By Al Emid

Times do change, especially in information technology. Years ago, the IT value proposition was clear: advanced technology is sometimes expensive and success may even require significant work and training, but the cost is well worth it. IT budgets with large increases became standard and many equated corporate success with the latest, best or most expensive in IT.All that has changed.Nowadays, IT professionals are as much business managers as anything else, and they divide their time between managing equipment and managing budgets. The IT department has reduced access to the company treasury, according to Vito Mabrucco, group vice-president at IDC Canada, because the business types are demanding a greater emphasis on ROI and controlling capital expenditures. Mabrucco said the glory days of 10 to 20 per cent increases in IT budgets are gone forever.

Instead, spending will focus on replacing outdated equipment and expanding facilities to meet increased demand, following the spending pullbacks of recent years. The mission now is to boost return on investment and show IT has made a contribution to that improvement. “Like any investment you have to do an ROI (by asking) ‘Exactly what are we trying to achieve with this investment? Is it better customer satisfaction, fewer errors in processing (or) better support?’ You have to tie it to something that the business understands — not just ‘Well, it’s a faster computer and it’s got more functions so we need it,’” Mabrucco said.All of which comes down to the standard do-more-with-less-formula: cost savings are needed to reduce expenditures while productivity should be boosted to get more mileage from fewer dollars.

DEALING WITH LESS
On the cost-savings side Mabrucco sees more companies opting for a model he terms good-enough computing, which replaces the gotta-have-the-latest-and-most-powerful approach. “Maybe in the past you would get new PCs every two or three years, now it’s every three or four years because what you have is good enough for now,” he said. Cost savings may also be generated by utilizing financial services provided by computer manufacturers and other equipment providers. One such service is offered by Markham, Ont.-based IBM Canada’s Global Financing division, which provides lease financing, short-term commercial financing and what it terms global asset recovery services, which amounts to the disposing of used equipment. Making the most of each service requires that a company perform a cost-benefit analysis that considers a list of specific factors. Leasing can be cost-effective in relation to, for example, a calculation known as opportunity cost, which involves determining the most profitable or least costly alternative from a series of uses for a specific sum of money. For example, leasing IT equipment frees money that can be deployed elsewhere, said Belinda Tang, vice-president and general manager of IBM’s Global Financing Operation. In turn, leasing advantages have to be balanced against considerations such as the Capital Cost Allowance, a tax mechanism allowing companies to write off purchasing costs over a period of years.But the cost-benefit analysis has to go beyond conventional budgeting considerations because technology changes so quickly. Leasing can mean a company avoids being stuck with obsolete equipment. “It’s good for [companies] to stay always at the front of technology and not have to worry about costs of ownership,” Tang said. The lease-or-buy question also requires an extra dose of fiscal bargain-hunting to scan for developments such as interest rate changes and special offers from leasing companies.

SOFTWARE CALCULATIONS
Software budgeting decisions require a focus on after-purchase costs, such as training time for staff, said Wallace Cassell, formerly IT director at Burlington, Ont.-based Laurel Steel and now a freelance IT consultant and president of Alt Systems. For example, Microsoft products come with substantial licencing fees while basic Linux software is available free of charge over the Internet. However, companies such as Red Hat in Raleigh, N.C., sell Linux software bundled with packages of tools and installation services. Linux generally requires a higher level of expertise from technical staff, Cassell said, but is often more stable and less likely to trigger slowdowns or crashes.

Greater software stability delivers fewer problems with internal communications (the running of the business) and external communications (revenue-generating relationships with customers).The end value of software is also tricky to calculate because while acquisition and staff training costs are easy to quantify, the same cannot be said for intangibles like client dissatisfaction and missed opportunities that may result from software problems.STAY IN OR GO OUTOutsourcing, too, can be a complicated proposition.

Often seen as an obvious cost-saving strategy, the decision really rests on an assessment of existing in-house expertise, Cassell said.Some small and medium companies simply do not have anyone on staff to handle certain technical requirements, so “going external may be wise.” By outsourcing IT requirements, the company can select partners with the required expertise, whereas using internal staff means high-ticket and time-consuming training. “When you go external you will pay more money on development and implementation.

However, you are [gaining the] expertise of the external company,” Cassell said.Overall, though, when it comes to outsourcing or staying with internal resources the goal is the same: efficient use of people power. “Rather than just cut my IT budget, (the question is) can I use IT to reduce the number of people processing payments or processing
orders and (therefore) use IT to keep staffing down?” Mabrucco said. “The trick or the opportunity is going to be for suppliers and buyers of IT to…use it to make [the company] more efficient and effective in other areas.”