Johannesburg, 14 Jan 2004
Research and analyst group Gartner introduced the concept of total cost of ownership (TCO) for the desktop as far back as 1987; it has since been expanded and enhanced to incorporate the entire IT landscape. Most IT managers today profess understanding of TCO and will argue that it is being implemented in some form or another in their organisations.
Allan Wattrus, practice director: Infrastructure Transformation Services at Unisys Africa, suggests that not many IT operations will be able to demonstrate credibly the true business value they provide to their organisation.
Wattrus says that while there is no doubt that the TCO models offered by consultants such as Gartner and Forrester help define business value, they should only be viewed as a starting point.
"Gartner`s TCO models, in particular, have gained acceptance as industry standards but, like all good tools, they`re only as good as the professionals who use them," he says.
There are also plenty of independent studies of TCO in different environments available today that provide well-publicised industry averages for improving the various components of IT costs.
However, says Wattrus, once again, it must be stressed that these studies and averages only offer a starting point for understanding IT costs. "They can help managers and IT professionals identify their own particular costs. However, each organisation should use a TCO model that reflects their individual IT environment.
"This said, populating the model and getting the numbers into the right places is hardly rocket science! So where`s the problem?"
It must be remembered that costs in an organisation don`t just happen. There are drivers behind them and one of the real benefits of a professional TCO intervention is to highlight the key cost drivers in a client IT environment.
These include software and hardware costs, training, technical support, administration and disaster recovery, the importance of which will be defined by the nature of the individual organisation. "However," says Wattrus, "experience has shown that knowing the cost drivers is not enough, because often the fateful assumption is made that something is actually being done to reduce them.
"The fact is that, in many organisations, the benefits of a TCO engagement are never realised. Simply put, the required actions to reduce the costs are known but never implemented!"
The real objective, Wattrus believes, should therefore be to turn the TCO model into a representative and consistent picture of the dynamic organisation. Real business value can then be realised through implementing a process of continuous improvement that optimises the client`s service-to-cost ratio.
These often small, but sustainable savings that each action taken realises, should then be underpinned with managed changes to process, people skills and performance and of course, technology.
"As the changes start to take effect, the model should faithfully reflect the new environment and we can measure and sustain the benefits. By default, the model will then highlight the next largest cost driver, allowing the organisation to focus its efforts for maximum benefit," Wattrus says.
"This process of continuous improvement is so fundamentally simple that many people dismiss it in favour of a more complex solution, and it`s not just about cost reduction."
Dr Howard Rubin, an analyst at META Group, says regular IT reviews are essential if organisations are to realise business value.
"Business activities such as strategic realignment, budget adjustment and technology deployment are happening every three months, so it makes sense to have quarterly IT reports to review and realign your investment," he says.
"If your business cycle is based on reporting to shareholders every quarter, then your IT department should adopt the same tempo, or you`re out of alignment again. Basically, organisations need to position themselves and act like value centres, not cost centres."
Turning data into knowledge requires insight and experience, something Wattrus believes companies should demand from a professional TCO consultant.
"The organisation`s TCO model needs to be translated into specific action plans geared to make existing IT operations world-class. It is in this `best-practice` space that the service/cost relationship is optimised," he says.
The fact is, Wattrus adds, that global experience and proven methodologies, coupled with achievable short-term wins, can make a best practice implementation a self-funding, often cost-reducing, exercise.
"Ensuring ongoing cost reductions and continuous improvements in service and availability of an organisation`s IT operations make a TCO engagement that is coupled with best-practice implementation a no-brainer decision for any IT manager. The only thing that you can`t afford is not to know!"
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