December 4, 2012 9:28 pm

Spending: Cost control develops into full reviews of processes

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Totting up: trend is for a deeper analysis of data

The management of IT costs used to be a black art for many companies.

In the good times, managers might be forgiven for exercising less than optimal control of spending on a range of barely understood technologies. The downturn has changed all that, however.

“When the top line was growing, managers did not scrutinise their IT costs as much,” says Colin Rowland, vice-president in charge of European, Middle East and African operations at Apptio, a supplier of business management software. “Now, everyone wants to know what they are spending their money on.”

But sensible cost management is about far more than totting up the expenditure on servers, software licences and the IT department’s headcount. It involves a thorough review of business procedures to ensure they are organised to produce results at the lowest cost.

“There is no such thing as an IT project,” advises David Elton, an IT and change management specialist at PA Consulting. “There are only business projects with IT in them.”

This is leading, in the view of some experts, to the role of chief information officer becoming more closely allied to that of chief operating officer, and to some companies giving managers responsibility for IT alongside facilities or property management more generally.

Other observers, however, believe IT remains too complex to become part of a generalist’s portfolio.

Instead of focusing on easily identifiable but essentially random parts of their IT expenditure, such as the number of servers in use, businesses need to look at the cost of delivering particular services, such as email, trading platforms or handheld devices, against the size of the business.

“We take multiple data sources, including the company’s financial data, assets employed and employee numbers, and apply our model to break down all the costs,” Apptio’s Mr Rowland says.

“The customer can see how much he is spending on his IT infrastructure and roll this into a model of how much it costs him per service.”

This sort of analysis can have surprising results. A business running five computer applications might discover that it obtained 90 per cent functionality from four and that the fifth was used by only a handful of its staff. It might then ask itself whether it can turn off the fifth application and still operate effectively.

Another business signed up to an all-day, every-day, high-level support service might find it could manage very well without this service out of business hours and at weekends.

The cloud has become a popular means of buying in computer capacity from a third-party supplier and avoiding the costs of new projects. It allows a company to reduce its capital expenditure in return for increased but visible operational spending that can be tweaked to respond to the swings of the business cycle.

But if a business is already invested in internal systems that have been customised to its requirements, it may make sense to stick with this arrangement. A cloud service that does not fully match the company’s needs is unlikely to bring the efficiencies that are being sought.

The consensus in the industry at the moment is that 60-80 per cent of any business’s IT expenditure goes on running the IT network and just 20-40 per cent is devoted to developing applications that bring about change.

“I advise managers to invest in IT that will change the way the business works,” says Mr Elton.

“The cost of IT is coming down but the cost of implementation is not. You have to manage change or you could find that you are not achieving full functionality from your investment.

“If your investment is failing, you need to look for reasons outside the technology. Look at the implementation.”

Staff need to be properly trained and convinced of the advantages of new IT systems or they may persist with old working methods. A company that implemented a new resource planning system to improve the performance of its human resources department found employees were pasting old Microsoft Word templates on to the fields in the system.

Sanjay Purohit, global head of products, platforms and solutions at Infosys, the consulting and IT services provider, says cost savings and business change can be achieved by looking at management functions such as marketing and human resources in the round. He says cost-cutting traditionally has been undertaken in the infrastructure, applications or services layers of the so-called IT “stack”.

“Rather than looking at costs in one layer, we take a vertical slice through the stack. We started looking at full organisational processes such as digital marketing to see how we could reduce costs,” Mr Purohit says.

The result was applications that allow managers to bring together information on customers, internal contacts and markets on to one cloud-based platform to improve efficiency and reduce costs.

“It is not only about taking out IT technology costs,” says Mr Purohit. “It is about taking out all costs, including those involved in the processes.”

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