CFO Communication 101

Understand the Audience

One of the easiest ways to make a point about the value of technology is to translate the technology's capability into something the audience—the CFO, or IT governance board—can identify with, says Patricia Tilton, a partner and national service leader for the insurance practice of KPMG LLP (New York), a professional services firm. ""Technology facilitates the business processes that feed the company,"" Tilton says. An IT leader ""has to demonstrate to the business leaders how technology will make their jobs easier. That is a value that everyone in the organization can understand.""

Without the basic understanding that the technology will improve some facet of the business, gaining approval for funding will be very difficult, says Eric Miller, senior principal at Highpoint Partners (Charlotte), a full-service project management consultant. ""General CRM is a hard sell to a CFO because it is so hard to quantify if presented the wrong way,"" Miller says. ""To go to the CFO and say a certain technology will save money, without elaborating on things like cost avoidance, benefits and specifically in what area costs will be reduced, won't get you very far.""

No More Investing for Tech's Sake

Adds KPMG's Tilton, ""Getting into the bits and the bytes and saying the company should invest in the upgrade just because 'version five' is out does not work. But if the CIO can show how 'version five' can help the business, that should work.""

For instance, Highpoint's Miller says, a CRM project could involve call center technology. ""You need a business and technology model that looks at the process and relates to things that business people understand,"" he says. ""Let's say that for every in-force policy, the company will receive one call per month. With 100,000 policies; that's a lot of calls. Now if the business wants to grow and increase the number of policies, as a CIO, you have to be able to translate how the increase in business will impact the call center,"" he adds.

""Then you can approach the CFO and say, 'If we increase sales by X percent, we'll see an X percent increase in incoming calls, which means we'll need to hire X number of more representatives to handle the calls,'"" Miller continues. ""Now the CIO can say, 'But if we implement a new IVR, 25 percent of the calls will be handled automatically, which means a savings of X, which will give us a return in X number of months.' That is operational cost modeling and that is something that business people understand.""

Total Cost of Ownership

At Farmers Insurance, Binns says, the company is spending much more time examining that total cost of ownership of IT projects. ""First and foremost, the project is analyzed for how it will impact business operations,"" Binns says. ""But it is also looked at for total cost of ownership. Understanding what it will take to get the product out the door is one thing, but supporting it, maintaining it and enhancing it is another thing."" For instance, it may cost $1 million to develop the project and $150,00 a year to maintain it. But if the benefits of the project—the increased efficiency, increased sales or reduced cost—add up to less than the total cost of ownership, there had better be a very strong reason why the project should be implemented.

""We are really getting down and dirty up front to understand the total cost of ownership,"" Binns adds. ""We really want to know how projects will benefit the company in the long run.""

In other words, calculating the total cost of ownership will eventually help management determine the return on investment for a project. However, with IT, sometimes ROI involves fuzzy math, says AXA's Rogers. ""My first inclination is that if I set company standards to earn 15 percent return on equity, I look for all areas of my company to return that kind of number,"" she says. ""You could argue that other investments may only be earning returns of six percent or less in the market and therefore the range for an IT project may fall somewhere between these two extremes. I would argue that 15 percent might be the more likely candidate, as I look forward to creating efficiencies in processes with the overall intent to reduce expense and improve service that could drive pricing upward to obtain this return.""

However, Rogers adds, ""There are inherent risks in determining ROI, because often one has to be able to quantify the benefits and these will be soft numbers. So in establishing ROI, I would expect a range of acceptable returns and potential paybacks. But immediate payback is always better.""

Making Friends in High Places

Similar to the way Rogers manages AXA's finances and looks for an ROI across the entire operation, many CIOs are managing an IT portfolio, says BTAG's Cioffoletti. ""Not every project is going to be an absolute winner,"" he says. ""If you have six projects, you hope that the aggregate for the entire portfolio will show a good ROI. If the performance of the overall portfolio is going well, they may let the CIO slide"" on the projects that are struggling or under-performing. ""However, you have to gain the confidence of the CFO before he allows you to manage a portfolio. Only the CIOs that have some face value and have the respect of the CFO will get the opportunity.""

In order to get a chance to show their worth, CIOs shouldn't resist management's push towards setting short-term deliverable goals. ""With an ROI timeframe of 24 months, there were management changes and there was not much accountability,"" says Cioffoletti. ""An ROI of three to six months forces accountability, and the business leaders are sticking to it.""

For instance, AFLAC's Lester says, ""our project management officer audits all projects. The COO hears the results. We review projects when they are finished,"" he adds. ""And sometimes we stop projects when they are not going right and reevaluate them.""

Short-Term Deliverables

The practice of enforcing short-term deliverable goals, says MetaServer's Aubin, is a result of dissatisfaction with results from large, long-term projects. ""The traditional approach was to implement a huge project that took 18 to 24 months,"" but it was hard to track results and manage, he says. ""CFOs are now being more aggressive and are watching every dollar. It is in the best interest of a CIO to do things in small, bite-size chunks, show a good ROI, and gain the confidence of the CFO,"" according to Aubin.

Without having to become an outright sycophant, there are ways a CIO can develop ""CFO-friendly"" projects, says BTAG's Cioffoletti. ""Get a couple of financial or analytical projects under your belt. If you do a good job with that, the CFO may be a little more friendly towards you.""

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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