The Cost Information Shortage
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It's hard to manage IT costs effectively if your company doesn't have the information it needs. But getting that information is a huge job - total cost of ownership has a lot of moving parts, and estimating future costs is no small task either. Multiply these complexities by the size of the company, and it's no surprise that our cost management survey came up with this finding: |
Only 61% of respondents at companies over $1 billion agree that "my company's top business and IT managers have the information they need to effectively manage IT costs." That's a smaller percentage than firms between $100 million and $999 million (77%) and between $5 and $100 million (83%).
And I'll bet those firms that think they have all the cost information they need aren't quite as good as they think.
A big part of the problem is indirect costs: less than half of $1 billion + organizations (48%) agree that "my company does an excellent job of measuring and managing indirect IT costs." Mid-sized firms split evenly on this, but small companies are more sanguine at 62%.
Another is that many companies don't perform the calculations that would help them get a handle on costs. Just 65% of $1 billion + companies perform a TCO analysis; and ony 50% perform an IT lifecycle cost analysis. (These numbers are comparable to smaller organizations.)
But it is remarkable that so many large companies - which have invested in massive ERP and financial systems, and improvements to meet the financial reporting requirements of Sarbanes-Oxley - are still struggling to get IT cost information. Add that to the CIO priority list.
Comments (2)
Very interesting post. I think it is also important to note that IT professionals should be able to measure costs not only in terms of their IT context, but also in the broader business context. Is this system supporting an area that is core to my business? Is this business area strategic enough to support this cost level? Should I be investing more in another system because of its business priority?
Posted by Peter Mollins | September 21, 2007 3:17 PM
Allan:
Great insight, as always. I've also noticed that senior business leaders and sometimes even IT leaders fail to understand even the basic components IT cost. Especially in organizations where there is focus on IT spending as a share of revenue (a flawed measure that is inevitably increasing), there is little understanding of the elemental factors of unit costs (often decreasing, except for those units with a significant labor component), and demand for those units, which is outside of IT's direct control, and often increasing at a significant rate.
Increased IT spending isn't always a problem. Sometimes it simply means the business is catching up from past under-investment, or investing for the future. It is time to deconstruct and confront the knee-jerk reactions to IT spending.
See my article The Money Trail in CIO Insight from a couple of years ago.
Posted by Robert S. Gold | September 23, 2007 11:30 AM