One of the major issues IT executives face is how to charge their departmental costs back to each part of the business according to their usage. It’s a touchy issue that can be the source of end-user disenchantment with the performance and contribution of the IT organization. Ultimately, charge-back friction can hobble IT’s ability to make necessary investments in new capabilities and become the primary cause of misallocated IT spending. The two risks are related: Unless an IT department can calculate the real costs of the services it provides to specific parts of the business and charge for them accordingly, it is almost impossible for line-of-business department managers to assign priorities to the “keep the lights on” part of the budget, so even low-priority maintenance or upgrade efforts can crowd out all but the most pressing needs. The issue of allocating IT department costs spills over to Finance, which typically handles the allocations in budgeting and profit calculations. As a first step toward establishing an effective means of funding the IT function, I believe the finance department must establish better methods of allocating IT costs. Eventually the proper allocation of IT costs also becomes an issue for senior corporate executives as well because it has a direct impact on how effectively a company uses information technology. more

Risk has always been an integral part of business, but as I’ve noted, companies deal with risk with varying degrees of effectiveness. A complex, ongoing process, operational risk management identifies risks to support successful operations of an organization, estimates the monetary and other measurable impacts if a risk event occurs, establishes methods for mitigating the severity of impacts should they occur, continuously measures the probability of a risk occurring within a relevant period of time, periodically reports on the risk environment to appropriate decision-makers and alerts executives and managers when risk thresholds are crossed. These important activities should make operational risk management of greater interest to executives in today’s volatile business environment.

Operational risk management also is a key reason for an emerging trend toward action-oriented IT systems. The easier availability of broad sets of corporate data and third-party data, along with the ability to process it quickly and explore implications in real time, makes it practical to expand the scope of risk management and improve the effectiveness of responses when risk events occur. Operational risk now can be managed more comprehensively – and the potential consequences mean it should be. more

ERP systems not only collect information about transactions, they also automate processes. The latter includes managing the handoffs between roles and enabling electronic document creation and management associated with that. Indeed, it was the promise of improving process management and process execution that spurred companies to adopt ERP in the 1990s.

Yet despite ERP’s ability to streamline and improve execution, our research shows that not many companies use their systems to manage common end-to-end processes such as order to cash and procure to pay. Among companies with at least 1,000 employees, only half (51%) use order to cash and two-thirds (69%) utilize procure to pay. I suspect that even these findings may overstate the actual penetration since companies may have automated some but not all of their order-to-cash and purchase-to-pay volumes. more

I thought of writing a note on this topic when multinational corporations started to withdraw their deposits from eurozone banks, but the pessimism that event engendered was short-lived. Now, as the monetary crisis deepens in Europe, it’s perhaps time to ask what your company would do if parts of its financial system implodes. You may think that your company will not be affected because it doesn’t do business with the eurozone. Or you may believe that it’s unlikely to happen and therefore not worth spending the time to consider the implications. I think both assumptions are mistaken.

Several years ago, during the U.S. financial crisis, I was leading a workshop on planning and budgeting. As an exercise I asked the participants to consider what they might do in an intermediate-term scenario of 12 percent dollar interest rates and 10 percent inflation. Most immediately reacted that “that will never happen.” Of course they were correct – it hasn’t happened. However, that wasn’t the point. Planning is about considering what might happen and understanding the specific, measurable consequences if a scenario should come true. more

Risk has always been an integral part of business, but dealing effectively with risk is a progression. Indeed, history shows businesses adapting and coping better with risk through innovation. The importance of using information technology to manage risk is growing because today’s systems can automatically measure and analyze a much broader set of risk factors than individuals can, and do so more reliably. But a key challenge companies face in implementing enterprise risk management is developing a process for defining and measuring risk.

The objective of enterprise risk management is to optimize risk. By that I mean defining an organization’s risk tolerance and taking steps to minimize risk within the context of its tolerance. Ideally, optimization is accomplished through a formal process of seven steps: more