What is corporate IT worth?

The CIO is under steady pressure to cut costs. That is no wonder; as information technology is getting commodity it's more and more seen as a cost center and Finance - which controls cost - wants to less and less of it. We - IT guys - know that it's wrong. IT is a key enabler, it can extend our mental capabilities (by extending our memory, calculation and analysis capability, process control and fast information retrieval) and support innovation with tools and methods which can't be done otherwise.
Why can't we make this understand?

In reality we expect our company to invest in IT heavily and expect no - direct - return. No wonder they are not happy if we can't show them the return on their investment.

If IT were a company and the finance people investors maybe they would like to see our balance sheet. A simplified IT balance sheet would look like this:

Assets                                                                                             Capital
Immaterial assets                                               Funds
  Licences                                                         Loss
  Copyrights                                                         
  Applications                                                    
Equipment
   Server
   Workstations
   Network gear

On the assets side we have all the equipment and licenses the company owns which are funded by company. The Funds are decreased by the Loss IT makes, that is the difference between the amount of money the company is investing year by year and the fast diminishing value of computers and licenses.
If it were a firm the value it has would be equal to  the value of equipment and licenses it has at the moment. No wonder that CIOs want more investment (because it increases the value of their "company") and management would like to get rid it it, that's outsource it (because it loses money).

How could the IT make money for the investors i.e. for the company? The only way to do it to make projects which create value. There are three kinds of project IT can support:

1. IT internal projects 

Such a project - e.g. virtualisation - decreases IT costs i.e. losses but doesn't make money.

2. Company project with IT participation

In a "normal" company there is no project without business case so we know the value of the project.  We are interested only in projects which can't be done without IT. In that case the IT investment for the project is like an option to buy the benefits of the project. That is good news because there are very good models for the financial options (e.g. the  Black-Scholes model).  That means we could use these tools to define the value the option i.e. the value of IT contribution. (Which is not equal with the IT investment).

3. Cost avoiding projects

These typically are the security or compliance investments. They don't generate value but help to avoid unexpected losses costs. If these losses can be assessed we are back at point 2. 

What if the IT department had a virtual account which would pay all the costs ans receive all the options above? Suddenly we could use all the tools of finance to evaluate the performance of IT and see how many value IT creates or destroys.

Technically it's not a big deal, but it requires transformig Finance from mere accountants and controllers to investors, at least in terms of mentality. I don't know if it's possible.

However it had a more profound effect on IT.  If IT management could realize that it's job is to make the most possible value of the less possible investment it would assume that businesslike behavior many analyst have asked for since long.