How to make the most of your budget

The current economic climate means IT directors must make the most of what money they have. Computer Weekly offers a seven-step...

The current economic climate means IT directors must make the most of what money they have. Computer Weekly offers a seven-step guide to stretching your budget

The spectre of recession has cast doubt over ongoing investment in the IT department. Chris Angell, director of marketing at customer relationship management specialist Extraprise says, "Boards of directors are not impressed by IT any more, so there is a much greater need to show a return on investment."

It is time to free up money from your existing budget by cutting costs or at least trying to get more value from your existing investment. And here is how to do it.

1. Strike a better deal with suppliers
There are two sides to this. In the current climate, IT suppliers will be glad for any work they can get. If your current supplier is unable or unwilling to reconsider their prices or the level of service they provide, perhaps it is time to find someone more competitive.

You can also get access to more competitive suppliers by redesigning the way you evaluate them. The tendering process, especially that operated by large corporates and local authorities, tends to frighten off smaller suppliers. This is a pity because these companies will typically work harder for your business and charge less.

The tendering process among local authorities and government departments is so bureaucratic that these eager, more competitive suppliers simply cannot afford to compete. "There is so much form filling and so many stages to the process, we have decided it is simply not worth dealing with local authorities," says Alan McGibbon, managing director of reseller Scalable Networks.

The irony is that the tendering process, which is designed to protect buyers in public bodies, actually ensures that even more public money is spent. "Big corporates are the same," says McGibbon. They only ever seem to buy from household names, the result being you end up paying a higher premium for a brand name.

2. Install now, pay later
Surely, if IT manufacturers are so confident about the return on investment (ROI) their technology will yield, they would be prepared to put their money where their mouths are? Why don't they offer the option where you pay them a proportion of the money saved? For example, when your comms bill comes in, give them half the savings. You might end up paying more that way, but you have alleviated the risks and funded a mutually beneficial transaction.

There are a few companies that will consider this method of billing. The comms supplier Sitara Networks, for example, promised it could help its clients cut their telephony bills by installing boxes that manage their communications better.

It does this by assessing traffic on the Wan, prioritising the messages that are time critical and allocating bandwidth according to needs. The result is that back-up lines, such as ISDN, no longer need to be deployed, as the network traffic that has to get through has a clear path.

To convince potential buyers, Sitara initially gave potential clients the equipment, on the basis that they could pay later, when the cost savings of the installed devices became apparent.

"We were new to the market, so we had to offer something extra to get people to see us," explains Simon Clark, formerly sales director at Sitara Networks and now business development director at SRC Telecom. "In exceptional circumstances, suppliers will try harder to offer deals."

Given that most resellers and suppliers are desperate for custom, this is a deal that you could try to negotiate with suppliers. Alan Lloyd, IP business manager at networking and comms integrator Genesis has tried this and is sceptical.

Last year, Genesis was recognised by both BT and Cable & Wireless as their top partner. But in the current climate it recognised the need to negotiate deals. "The impetus for the initiative came from the financial director of the potential customer who was interested in offsetting cost savings against the final payment," says Lloyd.

He warns that there are several hurdles to be cleared. Negotiations can falter over maintaining agreed levels of cost savings, because these may involve the supplier dictating to the customer how it would use its network. But this is a challenge that the IT director and a technology partner could work out between them.

3. Consider utility billing
This could prove a more practical model. It involves a supplier billing you on your use of IT as if it were a utility. Hewlett-Packard calls this the pay-per-use model, which it launched in July.

"Utility pricing is a combination of technology," says Chris Franklin, HP's Unix server marketing manager. "It monitors system usage, which enables HP to bill accordingly. And it keeps tabs on financing, which means a customer pays in alignment to his usage of the system. The value proposition is that HP then is sharing some of the business risk with its customer," says Franklin.

Alistair Maughan, a partner with technology law firm Shaw Pittman says deals where suppliers share the risk are unlikely to happen. "The whole fee is never reliant on meeting targets. There is a good reason for this. IT solutions are never the whole story. There are always other elements to business change besides the IT. The IT solutions make performance improvements possible, not inevitable."

4. Rationalise print costs
One of the biggest sources of over spending is in printing and consumables. A document strategy is vital to rationalise costs, says Mick Heys, director of research on peripherals at IDC. "Our research shows companies need a strategy for managing documents because the costs of producing documents is galloping out of control."

