Why does IT cost what it does? It’s a question as old as corporate IT itself – or at least it should be. However, all too often, the cost of IT is taken for granted – it costs what it costs, and next year it will cost the same plus or minus an amount based on both business and technology changes. Sound familiar?

Thankfully though, as the business view of IT performance moves on from measures that assess aspects of operational-process efficiency and effectiveness, and service quality (often availability), to the concept of created, or co-created, business value – the cost of IT is finally getting its “day in the sun.”

Read on to understand why it’s time for both the IT department, and business, to care – and to do something – about what their IT services cost.

The Hidden Costs of IT’s Rapid Evolution

Back when IT was originally introduced to support business processes the technology was relatively expensive (and usually backed by a labor-saving business case). And it definitely “costs what it costs.”

Over the years though, the cost of IT has dropped dramatically – with some of the cost savings eaten up by the much greater use of IT. This either “balanced the books” or at least hid the growing corporate cost of certain IT services such that their cost was never questioned. And, more importantly, whether these costs could be lower. Perhaps much lower.

Many IT departments have never had to worry about the costs, and unit costs, of their IT services (as long as they hit their overall budget, which might be temporarily reduced in times of corporate underperformance). For instance, what it really costs to deliver the corporate email service to an employee each month. They have rarely been pressured to explain why IT services cost what they do or to proactively, and systematically, drive down these costs.

It’s thus highly unlikely that the monies invested in these IT services each and every year don’t contain some element of “wastage.” And, for many organizations, IT still “costs what it costs.”

The Strange Paradox with Operational Costs and Service Levels

You might be thinking: “Oh, the IT department is too busy to worry about what IT costs (at a granular level).” Hopefully not, otherwise you wouldn’t be reading this, but the IT department does have time to worry about other elements of IT service delivery and support.

For instance, time and effort (and thus costs) are invested in improving operational aspects of IT support. This might be process reengineering or the addition of new technology to improve across all three of quality, speed, and cost.

Or continual service improvement (CSI) activities might look to improve the quality of IT services, probably to ensure that service level agreement (SLA) targets are consistently being met. For example, if there’s business-level concern about the quality of an IT service, especially among senior business stakeholders, then there’s a good chance that CSI activity will be focused on some form of service improvement. Probably because the “lack of quality” is adversely affecting business performance (and revenues).

But why is there so much concern about SLAs, and the targets within them, but not the annual costs of delivering perhaps the very same IT services?

Understanding, and Addressing, the Business View of IT Costs

So, the IT department reacts, maybe through CSI or something less formal, when there are questions raised, or “tables get banged,” in respect of the underperformance of certain IT services. And, of course, it should – otherwise it would fail in its duty to support business operations, outcomes, and success.

So why doesn’t it act to address concerns over what IT costs? Or, more specifically, why IT is perceived to be so expensive.

The survey results below, show how few IT professionals think that their business colleagues perceive IT costs to be acceptable (28%). So, why do IT departments continue to have so little insight into what IT costs (at a granular level), why IT costs what it costs (the cost drivers), and what can be done to optimize these costs?

In the same way that the business deserves to receive IT services that meet its needs relative to quality (the SLA targets), surely it deserves to know that the IT department has done what it can to ensure that the delivered IT services are the optimal, and required, balance of quality and cost?

It’s Time to Remove/Reduce “Unnecessary” Costs

There are a variety of benefits from doing this. From “moving the dial” on business-colleague perceptions of what IT costs – simply because the IT department is actively seen to be addressing the issue. Through being better able to have conversations around the relative value of IT services in terms of the business impact of the services relative to their costs. To the ability to proactively reduce what IT costs (at a service level) while still meeting business needs.

Looking at each of these in turn:

• People’s perceptions can be strange things (and inaccurate in reality). For example, the fact that a corporately-provided mobile device is deemed inferior to a personal-life equivalent might create the perception that corporate IT is expensive (because the IT department “can’t afford” the “better” device). Or the all-in cost of providing a managed laptop service is probably always going to be perceived as more expensive than the cost of buying an equivalent retail device – but it’s not comparing apples with apples. However, visibly showing that work is being undertaken to better understand, and potentially reduce, the costs of services somehow automatically makes people more inclined to think that these costs are, or soon will be, acceptable.
• Value is hard to understand without some idea of cost. And the value of some IT services will be called into question when their costs are truly understood. For instance, a service that delivers little value (in the business’ eyes) might be unduly expensive. Or a service, potentially one that offers “duplicated” capabilities, might offer no additional value for the incurred costs. Plus, when there’s a sufficient level of cost understanding, constructive conversations can be had around whether the costs incurred, in delivering a certain level of quality, can be reduced significantly with only a marginal – and acceptable – reduction in quality.
• What IT costs might be a direct cost of business operations, but it might also be an overhead. Either way, it works its way down to the corporate bottom line and the overall financial success, or failure, of the organization. The result being that the organization needs to do, and sell, more to carry any unnecessary IT costs. On a personal level, it’s like having to work overtime to pay for an expensive gym membership that you never use (but still pay for each and every month). There hopefully comes a time when you decide that “enough is enough” and cut that unnecessary expenditure out of your life. Of course, you can still work the overtime, and spend the extra income on something more worthwhile, or instead choose to take back the time (again for something more worthwhile). The same is true for money that’s being unnecessarily spent on IT services.

All of the above might be relevant to your IT department organization; and it’s time to get greater transparency into what your IT services cost and why. And, most importantly, to do something with this insight to stop the wasted IT spend…

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