1. Focus on innovation vs. maintenance. When CEOs have discussions about potential inefficiencies in an organization’s IT costs, they should separate innovation from maintenance. Innovation costs are the expenses that provide new functions or significant improvements to system processes. In evaluating those costs, CEOS should apply rigorous ROI analysis to each project and align them with business priorities. Maintenance costs are needed to keep a system or function running, including hardware, data center, license fees and end-user support. These costs are often underestimated, so they should be scrutinized.
2. Categorize by function. Five core functions align with unique budgeting considerations that should be evaluated for potential cost savings. They are:
a. Infrastructure. Whether it’s server hardware and operating systems, or even phone lines, a CEO may find opportunities to save money with a shift of data storage to the cloud. Migrating information to the cloud also can give the CEO the option to reduce planned capital purchases over time.
b. End-user support. CEOs can look for opportunities to outsource some or all of the costs associated with functions pertaining to end-user support in service desk training, user hardware, end point operating systems, security and mobile devices.
c. Productivity applications. Communication systems—such as email, IM (instant messenger)/Presence/Voice/Sharepoint—also can be used through cloud-based licensing models for significant cost savings.
d. Line of business applications. Includes all the applications that internally support business operations like accounting, ERP, warehouse management, payroll and logistics programs. It also includes the analytic and reporting systems that provide transparency to operational data. Costs associated with these systems should be evaluated to determine whether they align directly with the core business priorities. Costs not aligned with these priorities can often be reduced.
e. Customer-focused applications. This includes website, e-commerce, customer portal and customer-facing mobile apps. Budget requests for such customer enhancements are often aligned with revenue increases, and should be evaluated and measured with that in mind.
3. Track IT time. Since labor makes up a significant portion of any IT budget, detailed time tracking is critical. Doing so allows CEOs to ensure their staff’s work is consistent with business priorities. In that way, they can focus on meeting deadlines without being unnecessarily sidetracked. Investing in a time-tracking system will be repaid tenfold by its benefits. A detailed-time tracking program shows which groups request the most from the IT team and why. With a fact-based record of time spent—without bias—CEOs can have more rational discussions. Excuses for not tracking time are exactly that: excuses.
4. Allocate IT costs. Too many mid-market companies don’t charge their technology costs back to the decision-makers and the units that are generating the demand, which is a mistake. When IT doesn’t get charged back, the people demanding services tend to consider IT a free utility. The IT department then juggles competing priorities and may pursue projects that have a dubious business value. Projects will be taken much more seriously when a budget is spent on the effort. Not only that, a CEO will find greater transparency about who is spending the most IT resources.
By using these four points to track IT spending, CEOs will be able to keep costs aligned with strategic priorities, and achieve business goals.