It’s never been easy for individuals, or departments or entire organisations to calculate how much technology is costing them, but it’s never been more difficult than it is today.
There was a time when the budget for information technology could be clearly identified, in organisations of all sorts of shapes and sizes. But the cloud delivery model has changed the way we access software applications and data storage and processing power, and the way we pay for these – and this goes beyond pricing models based on consumption.
It’s not just a case of non-IT managers dipping into their operational budgets to finance on-demand access to software such as dashboards or marketing automation tools. In the same way as many decisions about which cloud software or services to use are leaving the IT department, so is control over the money that will pay for them. ‘Business managers are taking more control of the budgets that were traditionally managed by IT,’ says Daryl Plummer, a managing VP at Gartner Research, and this can make IT costs harder for businesses to assess and control.
Historically, IT and finance have often looked at IT budgets together, and considered IT expenses on the basis of how well they support the company’s company's strategic goals. But this becomes more difficult to do as more of the money spent on IT comes from operating budgets. As Greg Bell, a principal with KPMG LLP observes, by the time some investments in Software as a Service (SaaS) become apparent to finance, ‘they can be difficult to corral or change’ even if they do not reflect either financial budgets and or IT plans.
Forecasting future costs can be tricky too, because ‘as a service’ technology can come with costs that are not always obvious to the uninitiated. Buyers need to look out for obscure cost-escalators, and factor in the costs associated with data duplication or integration with other corporate systems. Calculating the real costs of any technology purchasing decision also calls for the consideration of issues related to financial management, financial reporting, taxation and various other (quite complex) accounting-related matters, as CloudPro previously highlighted here, here and here.
As there are increases in user numbers, system complexity, customisation, integration with other applications, and access device types, there’s also an increased need for specialist help from systems integrators or consultants, and this can potentially increase costs for the buying department, and for other departments. A cloud-based system that seemed affordable and simple to implement and manage when it was ‘ring-fenced’ and there were just two users can end up having an impact on other departments – and their budgets.
Not that all ‘departmental’ investment in cloud services is coming from budgets that were never intended to pay for it. The budget for IT is increasingly being allocated and managed from within a department, either as part of its overall operational budget or as an additional departmental IT budget. ‘We are seeing the movement of money around organisations and IT budgets are shifting into different parts of the company,’ reports Plummer, and by 2015 Gartner expects around 35 per cent of corporate IT spend to be managed outside the budget of the IT department.
Where it will end up and who will manage it depends on many factors, including the cloud services consumed, the individual organisation consuming them, its technology adoption patterns and the approach it takes to budgeting for IT. Different departments take different approaches too; though one does seem to be leading the march that is taking the selection, management and budget ownership for technology away from the IT department – and that’s marketing. ‘Some chief marketing officers may end up having a larger budget than some chief information officers,’ suggests Plummer.
If you think about it, it’s not hard to understand why. As marketing has traditionally funded its own outsourced projects for advertising, design and public relation, it’s not exactly a giant leap for it to do the same with cloud software and other technology services. The extent to which technology and marketing have become entwined is another reason why the latter may be more likely than some other departments are to want to select and manage their own software and other technology tools, and to pay for these from the marketing budget.
Though even the 65 per cent of corporate IT spend retained by IT may need to be managed differently, if IT is to provide the information (financial and otherwise) required by other parts of the business. ‘The new alternatives to IT are creating tremendous pressure for it to be accountable for its budget and to make sure that it provides value competitively,’ says Chris Pick, chief marketing manager with Apptio, an IT cost management specialist. This means explaining how much it costs to produce and operate the IT ‘services’ provided to other parts of the organisation.
FOLLOW THE MONEY
How can businesses keep track of their IT costs when IT is no longer being bought by solely by the IT department?
It’s never been easy for individuals, or departments or entire organisations to calculate how much technology is costing them, but it’s never been more difficult than it is today. There was a time when the budget for information technology could be clearly identified, in organisations of all sorts of shapes and sizes. But the cloud delivery model has changed the way we access software applications and data storage and processing power, and the way we pay for these – and this goes beyond pricing models based on consumption.
It’s not just a case of non-IT managers dipping into their operational budgets to finance on-demand access to software such as dashboards or marketing automation tools. In the same way as many decisions about which cloud software or services to use are leaving the IT department, so is control over the money that will pay for them. ‘Business managers are taking more control of the budgets that were traditionally managed by IT,’ says Daryl Plummer, a managing VP at Gartner Research managing VP, and this can make IT costs harder for businesses to assess and control.