Nigel Hancock, services marketing manager for Europe at Xerox Business Services explains why "cost down, productivity up" programmes are easiest to implement in the document area. "Companies have not managed their costs because no one is in charge. So it is a fairly straightforward problem to tackle. My work is to discover costs and identify ways of saving money for companies."

"I am often surprised to find that companies have not considered the cost of their office output fleet when they have been trying to reduce their overheads. The most likely explanation is that they do not think that their document output constitutes a major cost," says Hancock.

According to a study by the US-based Ashburnham Group, the price of hardware associated with document output machines is only 10% of the total cost of ownership, even consumables, such as paper and toner cartridges, are factored in to the cost of purchase. The remaining 90% of expenses are down to management, says Hancock.

There are invisible costs to printing, such as the strain on the network. Then there are the measurable costs. When help desk calls are analysed, for example, 20% to 40% of all calls are found to have been caused by the failure of a printer.

There are productivity costs too; at any one time, 21 people out of a company of 1,000 employees will be stood at a printer, according to research by Xerox. By rationalising printing, the costs can be slashed for large companies.

5. Scrutinise spending, assess assets
Some unscrupulous suppliers send multiple invoices, with different descriptions and job numbers, at separate times, for the same work. They get paid too. This is just one illustration of how end-users' assets are under utilised or even stripped by inefficiency.

"IT, telephony and even knowledge are all assets that IT managers should manage better," says Dominique Martineau, product manager at Peregrine Systems.

Assess their worth under the following criteria.
  • What do you own?

  • Where are the assets?

  • How well are they working?

  • How much are they costing?

  • How well are these assets supporting the business mission of the company?


  • If you can't answer these questions then you're wasting time, money and resources as a result, says Martineau.

    Forget purchase costs, they are the tip of the iceberg. Consider the cost of ownership, such as support, management, consumables and licensing. You may find that by junking a few systems, you will save money.

    Say, for example, a new employee joins a company and requires a new workstation. A company which is unaware of its total IT resources may simply buy or rent another workstation.

    If, however, it has a complete map of its IT resources it may be able to take a computer from another department or end the licence on another workstation to make space for a new one. There needs to be a set of best practices that enables a company to standardise and control costs by assessing the performance of its assets, argues Martineau, and this is the time to do it.

    6. Renegotiate contracts
    Internet access costs are dropping, but providers are tying enterprises in on contracts, pay per packet charges and selling "bigger pipes" to ensure that the bill rises. The way out, however, is to go to multiple access providers and get them to deliver only the access. This is because "value add" is just another way of saying "extra cost". One reason why this does not currently occur is due to the management of the network and the IP address schema.

    If you monitor your service level agreements (SLAs) this can help you negotiate discounts. Providers sell SLAs and have penalty charges they agree to pay, but how do you know if they have failed? Get a company that can monitor traffic to and from the ISP, so it knows when the link failed. If possible, use a contractor and pay them on a no win, no pay basis.

    7. Sack your contractors
    Not everyone shares the same qualms about sacking people. British Airways is currently the subject of some controversy over its cost-cutting strategy. It has sacked its UK contractors and has replaced them with cheaper contractors from India. Sound business logic, says Simon Denison-Smith, managing director of offshore specialist Rave Technologies and chairman of the Computing Services and Software Association Offshore Forum. "A UK contractor can cost between £400 and £600 a day. It is even worse if you hire a consultancy firm; they can set you back £1,200 a day. An Indian IT contractor, however, costs £150 a day. And they are a lot more flexible, too."

    You will need a thick skin to put this cost saving into place. This is an initiative that will invite a certain amount of hostility. One source at BA complains this short termism will be damaging.

    "Taking work from us lot and giving it to Indian nationals on the cheap is bad enough. But in two years these guys will be fully skilled and will go elsewhere for more money. As it is, none of them came over here with the required skills. We have seen them being trained. Indian database administrators are nowhere up to the mark of British database administrators," he says.

    According to analysts at the Butler Group, there is no proven link between IT and productivity. Now you have the chance to rationalise your system and fine-tune it, you can prove them wrong. Then you can cancel those expensive analyst report subscriptions. That could be the best saving you ever made.
This was last published in September 2001

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