IT costs rationalization

added: 27 listopada 2014

that is how to adjust IT costs to business needs and possibilities.

 

Enterprise and institution managers are frequently searching for answers to the following questions related to expenditures for IT services:

  • How much does IT support for individual business areas cost and what is the source of those costs? Are those costs justified?
  • Which services can be left out in order to reduce IT costs, while still maintaining the continuity of business operations?
  • What influence will the development of the business have on IT costs (new employees, new clients, new products)?
  • How to prepare a reliable and effective IT budget?

Sometimes, one can come across the humorous opinion that expenditures on IT are similar to those on advertising—we could cut down on half of them, but we do not know which half ;).

Then, what should be done in order to efficiently manage IT costs, i.e. not to spend too much on IT, while still providing appropriate business support?

It is useful to answer the following questions:

  • Where are we?
  • What does IT do and for whom?
  • How much does IT cost and why?
  • What can we do about IT costs?

Question 1: Where are we?

The size and the structure of the IT budget cannot be assessed without the consideration of the nature of the enterprise, both in terms of its business, as well as IT. Simple comparisons to other organisations (benchmarking) frequently lead to invalid and, consequently, mistaken conclusions.

In order to verify whether the scope and costs of IT support are justified, the business model of the organisation and the resulting IT needs connected not only with the functions of individual systems, but also with the manner in which they are used (work hours, the influence of IT systems on the continuity of business processes) should be analysed first.

The awareness regarding the applications and IT infrastructure which are at the disposal of the enterprise and the manner in which they are managed is also required. The structure type, implementations and the use of IT systems, including the scope of engagement of external suppliers, has a significant impact on costs related to the use of those systems and their optimisation possibilities.

Question 2: What does IT do and for whom?

The efficient management of IT costs requires, first and foremost, a good understanding regarding which applications and the IT infrastructure are at the enterprise’s disposal and how are they utilised.

In order to achieve that, the scope of services which are supplied by the IT organisation to each business area (the so-called business services) and the components of those services, i.e. applications and the IT infrastructure maintained and developed by individual teams within the IT organisation and by external suppliers (the so-called support and external services) should be described.

This is how an IT services catalogue is created, which also constitutes a structure allowing for the verification whether IT costs are justified and the manner in which those costs are allocated with regard to individual business areas.

Question 3: How much does IT cost and why?

The typical IT costs are: employee remuneration, external services, equipment and depreciation of hardware and software, as well as costs connected with the operations of the IT organisation which are generated within other business areas (e.g. the cost of office space, energy consumption). Such costs structure does not allow, however to explain whether their amount is justified and whether it results from the support required by the business.

The key to understand it and, subsequently, to efficiently form IT costs is connecting those costs with the applications and the IT infrastructure, and then allocating the costs to business areas in compliance with the scope and the manner in which they use IT systems. This causes the IT budget to become more transparent and the validity of individual costs can be verified.

Question 4: What can we do about IT costs?

When we know who uses IT services, in what scope and how much does it cost us, we can analyse whether all IT costs are justified, what are the reasons for their fluctuation throughout the year and subsequent budget periods and where IT costs could possibly be reduced. It is also worth remembering that an increase in IT costs frequently results from an expansion of the scale of business operations (additional licences for users, additional IT infrastructure) and the development of business in new areas (new investments introducing new IT systems or changes in systems).

IT costs optimisation can either result from changes in IT systems and the manner in which they are managed (IT supply management), and from the change of the manner and the scope in which IT is utilised for the business (IT demand management).

Examples for IT costs optimisation:

  • The verification of the amount and the validity of the IT budget

    Connecting IT costs with services provided by the IT organisation allows for the verification whether all cost items are necessary and whether their value is justified. A market verification and a trend analysis concerning the changes in the amount of costs over time enable the identification of those costs, which could be reduced, and the justification of an increase of costs with regard to the execution of new investments (new implementations of IT systems or amendments of legacy systems) or business growth. Frequently the mere pairing of costs with services allows for the identification of those items which are not crucial and can be forgone.

  • The analysis of IT outsourcing profitability (including the use of cloud-computing)

    The knowledge of IT services’ costs (both business and support) allows for conducting the analysis of viability and consequences of outsourcing selected services. In particular, it is possible to precisely identify those costs, which are actually going to be reduced and those, which will continue to be incurred by the organisation despite the fact that certain fragments of the IT environment were outsourced (e.g. costs of ongoing external contracts, costs of employees who provide other services as well, costs of released and unused capacity of the IT infrastructure).

  • The modification of the scope and the manner in which IT systems and equipment are used by the employees

    The verification of the scope in which employees can access IT systems and adjusting that access to the actual needs of individual business areas can translate into a lower demand for licences, external services and IT infrastructure. A typical example for that is limiting the access to particular systems for persons who do not use them every day but were granted access as “a part of the package” together with other functionalities, or decreasing the number of applications installed by default on each work station.
    IT costs are not only the result of the access to applications and IT infrastructure, but also of the manner in which they are used for business. The increased expectations concerning help desk availability (e.g. 24/7) or a shorter time required for the restoration of IT systems after a failure significantly influence the generation of costs connected with the maintenance of additional staff, more expensive infrastructure and external help desk contracts. The verification and adjustment of those expectations to the actual needs and possibilities of individual business areas can significantly influence the reduction of IT costs or justify incurring certain expenditures in connection with a material business need.

  • The standardisation of systems and IT equipment

    A lower number of various types of technologies used by the organisation allows for reducing costs connected with servicing particular IT systems, since less specialists with diverse knowledge are needed, the expenditures for trainings and IT staff development are decreased and the costs of external contracts are reduced as a result of economies of scale. A typical example of such savings is introducing several standard work stations, limiting the types of applications with a similar purpose (e.g. reporting systems) or the unification and the centralisation of IT infrastructure.

Ultimately, approaching IT costs in terms of their effectiveness should be based on the cycle within which IT costs are planned, and which is divided into services and the clients of those services (business units). The actual costs should be reported, changes resulting from new projects and operational alterations should be managed and optimisation possibilities, which allow for IT services to be delivered to businesses at expected levels and within justified costs should be searched for.

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In order to support enterprises in effective IT costs management we created the HADRONE system which delivers value resulting from the combination of experience and economic knowledge of its creators with IT management practices.

Due to the built-in method and unique features, HADRONE allows for a simple analysis and informed optimisation of IT expenditures and, as a result, it supports the process of continued adjustment of the scope and costs of IT services to actual business needs, possibilities and limitations.