there is a lot of evidence that the good bet is on those who do just the opposite). This regular spending reduction and cost control plan has good intentions of reducing the overall cost of business operations. The unfortunate reality is that operations are less efficiently sustained and are even more frequently unable to create or manage any level of growth. Reducing all IT spending is only useful when profitability is also improved and quality is maintained, unless it is an effort to simply stay afloat as revenues decline (and it’s recognized that quality will decline as well). But reducing costs does not help the business seeking to remain competitive in a rapidly changing marketplace, and pulling the pins out of the department primarily responsible for at least keeping things currently in operation operating serves only to chip away at the once-solid foundation. It’s a real problem, this difficulty with increasing interest and justifying increased funding for business information technology. And it all stems from the inability of organizations to clearly and with tangible benefit cost justify the investment.

It is this justification – demonstrating IT investment as a strategic asset presenting an advantage over competitors and positioning the business for future success – which requires effort and analysis to fully describe. Information technology is not a set of servers and software, and it is not websites and portals. It’s not click thru rates or SEO scores. Well, it’s all of that, but it is none of that. There is so much to consider and incorporate, and there are many degrees of success which might be experienced along the way. Information technology is a fundamental requirement in each and every business, and dependency upon it is increasing at a startlingly rapid pace, yet we still can’t quite figure out how to put it all on paper with provable numbers.

It might be easier to forecast in little departmental or functional pieces, but that doesn’t provide a total picture of the enterprise. And it’s often really difficult to quantify the impact of not doing something, or doing it only OK rather than really well. When this data does present itself, it often comes too late and in the form of a comparison to the competition, revealing where the business just didn’t meet the mark as compared to others in the same space.

It all boils down to businesses coming to the realization that information technology investment must be made on a continuing basis. The justification for IT funding must be made, and that justification must necessarily be balanced against the potential implications and impacts of not implementing. This is the only formula which can ultimately describe the value of IT investment in the business.

Make Sense?

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[1] A model for investment justification in information
technology projects: A. Gunasekaran et al. / International Journal of Information Management 21 (2001) 349–364

The Language of Accounting: Disconnect between Accountants and Bookkeepers

The Language of Accounting: Disconnect between Accountants and Bookkeepers

There are a tremendous number of bookkeeper training programs developed over the years which propose to deliver the essential bookkeeping knowledge (e.g., double entry accounting) required in order to properly service business bookkeeping requirements.  Particularly as the CPA profession stepped away from traditional bookkeeping in favor of performing “higher level” and more profitable work, there was and continues to be a great need for skilled and experienced bookkeepers.  While it seems that accountants and bookkeepers would be a natural fit for partnering to serve small business client needs, there is often a disconnect between the two which causes the working relationship to not always prove as beneficial as it could.  What is the cause of this disconnect?  In many cases, it is due to the fact that the bookkeeper training educated the operator on the use of a software product, and not on the fundamentals of accounting and bookkeeping.

Over the past few years, I have had the opportunity to look through a lot of bookkeeper training programs, and the thing that stands out is that many of these programs aren’t really training bookkeepers on accounting principles.  More frequently, the training is focused on teaching users how to use software (usually QuickBooks).  With the number of users of the QuickBooks product, it is obvious that there is a need to educate users on the solution because people need to know how to use their software properly.  But it happened at some point in time that a majority of the industry came to believe that learning QuickBooks (or Xero or Freshbooks or Kashoo or whatever) was somehow synonymous with learning bookkeeping.

When I first started working with my father in his accounting practice, I had to use a manual general ledger, check register, etc.  It was all manual – computers didn’t come along for a while (yes, I am that old).  It was time-consuming, but it taught me the fundamentals.  I know what a subledger is.  In consumer-friendly software like QuickBooks, you don’t work in the AR subledger; you push the button that says “customers” or maybe “invoices”.   QuickBooks, in many ways, doesn’t speak accounting.  It speaks record keeping.  And this is where the disconnect begins.

An old school accountant will recall the green eye shade days and working with book ledgers and 13-column pads, but even “new” school accounting professionals know that the fundamentals of accounting aren’t available for re-invention.  A debit is still a debit and a credit is a credit.  Yes, there are intimacies involved which speak to specific treatment of items for reporting and tax purposes, etc., but the essentials of double entry and other basic accounting principles are consistent and unchanging.

The “language of accounting” includes certain precise terms with specific meaning, and this precision in the use of terms simply doesn’t exist in many bookkeeper training programs. Rather than focusing on the fundamental accounting training bookkeepers truly need in order to be of maximum value to the business, these programs focus on helping users become experts in using the software product, or even to become experts at teaching others how to use the solution.  While this software expertise may be beneficial in terms of helping accountants work with their clients who use the software, it doesn’t add enough value to the relationship to warrant partnering.  What accounting professionals need are bookkeepers who understand bookkeeping and who can apply basic accounting principles to the task.  Which software they operate is secondary to that purpose.

Professional bookkeepers, accountants, and the business client are all in a position to benefit tremendously when the service providers team up to provide comprehensive service.  The key to making these connections lies with the professional bookkeeper who must not only understand basic accounting principles, but must also be able to speak to the accounting professional in their native language.

Make Sense?


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Opinion:   I think that every QuickBooks training program should include taking the sample data file in QuickBooks, and translating that to a manual accounting system of book ledgers and reports.  Then, have the student process a years’ worth of transactions manually and from paper-based source materials (and also make them create and use a manual paper filing system for all that information, and come up with a means to travel to obtain all the documents necessary which aren’t mailed via USPS).  The requirement would include generating the bank reconciliations from printed bank statements and cancelled check copies, creating a trial balance from the general ledger and then creating the P&L and Balance Sheet.  I’ll bet you end up with a group of bookkeepers who better understand the fundamentals of the accounting process.  The other benefit is that these folks will have a much better understanding of the problems in the outsourced accounting model which can be directly addressed and solved by today’s cloud and connected solutions.