Controlling IT costs and values

Companies need to keep the balance between keeping IT operating costs low and delivering more business benefit to the company, says Owen Williams

Companies need to keep the balance between keeping IT operating costs low and delivering more business benefit to the company, says Owen Williams

Knight Frank might be a global property company operating in 25 countries with 9,000 staff and 40 offices in the UK alone, but it is not, says head of IT Owen Williams, a centralised organisation but a set of "loosely connected fiefdoms".

"In my previous company there was a central IT budget and a central strategy, which works well if there is a uniform, homogenous corporate structure," he says.

Because "a homogenous organisation can have a high allocation of costs, a heterogeneous organisation needs a high level of direct costs, but most organisations are a mix of both so you need to balance between allocated and direct costs," Williams supports a variable cost recovery mechanism for IT at Knight Frank.

"Controlling IT costs and values has to be achieved within the organisational culture, so we have a mix of direct costs charged to the business profit centres incurring them, and allocated costs for the centrally managed IT services, the cost of which is divided up globally, depending on each country's turnover, and nationally, depending on the number of people consuming that service.

"We have a layered IT structure – global, regional, national, division and department – and there may be strategies at each level. At each level we have to think about the business requirements, the technology they require, how the technology is managed and how the IT costs are recovered.

"We have to balance between keeping IT operating costs low – paying less for IT – and delivering more business benefit to the company."

Williams also has a very varied community of IT users, as well as a geographically widespread one.

"The commercial property division, for example, manages the property assets for organisations such as pension funds, so it's effectively a money management process, with a high level of transactions, which requires a structured system with well-developed processes, and a high degree of business continuity.

"By contrast, our rural property consultancy, has quite different IT demands – one of which is for mapping tools which can show field gradients and yields. Even within residential sales there is a wide variety of markets – in Birmingham we sell flats from £130,000, whereas in Northants we're currently selling a Grade I-listed building, complete with village and local businesses, for £50m."

One common factor is that, whatever the line of business, business doesn't like IT costs allocated to it.

"It's very important for us to explain what we are delivering, and to benchmark our service levels so that users understand and accept the value for money for the services being delivered.

"We approach benchmarking in a mixed way. We study published benchmarks from the likes for Gartner, and we also belong to the Property IT Directors Forum, which has a benchmarking activity with a mix of formal and informal metrics providing information such as support numbers and helpdesk call volumes and so on. However, one limitation is that we are all very different types of organisations – only two are global, commercial and residential companies like ourselves – so comparisons always have to be subject to some interpretation.”

Williams runs IT with the following objectives:

  • To provide operational IT with the greatest efficiency and least cost against a defined service level. "For the bread-and-butter commodity services like break/fix, we use outsourcers to benefit from their economies of scale."
  • To ensure suppliers deliver year-on-year cost reduction, which is built into their contract. "If we can do year on year cost reduction, so should they.”
  • To provide justified change control. "Not all change requests are reasonable. Users need to understand what a requested change will cost, so they make a business-based decision on whether or not they want to pay for it.  Remember, change requests can legitimately be rejected."
  • To provide IT that delivers competitive advantage for business development. "Business is looking for competitive advantage, and IT that is more powerful, and costs less, and to meet that need we in IT need to speak the language of business."
  • To manage IT staff costs effectively. "We recharge staff costs where IT staff time is consumed so we record time spent on projects, and recover this at cost from the consuming business unit. We also recover our IT overheads nationally as a contribution per head which is defined each year."  For the last three years the cost per head has steadily decreased.

"Because we charge users at cost, we can be cheaper than if they buy IT from outside suppliers who have to make a profit. For example, some years ago we outsourced our website, but we've brought it back in, built it in-house and now it's cheaper, more flexible and better all round – and I can reallocate the web staff resources when they are not needed to work on the website because the skills they have acquired are reusable for other work which delivers synergistic benefit to the company.

"Although we always cover our base costs in how much we charge to users, if we find we've made a surplus we'll rebate to users, or use our surplus to undertake national or global projects for our exec board that were not initially thought to be doable within the budget, so we can deliver 'extra' IT without having to increase the allocated cost. Some departments, like residential sales, keep their rebates as a credit balance to spend on more IT later, and some, like commercial property, take theirs to use elsewhere for non-IT purposes. This flexible approach is a good cultural fit for our organisation.”

Williams strongly recommends undertaking time recording activity across all aspect of IT's delivery to business, from new development projects to ongoing support.

"It's a very powerful mechanism to enable you to see how much time and effort you are expending, and where. For example, we were surprised how much time and effort goes into support activities. And I was stunned to see how much time we spent on administrative processes. Things like order processing, invoicing and asset management all take more time than perhaps they could."

Time recording can be an effective way of showing that end-user training is worthwhile.

"We don't charge users for training them on using their IT systems because trained users use their systems better and therefore need less support."

Time recording also highlights different usages and expectations among different user communities.

"Commercial property users are very clear about defining their requirements with us, whereas residential users need more help defining their requirements, and that's something we wouldn't have been able to quantify without measuring it."

Applying time recording to projects also graphically shows how much change requirements can cost.

"We now measure ongoing project support costs and the ongoing change control budget has to be justified by the person accountable for the project.

"Around 60% of IT efforts go on maintaining the status quo and keeping business as usual going, and around 40% goes on new business development activity. My objective is to increase the latter percentage and reduce the former by increasing the efficiency and thereby reducing the cost of providing operational support. Ultimately delivering more value for money from the firm's IT spend.

"Creating efficiencies in business and IT services, and ploughing the saving back into business development projects has created much more acceptance of IT by business.

"In the year 2002/03 we cut IT costs by 35%, and the following year by a further 25% – that's over 50% reduction in two years. And we've still achieved a surplus."

Owen Williams is head of IT at Knight Frank

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