Keeping costs under control

IT expenditure is under more scrutiny than ever, even in sectors where cost was not traditionally an issue. But how can CIOs best manage IT budgets, accurately account for spending across the company, and keep the reins when buying decisions are increasingly shifting outside of IT

Tags: Gartner IncorporationIDC Middle East and AfricaIT budgetsIT spending
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Keeping costs under control IT costs can be difficult to control, particularly as companies are seeing more provisioning by departments outside of usual sources.
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By  Keri Allan Published  July 21, 2013

How do IT organisations manage costs? IT budgets vary from business to business, but all companies expect the IT department to at least ‘keep the lights on', and many are being expected to save money and bring new value to the business. At the same time, spending by business units outside of IT's control is increasing with mobile device purchases, Software-as-a-Service and so on. We went straight to the CIOs to ask how they control costs and try to keep within budget, and canvassed industry analysts about what trends they're seeing.

What are the biggest operational expenses?

"Annual maintenance cost (AMC) of software and hardware. These expenses are very restrictive in nature and it is challenging to achieve any savings in these areas. However, almost every year we carry out a detailed analysis of identifying the assets which may be taken out of maintenance contract, either by replacement with new assets or considering the criticality of the component."

Arun Tewary, VP (IT) & CIO, Emirates Flight Catering

"From an IT perspective this tends to be the cost of staff. Most organisations in the region still tend to in-source technical staff and salaries can be quite high. However, those organisations which have outsourced a lot of their functions tend to have quite high IT services operational costs, smaller internal IT teams and therefore lower salary costs.

"Other significant operational expenses include telecommunications, data centre operations and software maintenance costs. Each country is different but telecommunications costs in this region are generally quite a bit higher than those found in more mature markets and can be a major operational expense to bear."

Margaret Adam, program director - Services MEA, IDC

How can you best track IT costs?

"We normally check the expense history at the end of the year of IT cost usage as provided by the finance department. In the current service contracts we review the proposal before the renewal and compare them to the market baseline for any IT service level agreement. To keep track of the recurring cost we also implemented a cost management system to monitor each expense, for example a print management system and a call billing system to record all outbound call usage."

Rodel Pabico, lead ICT officer, Dubai School of Government

"We use an application management financial model to project and manage expenses and have complete transparency relative to the P&L impact of each item in the portfolio. We go through a rigorous budgeting process ahead of each fiscal year. We revisit the budgets at the end of Q1 and Q2 and adjust according to actual expense flow, together with monitoring of the overall performance of the company relative to top and bottom line. IT expense flows are also monitored quarterly in such a way that we can take corrective action as required."

Ian Cook, head of Enterprise Technology and Executive VP, Oman Insurance Company PSC

What are the biggest capital expenses?

"In the past, our biggest capital expenses have been in security and business process automations through investments in applications, ERP and enterprise document management system (EDMS). This year, our biggest capital expenses will focus on hardware replenishment and implementing disaster recovery initiatives."

Alok Srivastava, acting head of ICT and Senior Manager, IT Applications, Masdar

"Infrastructure costs including data centres, racks, hardware and software licenses."

Biswajeet Mahapatra, research director, Gartner

"Software, hardware and mostly project-related expenses, such as consultancy services."

Thameem Rizvon, IT director, Kamal Osman Jamjoon Group LLC

Can costs be accurately measured?

"[Most of] the direct costs incurred on IT infrastructure can be accurately measured, however there are many hidden or indirect costs. In any company, usage of IT resources is not consistent. It fluctuates according to need. Therefore, in case the IT infrastructure is being maintained on-premise, the IT resources would not be optimised to work at their full capacity in some situations and any excess capacity lying unused would only add up to a hidden cost. Over provisioning and designing for peak loads compounds this.

"The other challenge is most of the IT resources - infrastructure or people related, are shared resources and accountability or accurately charging back to the businesses is difficult. Moreover, in an on-premise implementation, maintaining IT infrastructure occupies regular resources such as maintenance staff, and also consumes electricity, adding to the costs which cannot be allocated accurately."

Ranjan Tayal, senior VP, Business Consulting, Ramco Systems

"Yes. We believe in the adage, ‘if you can't measure it, you can't control or improve it'. Any IT investment business decision gets evaluated on the technical and commercial aspects covering one-time investment in hardware, software, implementation and also the recurring costs for the years to come. This helps us control our budget and put forth a better planned Opex budget for the following financial year."

Alok Srivastava, Masdar

Are any costs more difficult to control than others?

"We're an education institution and have several conference and training programs. Because of these printing consumption is one of our unpredictable costs, which is why haven an unlimited copier/printer service maintenance agreement so that we can save up on the consumable and maintenance cost."

Rodel Pabico, lead ICT officer, Dubai School of Government

"Manpower costs: resources may suddenly become scarce."

Ajay Rathi, head of IT, Meeras Holding

"Intangible costs like employee productivity are probably the most difficult to predict and control. By implementing solutions like IT service management, you can more efficiently monitor how much time your IT employees are spending on specific functions and how efficiently they are performing which can help in identifying bottlenecks or inefficiencies.

"Another hidden cost that is quite difficult to control is the cost of running data centres. Operating costs are often hidden within broader facility management costs so the cost of power and cooling and associated facility management is not necessarily visible to IT."

Margaret Adam, IDC

Do you let other business units manage their own budgets?

"Yes, we allow other departments to include in their budget the annual software and service renewal fee which is required in their department, but we need to monitor the expiration/renewal date of each IT line item of every department. This way the IT budget will be less and we can focus more on the infrastructure level of budgeting and projection that will affect the institution as a whole."

Rodel Pabico, lead ICT officer, Dubai School of Government

"No. We compile the requirements from all departments at the beginning of budgeting process and then come out with a consolidated IT budget for the organisation. This approach helps rationalisation where all stakeholders are treated equal."

Arun Tewary, Emirates Flight Catering

What key business advice or tips can you offer on managing IT costs?

"Planning is essential to manage costs. IT departments should have an analyst who can sit with businesses and map their requirements to the systems. This will keep IT aware of all the requirements and costs associated to meet them."

Ajay Rathi, head of IT, Meeras Holding

"Form an IT service catalogue - this will be the base of IT costing. Get the CAPEX/OPEX per service and map the manpower to the services as well. Also do the logical diagram and map the costs to business units as per the services they're using."

Magdi Hanna, IT specialist, Abu Dhabi Media

"Cost control is not just an element which can be resolved by outsourcing or cloud. It is a complex process in which organisations need to understand all their processes, their cost elements, drivers, document, manage and maintain these costs. Cost can be controlled by having a proper budgeting and project appraisal process in place, and following basic financial guidelines.

"Also, have a services culture with a proper service catalogue that shows the different elements of costs.

Biswajeet Mahapatra, research director, Gartner

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