Reasonable IT costs

Know IT costs and IT services

21 August 2020, Stanislaw Panow

Many companies, especially medium-sized companies, find it difficult to put a concrete figure on their IT costs. You wonder if these are appropriate. Often they also do not have a real overview of the actual responsibilities and the provision of services in their IT. Nevertheless, those responsible in medium-sized companies have to make sensible decisions for their IT and, for example, for cooperation with an external IT service provider in the face of increasing digitization projects and a lack of specialist staff.

From the point of view of the IT service provider, the main conflicts in digitization projects always boil down to two central questions at a certain point: "How much does my IT actually cost me?" and "Who is actually responsible for what in IT?". Transparent IT costs and an overview of human resources make a decisive contribution to the success of digitization projects.

Aren't the IT costs obvious?

Stanislaw Panow: IT costs - not only in medium-sized companies - are constantly increasing as a result of more and more digitization projects and are a variable with many unknowns for many companies. What remains is often a vague feeling that corporate IT is eating up money and resources rather than supporting day-to-day business. In addition, more and more unplanned IT costs are incurred. We have found that very few companies have a real overview of the actual costs, including the "Eh-da" costs in their IT area. Here are just a few examples of these hidden costs:

  • Data backup tapes or printer cartridges are ordered by the administration and also posted to this cost center.
  • The office manager changes the data backup tapes (hard drives) and supports the employees with all Word and Excel topics.
  • In his spare time, the managing director developed an Access database for contract management and now provides support for the employees during his working hours.
  • A working student has developed CRM software on an external web server. Although the software was used for a short time, the decision was made to go with a professional solution. However, the annual bill for the external web server will continue to be debited from the hosting provider.
  • In addition to the hardware that was purchased three years ago, maintenance by the manufacturer was booked for three years. After three years, it is found that extending the maintenance is possible and makes sense, since the hardware is mission-critical. But the costs are not planned.
  • The electricity costs of the server room are not recorded separately. At the latest, however, if you want to outsource IT and are wondering about the supposedly high costs of operating external outsourcing, you should also look at this point.

Frederic Rouagha: Costs are always a big issue. The individual amounts are often small, that's not a problem, but then they add up. This is exactly where it is important to create transparency right from the start and formulate clear projects. We don't start with the ascension command "digitization", but analyze and define exactly what is needed.

Is digitization worthwhile for medium-sized companies?

Frederic Rouagha: The clear answer is yes! On the one hand, companies cannot escape digitization entirely. There are legal requirements that make digitized processes mandatory in some cases - from accounting to the secure storage of customer data to the popular GDPR component - to name just a few. In addition, it is important to keep up with the competition and not to be left behind. There are also low-cost measures with a big impact and cost-intensive projects with long-term benefits. Here you have to clearly weigh up the benefits and costs.

How can companies answer the question of IT costs and ROI?

Stanislaw Panow: It is not always easy for companies to assess whether IT costs are reasonable. It might help to look back to the 1990s. The cost block for IT, for example for a tax consultant, was in third place with a rather above-average IT penetration - after personnel costs and rent. If we were to speak to the same general manager today, he would say that IT is much more expensive today, the costs are constantly increasing and it accounts for a much higher percentage of the total expenditure than it was then. But how was it in 1990? He had servers and PCs, maybe not a separate computer for each employee. Also a tax consulting software. The whole thing was supervised by an external freelancer. And today he has a mail server, internet, an external service that scans incoming mail and makes it available as a file in his digital archive. An external digital service also took over the printing, enveloping and mailing of the letters. Of course, the conventional postal service only applies to customers who do not already have access to their Internet portal system. And in addition, all his employees have smartphones with which they can answer e-mails on the go or at home and make calls via the internal telephone system. And almost half of his tax clerks or WEG accountants work entirely or partly in the home office. Its turnover has tripled since 1995, but the number of its employees has increased by only about 20%. In other words, the number of its IT services has increased significantly, and with it the cost of its IT. But it has also become significantly more efficient.

How can a structured approach support this?

Stanislaw Panow: Evaluations and reports are possible with standardized IT services and the corresponding assignment of key figures. It becomes clear how the IT costs are distributed among the individual IT services, where outliers can be identified, what trends there are, for example in a year-on-year comparison, or how your own company compares to other companies in the industry or beyond.

Do companies have a real overview of the IT costs and services of their IT?

Stanislaw Panow: We experience that medium-sized companies in particular rarely have a real overview of the actual responsibilities and the provision of services in their IT. We have seen countless examples where managing directors, doctors or lawyers act as system administrators. Or an employee who is "actually" employed as an IT manager or CIO takes on these activities for which he is not responsible in his position. Considerable risks and thus also potential for conflict arise when there is only “the one” employee in the company who is in charge of internal IT. If this employee is absent or even just goes on vacation or decides to resign and start his remaining vacation immediately, companies quickly find themselves in difficulties in terms of IT technology.

What about external service providers?

Stanislaw Panow: There is additional potential for conflict due to undefined responsibilities. Not only once have we experienced that the customer believes that the external service provider is responsible for monitoring the backup - even if the contract says in black and white that the customer is responsible for regular data backup. The topic of regular (security) updates or the monitoring of IT services is very similar.

Which IT services can companies outsource to service providers?

Frederic Rouagha: Companies often forget that their internal IT is already more than busy with day-to-day business. There is often neither capacity nor competence here. Let's imagine a medium-sized company, let's say from the manufacturing metal industry, with a very well-positioned IT department. They are familiar with the programs that are necessary for production and may have also implemented a CRM system. But why should exactly the same people be able to cover all other areas of digitization? This is where digitization experts like matchdigital come into play, because we look for the right providers for our customers and make sure that they get to know each other.

Part 3 of our webcast series "Are you also dreaming of digitization simply taking place?"

In the expert discussion, Frederic Rouagha ( matchdigital management GmbH ) and Stanislaw Panow ( netcos GmbH ) shed light on your digital journey with regard to conflict potential and conflict resolution.

https://youtu.be/hur7HaECNEs

Hand in hand, the digitization platform matchdigital and the IT analysis methodology itpilot® ensure that small and medium-sized companies in particular make their processes fit for digitization and structure their IT for these requirements and make it future-proof. More about collaboration