Fred Mapp, former AMD CIO

It costs how much to implement? The last initiative dealt largely with the process for managing the business relationships and the many changes the world can throw at you. In this initiative, we’re going to delve into cost management. Using the fundamental business acumen I often emphasize, the principles of business process management, and an understanding of the business problems you are trying to solve, we’re going to identify and champion opportunities to reduce the cost of IT.

Another essential business skill. Once again, we face the paradox: We must utilize expertise outside the field of information technology in order to provide the most efficient technology solutions. At the very minimum, we must know how much everything costs. The current business climate forces us to review our costs and make cost reductions to offset the decline in revenue. To be effective, we must be able to slice and dice our expenditures far beyond the traditional “labor” and “non-labor” categories. We must have the processes in place to quickly determine the costs of services like e-mail and the helpdesk and compare them to the costs of outside service providers. In short, we have to learn a little accounting and have people on hand who know a whole lot of accounting.

How much do you know about costs? Have you ever been told that you cost too much? What was your answer? Was it something vague about being an essential enabler of business efficiency and growth? There is a better way to answer this question. To begin with, look at what drives your costs and what levers/initiatives are available to control those costs. As an example, a driver can be the extra storage you must purchase because users like to save every e-mail they have received since e-mail was invented. A corresponding lever might be to minimize the size of their mailboxes. An initiative would be the implementation of the latest e-mail technology. By examining every aspect of IT in this way, you can give a detailed list of all your costs and the means available to reduce those costs. You can defend IT and encourage its use in one fell swoop.

How much do your services cost? I’ve done informal surveys on this topic. When I meet with other CIOs to do benchmarking I usually ask for a look at their budgets. What I typically find is that it is broken out in these types of categories: hardware, labor, maintenance, depreciation, etc. This kind of traditional IT accounting falls short in a lot of ways. For example, what if you needed to know the total cost of e-mail? How about the cost per mailbox or per e-mail? How about the cost to operate the helpdesk? How effective is your helpdesk? What’s the cost per response? Without these figures, you can’t really determine which services you’re providing efficiently and which ones you need to reconsider. My approach is to divide my budget by type of service. In this way I can pin these things down, accurately and quickly, and provide precise answers to tough questions about costs and efficiency.

99.9% versus 95% Let’s say you traditionally strive to provide 99.9% network uptime. What would happen if you reduced your goal to 95% uptime? How much could you save? What would be the costs of the additional downtime compared to the cost to achieve “six sigma” perfection. Would it be worthwhile in the long run, considering your business needs and strategies? Sounds strange, considering the traditional drive toward perfection, but you’ll never know the implications unless you review the numbers. For example, the network components responsible for shipping products may need 99.9% uptime. Payroll, on the other hand, probably just runs every two weeks. It will probably work just fine with 95% uptime.

Fending off the fiefdoms. In previous initiatives, we’ve talked about the fiefdoms created when someone in your company decides they can set up their software on their own server. They don’t need you. To convince them that this is a bad idea, you have to be able to show the cost of each additional server that is plugged into the network without your knowledge. It’s always a surprise to get a call to the IT helpdesk concerning hardware and software you didn’t know you had installed. You might also present them with facts and figures showing the additional support costs incurred when non-standard software images are introduced into your standardized environment.

Little numbers and the big picture. Once you know the cost of the services you provide and can compare them to the costs of other providers for these services, you can begin to get a picture of your strengths and weaknesses. You can start by determining your core competencies. Are you best at providing business solutions or coding? Is the plan to implement out-of-the-box technology? If so, you should consider shedding those services to focus on supporting your corporation’s key objectives.

Now just about everything is in place. Once you’ve mastered the numbers, identified opportunities to reduce costs, and delivered a best-value IT cost structure, you’re ready to survey your users – both internal and external – concerning the services you provide. It’s the beginning of the final step – and our next column – Initiative 7, Improving customer satisfaction with IT solutions and services.

Now for Initiative 7. While Initiative 6 gives us an essential piece of the puzzle – detailed accounting and cost versus benefit capabilities – Initiative 7 reminds us that we can’t improve customer satisfaction until we have a deeper understanding of our customers. In other words, we shouldn’t set about improving something unless we’re knowledgeable about the attitudes and opinions of the people who use it.

Download Initiative #6 pdf