Understanding Technology (IT) Cost in Business

Why do you think when companies set out plans to reduce their IT cost structure, they end up causing issues in other parts of their business? Trying to reduce cost without understanding your complete cost and business impact, will have consequences.

To understand breakdown of your complete cost of Technology or IT Department for your business, leaders must understand both hard and soft cost of their IT Department: Let’s review Hard Cost in this blog and Soft cost in next blog.

Consider following items while calculating and understanding Technology (IT) Hard Cost

Direct Employees: It’s easy to calculate, simply how many IT Employees including managers, administrators and support staffs. If you have staff in dual role i.e IT and other business operations (admin, sales etc), you can simply estimate time ratio split in both roles (30% IT and 70% other) and calculate cost.

Employee IT Training: As technology advances so frequently, businesses must invest in re-training, re-educating their IT Staff. Consider following items: Time your IT Staff will be away from daily work, cost of training, impact on other operations during training period. Also consider staff turn overs, retentions and business impact during transition.

Employee Management (HR): From business leaders/owners’ perspective, you need to understand how much your time required for resource management i.e managing, coaching, performance reviews and other administrative tasks. Your IT staff require business directions, decisions and approvals as on-going basis. Also consider time off, sick days, turn-overs and business impact.

3^RD Party Contracts (Mgmt.): Any 3^rd party contract that business may have such as contracts, service agreements (printer, internet etc), consultant etc.

Technology Cost (Hardware, Software & Licenses): It consist of any hardware, software and licenses required for business operations including product life cycle management, replacement and administration cost.

Subscription Services (Cloud/Security): And cost of any subscription services, cloud, data centers or co-locations centers etc.

Technology Issues: This is on-going support and maintenance cost. All your team members and infrastructure required on-going support and attention for maintenance.

Review all of the above items and calculate cost for items that apply to your business. This should provide clear numbers on your IT hard cost.

 How do you control Hard Cost?

• Understanding Business Requirements. If you already have business strategy align with your business goals and objectives, you can easily document business requirement from technology (IT) for your daily business operations.
• Develop IT Strategy: Your IT Strategy and roadmap should align your technology strategy with business strategy and requirements.
• IT Process: You need a mature and metrics driven IT process to align, manage and benchmark your IT Strategy as on-going basis.

Impact on Profit Margin: Most important part of understanding cost for your business is to understand how hard cost impacts your soft cost since hard cost is usually about 10-15% of the overall IT Cost. However, very often business leaders have so much focus on hard cost and they overlook soft cost. technically speaking there’s only so much efficiencies can be gained on hard cost.

Need Help?

Access our cost calculator to understand your TCO (Total cost of ownership) for your complete business operations.

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Also review – Technology Impact on Revenue