Organizations spend millions of dollars on their IT and operations, sometimes without even knowing where their money is going. From software licensing issues to inefficiencies with the IT service management, the enterprise lose profits without realizing it. There are four culprits within an organization's IT that contribute to huge cost inefficiencies:
- Software
- Hardware
- Downtime
- Distractions of technology
The following are the hidden cost of technology.
Software controls the total cost of ownership spend. Software ownership is not just about licensing compliance, but it's also about the management of software. During the initial software procurement, there are licensing fees and usages models, contract negotiation fees (for example, lawyers), and implementation. Once you license the asset, there are other considerations, such as follows, and all of them have an associated cost: upgrade and maintenance, shelf-ware, software support, and IT training.
Added to software are the typical over- or under-licensed issues, which usually account for an increased 30%, on average, but can result in a potential loss of millions. Dependent on the size and scope of the software "gap," an organization could double its unnecessary software spend by the end of year three when annual maintenance fees are accounted for. While an initial discovery could uncover these cost savings, unless it is managed with a robust software asset management program and governed by a strict procurement policy, unexpected software costs soar and become excessive.
While hardware is an expected capital cost, the lifetime cost for repair and maintenance of a single PC is as high as $2,162.89*. There is also the additional $128.09 attributed to the loss of productivity incurred per user per PC due to unforeseen downtime, such as shutdowns, reboots, and hours. If you view the cost based on 5,000 PCs or 5,000 users, that's over 10 million spent on the average life of those PCs. Assuming 4 years as the average life cycle, those 5,000 machines cost 2.5 million every year. Add the loss productivity cost, and that's another $160,000 annually.
With many organizations, hardware asset management discussions also include servers, RACs, mobile devices, and the like. With on-premise servers, a number of areas need to be reviewed for those hidden costs, as follows:
- What license is required?
- What are the limitations of the licensing based on the server?
- How many cores does the server have?
- What is the server used for?
- What is on the server?
Cloud and hardware: We can't ignore cloud services, the elephant in the room, when talking about hardware. Ironically, with cloud services being sold as "not needing additional hardware," the reality is that cloud does need hardware—servers to be precise—in the backend. Cloud needs not only servers but also a physical space. While that doesn't seem to apply to your organization, it does because you still need software and then the questions start coming in. Who is licensing the software? Who is responsible? Does the licensing change? Where does the software license reside?
I could probably write a small book about the ironies of cloud, but, in all likelihood, you've heard it ad nauseam if cloud options were explored any given time in the past few years.
Large organizations, defined as those with more than 2,500 users, have increased their average downtime by 69% from 8.7 to 14.7 hours per month**. Downtime due to failed technology is one of the main culprits in cost inefficiency.
A total of 44% of organizations surveyed by Osterman Research and Electric Cloud estimated that the last significant software bug resulted in an average of $250,000 in lost revenue in 20 developer hours to correct it. The increase of an incorrect technology use or a failed technology exposes all organizations to risks such as downtime on critical applications.
With the Internet, it is easy to just check on one thing. The issue of social media and digital entertainment can truly become a crippling factor to productivity. In a recent survey of Britain's 34 million-person workforce, 6% spend more than 1 hour on social media while at work, translating to $22.16 billion in lost annual revenue**. The distractions of technology, such as Facebook, Twitter, and other social media networks, and iTunes, YouTube, and general digital entertainment kills productivity. Social and digital media at work causes countless interruptions during the day and results in operational inefficiencies and lost revenue.
Your answer may be to block certain apps and sites, but the truth is that technology distractions continue on with mobile phones and other mobile devices. At least if you allow the site on user terminals, your organization can monitor the amount of time spent on these sites and the best method to address this issue.
Cost control, also known as cost management or cost-containment, can, and should, be used as a method to improve business cost efficiencies, and it helps to reduce costs.
Understand that your organization is constantly and consistently seeking cost and operational efficiencies, regardless of economic conditions. View cost control in a holistic fashion—from the view of your executive team, the CFO, COO, and the CIO/CTO. Your team should comprise people with expertise in finance, IT, and operations from a variety of backgrounds. Regard cost control as the nexus for your entire organization.
A vast many organizations choose to either not manage their IT assets or only manage part of their assets. Many who attempt ITAM are usually only taking physical inventory or just doing a cursory software license discovery process in preparation for an audit. Although these processes are better than nothing, and they certainly have their place, they do not offer the insight and clarity required to determine the return on your organization's IT spend. Only an organizational commitment to manage IT resources in a holistic enterprise approach can help you achieve that. Also, again, ITAM can, and should, be used as a corporate strategy.
If you are looking for good reasons to start managing IT assets more effectively, consider these:
- Cost: In IT and business, change is a constant, and along with every change comes a cost. Typically, the upfront purchase or investment in technology accounts for roughly 4% to 20% of those costs. The remainder is spread over the entire life cycle of your IT assets. These costs include equipment (including software installation), managing changes, maintenance, upgrades, virtualization, service or help desk setup and maintenance, and disposal. Arriving at an accurate figure for the cost of your IT assets is a challenge. Additionally, getting the most out of your IT infrastructure investment is virtually impossible when there is no accurate record of the organization's IT assets and how they are supporting critical business services.
