Am I Paying Too much for IT?

1. Am I Paying Too much for IT? Chapter 4 MISY 300

2. Some Numbers • From 1980 to 1990, IT spending totaled $600 billion • From 1990 to 2000, IT spending totaled $3 trillion • From 2000 to 2005, IT spending totaled $4.3 trillion • IT budgets on the rise every year for the past decade • IT spending becoming king in terms of strategic advantage and leverage

3. What is a Budget? • Financial Plan • includes all IT expenses for h/w, s/w, maintenance, staff and professional services • Important to know how budget is seen by executive team • Guide? Set in stone? How closely are numbers reviewed and revised?

4. Defining a Budget for IT • Personnel • Salaries and bonuses, benefits, payroll taxes, training, staff welfare or team building • Professional services • Ongoing temporary help, staff augmentation, consulting services • Software • Licensing (COTS s/w, purchases/renewal of licenses, maintenance agreements and upgrades) and depreciation. • Hardware • Purchase or lease of equipment (servers, switches, routers, hubs, desktops, printers, laptops, monitors), annual maintenance agreements • Travel and Expenses • Communication, supplies, and other

5. IT as a Percent of Revenue • IT as a Percent of Total Operating Expenses (OPEX) • Good for industry peer group • Goal is to build a robust but supportive IT function with contained costs • The business must obtain all the IT it needs at the best possible price and use of time and other resources • Do not get too focused on IT that you lose sight of the business goals

6. % of Revenue and Consequences to the IT Organization If the IT budget is: • Less than 1% of gross revenues: starving IT and cheating the business • Between 1% and 2% of revenues: IT in survival mode • At 2%-3% of revenues, large firms can fund at this level, not small firms • Within 3%-6% of revenues, possible to have a robust IT unit pursuing strategic projects • By spending 6%-15% of revenues on IT, ask whether that cost level makes strategic sense • At more than 15% of revenues, need to get a grip on IT expenses

7. IT as a Strategic Business Partner • Budgets exist to control IT expenses • If IT is key differentiator among the competition • Would have advocates in the senior team and within organization ranks • Business client-facing IT staff would be acknowledged for their depth of business knowledge, understanding the challenges and goals of department, holistic understanding of the business • Client participation and support in IT projects is vital to success of the organization to ensure alignment, improve communication, and build and understanding of the work • Lack of client participation leads to unsatisfying experiences with IT • Client involvement in all IT projects mitigates risks

8. Hidden Costs of IT • Each department has hidden IT costs • Self-funded ‘small’ applications • Home grown databases • Purchased servers • Specialized software packages • Skunk works IT team

9. Tools to Manage Spending &Organizational Focus • Monthly Budget Review: meet monthly with senior managers across organization to review and understand financial results of IT spending • Need to create a charter defining purpose, frequency, attendees, commended agenda, inputs/outputs of meeting • Monthly Project Review: review all critical projects underway on “in-flight” • Best practice: IT depts to perform monthly project review with the business • Provides executives visibility into progress of projects & focuses the org on most important projects 16% of IT projects on-time, on-budget, delivering desired functionality