CME is the world’s leading and most diverse derivative marketplace, handling three billion contracts worth approximately $1 quadrillion annually, on average. Electronically driven, CME has about 1,000 employees in IT and an IT budget of $300 million-$500 million.
Carl explained that two of the key questions he wrestles with are: “What is technology finance?” and “How do you combine both?”
In the past, CME had separate technology and finance experts who frequently talked past each other. Today, CME has integrated its technology and finance experts, and they speak a common financial and technical language. Looking ahead, CME wants to build and instrument technology finance systems with metrics from the very beginning. Incorporating business, financial and technological measures would go a long way toward engineering CME for financial and technical success (see graphic).
That said, as Carl made clear, it’s very challenging, but very critical, for IT leaders to be able to talk the CFO’s language in detail and depth. Whether it’s understanding a chart of accounts, the capital asset process, miscellaneous expenses, or a “base” income statement, it’s a new vocabulary and new concepts. But without this, there’s no way to successfully explain, or sell, what IT is accomplishing to the financial team.
The whole issue of service costing looms large, too, according to Carl. And showing how IT costs are assigned frequently leads to heated internal debate, so IT leaders need to be prepared with facts and data.
One of the typical customer responses to service costing, as Carl noted, is: “We already paid for this product; there are no savings from modifying consumption.”
Successfully responding to this kind of push-back means that IT’s service income statement must be fully understandable to business line managers (see graphic); service costing breakdowns must be crystal clear; and technology division performance metrics must be analytically sharp and accurate.
Also, as Carl showed us, IT leaders can help make their case if they can correlate low cost, strong technology stability and high satisfaction.
Finally, I was particularly struck by the way Carl’s team prepared different budget options – including a functionality opportunity budget to quickly meet business needs; a reliability and scalability opportunity budget to improve performance, reduce outages and reduce systemic risk of failure; and an efficiency opportunity budget, which spends money today to eliminate old systems and processes so that costs can be reduced in future years.
This multi-pronged approach clearly demonstrates how “business-like” IT leaders really can be.
CME’s TBM Analysis
- Strong financial (cost) data and project-related data with routine (monthly) reviews
- Excellent control of spending from a corporate finance perspective
- Regular reporting of costs and performance metrics to business partners
- Mature baseline budgeting and planning process with monthly reviews
Focus areas for improvement:
- Improve definition and communication of services
- Create reviews and optimization processes for service-oriented costs and consumption
- Improve consistency of portfolio reviews and management processes
- Improve linkage of technology goals (including financial) to business goals
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