Cost of IT

I am often being asked why IT costs so much. The answer can be simple or complex, as just about anything else in life. Since I know most people want quick explanations and solutions, I can do you all a favour – IT is being presumed as costly because of people who work in it. There you have it. You want to hear more? Well then you’ll have to bear with me for the whole three articles. Yes, three. Here’s the first one.

CIOs and other CxOs have all had a run in with the CFO at some point. Yes, the number cruncher who can ask difficult questions and provide some eye-opening insight. This is how I tried to explain to one CFO where IT costs come from and that they are more or less necessary. A lot of people make wrong assumptions about IT costs. Predominantly the ones that only count what they see – for example, boxes (servers, printers, desktops) and maybe software licences. But IT costs don’t consist only of hardware and software. In various companies and enterprises, these costs amount to only a third of the overall expense. In the IT solutions lifecycle, which can be set at about three years’ time, two thirds of IT spending falls under operational expenditure (OPEX). Yes, the actual costs of running a product, business and/or system.

Within the IT spending budget, people (i.e. IT staff) represent by far the most expensive aspect– around or even more than half of all expenses (and it really doesn’t differ much between different surveys). Managing complex technologies and solutions has its price; a highly trained workforce doesn’t come cheap. Much less so do the IT people who are entrusted with the tasks of moving business forward (developers, architects, coders …). When 50–55% of IT spending goes to staff and a third of it to hardware and software, other fields just don’t look that important anymore, right? We saved 12% on printing last year, for example. And 16% on firewalls alone! But looking at the pie chart in front of me, I just don’t feel that hurray moment anymore.

“How many IT personnel do we actually need then?” I am asked next. There is no clear answer here. My rule of the thumb, backed by decades of experience and also taken from some third-party studies, would say that an enterprise needs somewhere around 25 IT admins per thousand users. In smaller companies, the ratio is even worse.  What further complicates things for IT admins in enterprise environments is the nightmarish task of juggling between legacy solutions and new cloud-born IT services. Having fewer IT staff might suffice in the future, though. When most of the businesses are basically run from the cloud, then yes, the life of a CIO should become somewhat easier.

“So what do our IT guys do?” This one was easy to answer but the answer amazed the CFO.

30% of them handle user support. 15% of them deal with system administration. 10% of them take care of hardware and networking. 30% of our IT staff is handling software-related tasks (implementation, maintenance). And you are lucky if you are left with 15% of them so you can use their talents to build new business solutions.  

Even in this day and age, most people have a difficult time understanding that IT solutions are there so the people can use them. But the usage itself is creating costs. Not everybody is tech-savvy, so companies have to train people in order to get the best out of the new solutions and their functionalities. And nobody really thinks how much adapting to a new version of Windows operating system and/or Office business suite really costs. Beyond software licencing, that is. And I really used the easiest example here, but still, you can see how you need staff to offer IT support to personnel.

“What can we do about it/IT?”

We should focus on standardization and automation. Those are just about the only two effective ways of controlling the costs of IT. Non-standardized IT environments and solutions are costly. They will cost you a small fortune, as many companies have learned the hard way over the years. Standardization helps with managing the whole environment, solutions are tested and proven, there are less costly errors.

“How about this cloud I keep hearing about?”

Well, standardization and automation are some of the premises the cloud is built on. And yes, we’re using could-based solutions and services more and more.

My next two articles will focus on IT-related costs breakdown. I will cover CAPEX and OPEX in more detail and present three different scenarios of companies dealing with their IT challenges. Stay tuned.