Are Companies Spending too much on IT?

Most IT managers and executives are likely to be creating their 2008 IT budget this time of the year. As companies prepare for an economic slowdown and are looking to reduce operating expenses, IT executives may be hard-pressed to explain any increases in IT spend.

I looked at IT areas where companies are currently spending money, and where there may be room to reduce IT operating expenses without creating investing in large CAPEX projects.

According to META in 2004, the financial services industry is well above overall averages, with projected IT spending of six percent of revenue in 2005, compared to an average of just over four percent and projected spend of 13 percent of operational expenses, compared to an average of five percent.

Gartner surveys say insurance companies in the US spent 2 to 4 percent of their annual revenues on IT expenses in 2006.

Surprisingly, insurance companies were quoted as saying that 65% of their IT expenses were "to keep the lights on." The large amount spent in running the engine leaves few resources for strategic projects that can actually help increase company revenues. Here are a few areas where executives can reduce their IT spending.

Do you really need those servers?

Additional resources come with huge hidden costs. For example, software licensing, data-center space, maintenance contracts and additional system or network administrators needed to manage the product, may end up making a bigger dent on your IT budget than you intended.

See if you can move applications to servers to improve utilization, or use virtualization to squeeze more out of your hardware. Also, using virtualization may mean that you can get rid of some OS licenses altogether. For instance Weblogic runs directly on the hypervisor, and other applications that run on Java VM's may be able to do so as well.

Better Application Maintenance processes

Ensure that you have a documented application development process. Use EPF or Visual Studio Team system to have an integrated approach to application lifecycle management. Enforcing a process ensures smaller learning curves, and consistency in estimates and process when interacting with other departments. Ultimately, this saves time and reduces confusion and risks. In addition, since the process is documented and enforced by the system, you can continually improve process and ensure that every one in the application development team follows it.

Use PPM to determine what Projects to execute
Unfortunately, most executives have more positive NPV projects than the budget will allow (and raising additional capital for projects, while theoretically sound, may not be likely in practice due to transaction costs). If you already have a good system for evaluating business cases, tracking projects, quantifying risks - use your PPM system to monitor and reassess your priorities as the time goes by. Sometimes, it makes sense to nix a project that continues to be on time and on budget if it is no longer as important. If you don't have such a system to track projects, this may be a good time to start. Serena's Mariner or Microsoft Project Portfolio Server are best implemented by professional services or if you have the $$, by consulting companies who have done this many times before.

"Lights-on" Operations
Are you relying on people for operations that can be automated? For instance, diagnosing most issues like batch processes not running or password resets do not require a technical support person. Look at issue logs over the last 6-12 months and identify the issues that were most frequent and required signficant time to fix. Look for opportunities to automate diagnosing and fixing these simple but time-consuming problems using simple scripts or use products like iConclude (now part of HP).