EFFECTIVE IT SPEND ANALYSIS:
HOW TO FIND THE HIDDEN COSTS OF TECHNOLOGY
Most organizations believe they know how much money they spend on technology. They simply need to ask the CIO. In most cases, the CIO knows the total dollars for his or her department and in some cases, knows the breakdown within the department; however, do they know the cost of technology across the organization? The hidden costs, the potentially overlapping costs? Do they have an understanding of the breakdown of costs across the organization? In most cases, the answer is no. They do not know the technology spend across the organization; therefore, do not have a good understanding of how effective organizational IT spend is. As an example, if central IT is 4% of the budget of a one-billion-dollar organization ($40M), that would align with industry standards. However, if there is another $20M of hidden technology cost, the percent goes to 6%, which is above industry norms. This hidden cost includes additional infrastructure, applications and labor to support an array of capabilities, some necessary and some duplicative of central IT.
How do you develop an understanding of the true cost of IT?
It is important for organizations to periodically perform a detailed IT Spend Analysis that goes beyond central IT. It needs to include central IT, but it also needs to incorporate all aspects of the organization.
At a high-level, an approach that will work includes the following key steps:
Develop a detailed understanding of all the costs of central IT.
Compare central IT spend to a set of peer organizations if possible. This will provide leadership with a benchmark to compare IT costs.
Develop an understanding of IT costs across the rest of the organization. This may be difficult but will provide leadership an understanding of the hidden costs of technology and what the money is being spent for.
Analyze the costs and look for duplicative and overlapping costs related to infrastructure, applications and labor. Decide what costs can be eliminated or at least reduced.
The Angle? If performed effectively, this approach will justify the right spend on technology, reduce the duplicative spend and align central IT services with the needs of the organization.