While economic pressures have put the spotlight on short-term IT cost savings, according to a new report by Butler Group (a Datamonitor company), of even greater significance is the longer-term emphasis on the strategic management of IT costs, as well as getting value from existing and new IT investments.
Titled: “Managing costs in IT - Maximising the value of IT assets and budgets”, the report identifies that for IT management there is a continual balancing act between cost, quality, and risk. MarketWorks (the exclusive distributor for Datamonitor in southern Africa) contributed to the report, and believes the key messages are relevant to South African companies.
MarketWorks Advisory Director, Terry White, believes: “Cutting costs too deeply could impact service quality or open up the organisation to unacceptable risks. It should also be remembered that customer satisfaction remains an important business imperative.” An area that has long been undervalued within the IT function is risk management, and this too, in Butler Group's view, should start to move higher up the agenda.
The current economic situation can be viewed as an opportunity to become smarter in the way technology is utilised, especially by better utilising existing IT assets.
Butler Group recommends the deployment of IT governance, which should be used in conjunction with the corporate governance initiative and employed not just for compliance and management reasons, but also for providing a framework for measuring and controlling IT costs.
“It is not a question of how much is invested in computer systems, but the effectiveness of the spending. Most organisations have very little visibility into IT performance”, says Mark Blowers, Enterprise Architectures Practice Director and co-author of the study. “This needs to change - due in no small part to the growing compliance and regulatory pressures, which entail IT management having the wherewithal to prove the department is being run effectively and offering value. To provide this transparency and accountability, many enterprises are turning to governance as an important mechanism for controlling the organisation.
“The effectiveness of IT investments is a very significant factor in the ability of IT to provide value. Organisations must establish a clear IT service model against which costs can be allocated and performance monitored, including establishing a baseline for both these attributes. Most importantly, this measurement should then be linked to business activity, which enables rational decisions on IT cost management to be taken and understood in the context of business operations and objectives.”
White adds: “CIOs and finance directors seem to miss the most important facet of IT economisation - and this is that IT cost and value management is a business issue.” He goes on: “How many IT projects have dubious or non-existent business cases?
“Stop these immediately,” he adds. “This is not easy to do, however. There's politics and egos involved.”
He goes on to say: “There's an assumption that IT is somehow separate from business. I've seen too many CEOs tell their IT managers to cut their costs by xx%, without any clear understanding of the business impacts and risks associated with these actions.”
“IT cannot cut costs unilaterally.” White's IT budgeting model used in the report and utilised by a number of organisations both in South Africa and internationally, gives business executives the means to understand the cost, quality and risk implications of cost cutting. “Many CEOs get the 'aha!' moment,” says White. “For the first time they can see the implications of cutting costs in IT operations, while understanding the role that they and their executives play in managing the business use - and misuse - of IT.”
“The biggest challenge facing business and IT at the moment is not just a constraint of financial resources - it is also about being wise in using what resources you have.” White concludes: “If we can get both business and IT management to understand the interconnectedness of everything they do, and to act jointly to manage IT costs and value, then we will have achieved something in these tight economic times.”
Organisations will need to be selective and initially opt for those initiatives that will achieve the best returns in the shortest time period.
IT projects should not be viewed in isolation, but looked at holistically as one element for improving the effectiveness of the whole organisation. What has been found to work well is incorporating IT projects as part of organisation-wide initiatives, where the IT element is an enabler rather than the main driver. A good portfolio management solution helps an organisation select the right blend and balance of IT investment, as it is critical that those projects are selected make the best use of both limited financial and human resources, and provide the maximum value. Doing the right thing is just as important as doing things right.
“Organisations are no longer willing to make speculative investments in information systems without a clear understanding of the costs and measurement of the benefits. Today, a new air of realism demands that cost efficiencies must be derived from existing systems, that costs must be firmly controlled, and that new projects must add value,” says Blowers.
“When considering the opportunity for IT cost savings, it is important to appreciate there is no 'one-size-fits-all' solution. Organisations will need to be selective and initially opt for those initiatives that will achieve the best returns in the shortest time period. However, IT cost reduction should be gained through a systematic and holistic approach, as well as being integral to existing IT processes and management, in order to that the best value is being achieved from the organisation's IT investments.”
Providing an IT capability is one thing: operating, maintaining, and managing it cost-effectively through its whole life cycle is another.
In order to provide the required levels of transparency, IT management must put in place the foundations of well-managed IT assets and capabilities, comprising infrastructure, processes, and skills, along with the use of automation, which form very important enablers for successful cost-control processes. Ad hoc manual methods based on spreadsheets are no longer an acceptable or a practicable solution; especially as data quality for accurate and comprehensive IT reporting is now crucial. In order to reach the required level of consistency, the use of an architectural approach and the deployment of an integrated toolset and common repository must be an area of focus, as is the setting up of feedback loops and dashboards.
Once a service is in the live environment, the facility to track its performance and behaviour is an important capability. The highest costs are incurred once a service is deployed in the live environment. Reducing problems in this phase can bring considerable benefits to the overall life cycle costs. From the very beginnings of IT there have been silos of one kind or another in the technology infrastructure, and also in the functions and people aspects of the organisation. Within IT, better harmonisation of the application development and deployment areas can help the IT function become much more agile and cost-effective. The IT department must grasp the thorny issue of chargeback: while the expectation is that, in many instances, no cash actually exchanges hands, how can the user perceive value when IT services are provided for 'free'?
Jonathan Saulez, MarketWorks Managing Director, concludes: “The objective of Butler Group's report: 'Managing costs in IT report - Maximising the value of IT assets and budgets', is to look at all aspects of costs as they relate to IT, and to help IT management draw up a coherent response that meets both enterprise and stakeholder requirements. The report is aimed at CIOs, IT managers, and other senior IT decision-makers, and reviews all aspects of IT cost management.
For more information on how to get hold of this report and other services, such as the CIO Knowledge Centre, please contact:
Jonathan Saulez - E: jonathans@marketworks.co.za T: 082 824 0885, or Angela Battle - E: angelab@marketworks.co.za T: 083 660 7980.
Share
Editorial contacts