Mark McDonald, group vice president and head of research in Gartner Executive Programs, suggests replacing the IT budget / revenue ratio with a metric that has meaning – like IT headcount to Free Cash Flow. That is a metric one CIO is using and it makes more sense because it can be managed.
He suggests measuring IT headcount because more than 70% of most IT budgets are already contractually committed – effectively removing them for short-term management changes. IT headcount is the result of factors the CIO can control, like the level of automation, the skill of their people, the structure of their operations and the nature of their IT investment budget.
McDonald suggests that free cash flow is a better numerator, as it is more indicative of a company’s health. Management can influence free cash slow and manage it to some extent in either a strong or weak economies. Case in point; look at organizations building cash in the recession. Free cash flow is also something that IT can influence as IT systems integrate process and information flows which improves end-to-end process and cash performance.
It is harder to measure, free cash flow and IT headcount, but it should produce a clearer signal and inform better management decisions and actions.