Historically, IT and finance have often looked at IT budgets together, and considered IT expenses on the basis of how well they support the company’s company's strategic goals. But this becomes more difficult to do as more of the money spent on IT comes from operating budgets. As Greg Bell, a principal with KPMG LLP (the accountancy firm) observes, by the time some investments in Software as a Service (SaaS) become apparent to finance, ‘they can be difficult to corral or change’ even if they do not reflect either financial budgets and or IT plans.
Forecasting future costs can be tricky too, because ‘as a service’ technology can come with costs that are not always obvious to the uninitiated. Buyers need to look out for obscure cost-escalators, and factor in the costs associated with data duplication or integration with other corporate systems. Calculating the real costs of any technology purchasing decision also calls for the consideration of issues related to financial management, financial reporting, taxation and various other (quite complex) accounting-related matters, as CloudPro previously highlighted here, here and here.
As there are increases in user numbers, system complexity, customisation, integration with other applications, and access device types, there’s also an increased need for specialist help from systems integrators or consultants, and this can potentially increase costs for the buying department, and for other departments. A cloud-based system that seemed affordable and simple to implement and manage when it was ‘ring-fenced’ and there were just two users can end up having an impact on other departments – and their budgets.
Not that all ‘departmental’ investment in cloud services is coming from budgets that were never intended to pay for it. The budget for IT is increasingly being allocated and managed from within a department, either as part of its overall operational budget or as an additional departmental IT budget. ‘We are seeing the movement of money around organisations and IT budgets are shifting into different parts of the company,’ reports Plummer, and by 2015 Gartner expects around 35 per cent of corporate IT spend to be managed outside the budget of the IT department.
Where it will end up and who will manage it depends on many factors, including the cloud services consumed, the individual organisation consuming them, its technology adoption patterns and the approach it takes to budgeting for IT. Different departments take different approaches too; though one does seem to be leading the march that is taking the selection, management and budget ownership for technology away from the IT department – and that’s marketing. ‘Some chief marketing officers may end up having a larger budget than some chief information officers,’ suggests Plummer.
If you think about it, it’s not hard to understand why. As marketing has traditionally funded its own outsourced projects for advertising, design and public relation, it’s not exactly a giant leap for it to do the same with cloud software and other technology services. The extent to which technology and marketing have become entwined is another reason why the latter may be more likely than some other departments are to want to select and manage their own software and other technology tools, and to pay for these from the marketing budget.
Though even the 65 per cent of corporate IT spend retained by IT may need to be managed differently, if IT is to provide the information (financial and otherwise) required by other parts of the business. ‘The new alternatives to IT are creating tremendous pressure for it to be accountable for its budget and to make sure that it provides value competitively,’ says Chris Pick, chief marketing manager with Apptio, an IT cost management specialist. This means explaining how much it costs to produce and operate the IT ‘services’ provided to other parts of the organisation.
‘This means using the language of finance and learning about cost accounting, and how you allocate direct and indirect costs,’ suggests Pick, and being able to use this language in a way that finance and other parts of the business can understand. So it may also mean enlisting the support of specialist software applications that IT can use for tasks ranging from basic budgeting, to more sophisticated forecasting and planning. It may even take IT further into the black arts of accounting, such as Activity Based Costing, which CloudPro has previously covered here.
There is a widespread perception that IT can be obtained ‘as a service’ without the need to involve either IT or finance specialists, and it’s increasingly easy to do so. But there may be sound operational, strategic and financial reasons why they should be party to the technology decision-making process, before any investment takes place, even when the software or services being bought are cloud-based and a departmental budget holder has the money available to pay for them – particularly if the business wants to keep track of its IT costs.
‘This means using the language of finance and learning about cost accounting, and how you allocate direct and indirect costs,’ suggests Pick, and being able to use this language in a way that finance and other parts of the business can understand. So it may also mean enlisting the support of specialist software applications that IT can use for tasks ranging from basic budgeting, to more sophisticated forecasting and planning. It may even take IT further into the black arts of accounting, such as Activity Based Costing, which CloudPro has previously covered here.
There is a widespread perception that IT can be obtained ‘as a service’ without the need to involve either IT or finance specialists, and it’s increasingly easy to do so.
However, there may be sound operational, strategic and financial reasons why they should be party to the technology decision-making process, before any investment takes place, even when the software or services being bought are cloud-based and a departmental budget holder has the money available to pay for them – particularly if the business wants to keep track of its IT costs.