- Dependency: IT enables your business to operate globally on a 24x7 basis. Given this, your IT infrastructure is too important to be left unmanaged. ITAM should play an important role, adding value to your organization's growth strategies. However, uncovering this role requires a clear understanding of the relationships and dependencies involved with these mission-critical assets.
- Hardware replacement (technology refresh): Whether you like it or not, the pressure to stay competitive is going to drive you to replace IT hardware assets every 3 years. Given that today's hardware has a 3-year "life" before it becomes obsolete, this is a reasonable expectation. Also, if a major shift in technology develops, you may find yourself replacing your entire array of hardware assets.
When it comes to achieving cost savings and increased efficiencies and maintaining regulatory compliance of your IT assets, ITAM is essential, but as a strategic initiative, a sound ITAM strategy enables you to accomplish the following objectives:
- Accurate asset tracking
- Effective IT asset management
- Effective software asset management
- Efficient asset disposal
- Timely asset replacement
- Risk mitigation (for example, around software compliance, patch management, antivirus, and many more)
- Cost reduction
However, ITAM involves more than accomplishing these objectives. Your strategy must be broad enough and sound enough to include other necessary asset management objectives, such as contract management, license compliance, and IT financial management.
Historically, hardware assets were "written off" when they reached obsolescence. However, today's hardware assets hold considerably more value, even when replaced. Before an asset can be evaluated, it must first be located and assessed. When dealing with a leased equipment, it's wise to remember that the aim is to return the assets by the negotiated end of the lease agreement, thereby avoiding costly penalties. Here, the challenge is to quickly locate the equipment that has been in use for some time, but may have never been tracked. A fundamental aspect of ITAM is tracking the location of each hardware asset all the time. Therefore, no matter how the equipment is acquired—either through purchase or lease—effective ITAM practices enhance cost efficiencies.
Tracking the flow of software throughout your organization can also be a challenge. Best practices are all well and good, but the consistent application of those practices is the key. Remember, compliance is about meeting and maintaining audit-ready status all the time, not only when the audit time rolls around.
Most businesses succeed in logging the first user of their software or equipment, but fail to track the changes that occur during the normal course of business. These include routine items such as the installation or deinstallation of software, applying necessary patches, adding memory, installing a larger hard disk, or reassigning the asset to a different user.
The failure to track any of these changes frequently results in a lost, unlicensed asset, hacking and security breaches. An asset management solution that does not track these changes is not a solution at all.
Other information worth tracking includes contract information, such as leasing/replacement dates, insurance contracts, maintenance agreements, and software license agreements. These types of data are invaluable to ITAM because they provide insight and accuracy into the costs associated with these items. This in turn provides you with clarity when it comes down to deciding whether to purchase or lease a specific equipment. Although lease rates may look attractive initially, your total cost for that lease may actually end up exceeding the cost of purchasing the equipment outright. Remember that 3 years into the lease, you may be paying for obsolete equipment, and those rates lose some of their luster.
In a nutshell, building the discipline required to make ITAM work for your enterprise results in the following benefits:
- Ensuring compliance
- Maintaining audit readiness
- Effectively managing service costs
- Maintaining your competitive edge
- Enhancing operational productivity
- Ability for IT to respond to vulnerabilities in a timely manner
- Implementing consistent and repeatable processes
- Reducing the cost of change
- Managing asset utilization
- Releasing capital
- Improving bottom-line profitability
- Increasing organizational ability to meet service-level agreements
- Improving customer satisfaction
- Managing financial accountability for IT
- Collaboration with IT Security to discover possible and unknown cyber threats
Implementing ITAM within your organization leads to faster and greater success to existing and new initiatives. The following table provides a sample list of key CIO initiatives and shows how leveraging ITAM enables a more proactive approach:
CIO initiatives | IT Asset Management enablement | Executive team interest |
Cloud computing | Cost versus benefit analysis with accurate understanding of all assets required for a function that might be moved to the cloud |
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Service-Oriented Architecture (SOA) | Usage data allows consolidation, reduced maintenance costs, and alignment with business |
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Compliance | Managed software list, snapshots of current system configurations, and document management |
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Service management | Continual updates of asset data, usage, costs, users, populating service management incident, problem, change, and asset management |
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Vendor management | Manage approved vendor list, manage terms and conditions, reduce risk, and evaluate vendors |
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Manage IT as part of the business | Align investment with business priorities, analyze financial opportunities for savings, and evaluate Provide a snapshot of current system configurations for compliance and capacity planning |
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Legacy systems integration | Impact assessment, cost versus benefit, and data capture |
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Security and risk management | Identify suspicious configurations, enforce standards, and highlight vulnerabilities on unsupported software and noncompliant software instances |
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