Real SMB IT: Understanding Costs

September 16, 2009

You just bought a car.

You know that the purchase price you just paid is not the last word in the costs of operating that car.

You know that there is insurance, licensing, fuel, maintenance that all have to be considered when calculating the full operational cost of that new vehicle.

Unfortunately, too many SME’s don’t take that same due diligence when purchasing IT hardware or software.

Larger software applications can be as expensive as a car, yet we look at the one time purchase price and then forget about the rest.

If you want too truly understand your cost structure in supporting IT, you must include (and maintain!) the same operational costs considerations you made buying the car.

In the case of IT those operational costs can include license maintenance, application or server administration, and end user support among other costs.

And keep a record of those costs!

Five years from now, those operational costs are still going to be there!

Yet too often we think that we spent that money five years ago, nothing has changed!

Well, you may be partly right – maybe nothing has changed, that includes all of those operational costs.

The SMB Takeaway

You won’t be able to truly identify the benefits of an IT investment, if you don’t record its costs over time. Because you can’t manage those costs if you don’t know where they are.

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2 Responses to “Real SMB IT: Understanding Costs”

  1. elliotross Says:

    Thank you for your comment!

    Two areas where I do not feel competent enough to write about!

    One is exactly what you mentions – the behaviors

    The second – is that SME’s (my self included) do a very, very poor job of understanding the full set of costs hiding in their SG&A –

    The activities, time, and resources needed (ie activity based costing) to provide an end result.

    In many smaller organizations, money is actually being lost because margins do not accurately predict that full, loaded cost.

    Best Regards

    Elliot

  2. itorganization2017 Says:

    It’s amazing how many IT shops don’t have a good handle on IT costs. The challenge is often exacerbated by the fact that a great deal of IT spend is outside the IT budget and “hidden” from the true costs of IT. I often find that the “cheaper” the IT organization with IT, the more these “hidden” costs are generated.

    The other side of the coin is how IT costs are funded, and to what degree the funding model drives desirable (and explicitly stated) behaviors. For example, IT costs that are effectively “free” to business units, generally drive irresponsible behavior. So, understand your cost model, and be deliberate in your design of the funding model to drive the behaviors you’d like to see. And be aware of possible unintended consequences!


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