It’s a simple question that’s not all that easy to answer. Whether you’re a senior IT leader determined to build a better, more efficient service; or a CFO that needs to scrutinise your investments, you can’t manage what you can’t see.
IT costs are nearly always complex. And accounting systems are set up by Finance for the whole organisation, so aren’t specific to IT. They don’t usually give you cost breakdowns on items such as hardware/software, an application view or indeed a list of all your suppliers/vendors, as they’re just not designed to capture that level of detail. Also, the information provided from a basic set of figures will depend on an underlying manual process of mapping items to broad categories, which is subject to human interpretation and error.
What you really need is a clear dashboard that gives you an accurate overall picture, and also allows you to interrogate each element separately. This could be by service area, or various categories (e.g. hardware/software/managed service/people) or specific types of spend (e.g. mobile, website, or transformation costs) etc. to get the maximum insight.
This level of cost insight allows you to detect and eliminate duplication and waste, take advantage of economies of scale, identify opportunities for improvement and – particularly in today’s economic climate – make savings
Different audiences need different dashboards, but it’s important that whatever your targets, you use the same tool and the same source data to get the crucial information you need. And this is all possible with our cost transparency service.
What source data should you use to get this cost insight?
Typically, when IT organisations attempt to understand their costs, they use point-in-time ad-hoc reports that a) become outdated quickly, and b) can be manipulated (or simply prone to human error).
One notorious example is changing past ‘actuals’. In our experience, when we use processed financial inputs we sometimes see past actuals change. This shouldn’t be the case in accounting, because once you close a month, it’s closed. But when it’s held within a spreadsheet, the opportunity to move things around can be too strong a temptation for human nature.
That’s why we take it back to the ledger. We start with the true source and keep the integrity of the data before mapping and modelling it in a flexible and granular way. Crucially, it’s also a source data feed, so it’s not subject to any subsequent changes.
Another advantage of this is that there is also the option for us to build in a quarterly or annual feed of external peer data, so you can compare your costs to the market without having to do further financial data collection.
Meet your new friend, Taxonomy.
Taxonomy is how we assign and classify your costs, and it’s where the magic happens. It includes things such as the people/non-people split, traditional software and SaaS split, hardware, managed services, cloud usage vs on prem infrastructure etc. We go through details line-by-line, so you get both the overview and – crucially – the ability to interrogate any part of it with just a few clicks to get the full detail.
This approach cuts through any jargon or convoluted reporting lines so you can see at a glance what’s in each service bucket. If your organisation already has a thorough taxonomy in place then we can align to that, or we have our own tried and tested system that’s ready to go.
Collaboration: IT, Finance and Business Operations as the dream team
Finance knows what’s in the ledger, IT knows what those lines mean, and Business Operations knows the impact of the services; so working together is crucial to determine whether your IT spend is driving business value and delivering value for money.
If this level of collaboration has been a challenge for your organisation before, our approach builds a bridge between departments that brings benefits to everyone, both now and in the future.
As a first step, we take the raw data from Finance and then work with IT to explain the granular detail. For instance, where there’s a people cost, we seek to understand:
- What part of IT do they work in?
- Which service domain do they belong to?
- Are they a full-time equivalent (FTE)?
- Do they spend their full time in that one service area?
- If not, do we need to spread their workload?
- Does the ‘spread’ remain static during the year or change month to month?
- Are they working on Business as Usual (RUN) or are they working on projects?
- What is linked to their fully burdened costs?
- Do you include all their expenses (if there are any)?
- Are there any discretionary payments/ benefits that vary month to month?
- How long will they be working on this?
Once we understand the detail, we can attribute costs accurately; both retrospectively and in our future projections/forecasts.
We map all of that detail for every line in the ledger. And we do it in stages and share where we’re at during each stage, so you get the insights as soon as we do. Typically, we report back when we’ve done 60% or 80% of the work, to show you what we’ve found, so you can start acting on it immediately. Importantly, we build the map together, which means future transactions are automatically loaded to the correct place.
What can you do with this new insight into your costs?
That all depends on the questions that you want answered, and what issues need addressing. They typically include:
- Have you got the right budgetary balance?
- Are you making the right sourcing decisions?
- Can you accurately track actual spend against budgets and revised forecasts?
- What’s the most economical way of doing x to reduce your cost/ infrastructure footprint/ optimise your applications etc.
- Can you demonstrate to the business that IT is delivering a cost effective service?
- What impact would changing the IT estate have on costs, both in the short and long term? Is there a strong enough business case for change?
- What can I cut to meet savings objectives without compromising the service?
Crucially, it also means you can draw a line between the ‘Run’ and ‘Build’ parts of your Operating Expenditure. OpEx is more than simply ‘keeping the lights on’ as it can include enhancements and certain project work.
With this kind of insight, you can identify opportunities to reduce the ‘Run’ spend and feed the savings into ‘Build’, thereby driving further business value.
Why do you need this?
We’ll all need visibility in the hard times ahead, so we can see where we have room to manoeuvre. Our cost transparency service means you can truly understand what expenditure is essential to keep the lights on, and what could be trimmed in leaner times.
But much more than this, the insights our service delivers allow you to make the best possible investment decisions, whatever your business goals (and also, if necessary, defend them with facts!).
So, whether you’re looking for a rock-solid ‘show-back’ of the real costs to deliver IT, or you’re looking for opportunities to save or drive meaningful business growth and value; clarity and insight into your IT costs are essential capabilities you can’t do without.
‘We suddenly have powerful insights into our costs that we’ve never had before, and it means we can make better decisions about where we want to spend our money and where we can find savings’
A recent ImprovIT client