Avoidspendingmore‘justincase’By Yizrael Dancziger, chief executive of Digital Fuel Published: September 22 2009

Companies have always sought to justify their information technology investments. But like many complex business assets, it is notoriously difficult to achieve true visibility into spending for hardware, software and related IT services. Why has it taken so long for businesses to find a way to track where their IT budget is actually going, and whether those funds are well spent? It’s estimated by leading analyst firms that with the proper visibility, 20 per cent of the millions of pounds spent by individual businesses each year on IT could be saved. The challenge is that technology infrastructures are complex, and it’s not easy to identify all the various cost components. IT departments know what their servers cost them, for example, but they don’t usually know the final cost of the related IT services which include the servers, labour costs of manage those servers, application costs such as maintenance and upgrades, and so on. Each IT service might be aligned with business needs and may be well worth the cost – or it could require a completely unnecessary level of spending. Without visibility into detailed information about what drives overall costs, and how those align with business goals, IT departments are often forced to spend more “just in case”. Into this dilemma, a new discipline known as IT Cost Management has recently emerged. This differs from previous solutions in that it uses dedicated software to catalogue IT-related services, then to track, assess, and allocate direct and indirect costs related to those services. The automated processes quickly provide information that can drive better alignment, greater collaboration between departments, maximum cost reduction and, overall, more informed decision-making. When IT departments have detailed information, they can deliver services like a business instead of a cost centre. Actively controlling spending becomes easier, because it can be tied to business needs and service levels. Better still, IT staff can collaborate meaningfully with their business users to reduce costs and optimise service delivery. Since costs can be identified and discussed, more informed decisions can be reached by all parties. It is very clear that visibility drives good decision making. With detailed information about costs in the hands of IT managers and their business stakeholders, money gets spent wisely. IT Cost Management also supports detailed analysis. Managers can locate places for cost reduction that span the entire investment spectrum – infrastructure, application licences, labour costs, shared services and more. Early warning systems can flag excessive costs, giving decision-makers time to find alternatives where needed. Finally, understanding costs enables users to generate IT service charges according to consumption – even to be charged back to the business units where necessary. The discipline makes it possible to uncover services and “spenders” that consume the largest share of resources. In the US, large companies are already seeing the benefits. Insurance and financial services provider Nationwide is able to reduce its annual IT spending by modeling costs and cost drivers to make better trade-off decisions between IT and the business users. Cummins, the Indiana-based power systems manufacturer, was able to reduce its IT service billing by $10m in the first year, simply by using IT Cost Management to track how and where resources were consumed to pinpoint areas for savings with positive impact on the business. Businesses now have a tool that can analyse spending decisions, identify inefficiencies and reduce waste. The discipline can align IT with strategic business priorities and focus demand on the services that matter most to the business. Sixty years after IT became a staple of global business, its costs are no longer a shot in the dark. Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.