Budget for an IT StrategyBudget for an IT Strategy

Use of the GuideUse of the Guide The introduction of an IT strategy into a business is a very

important step and needs to be considered very carefully. Financing this step can be a daunting task to the

inexperienced but it need not be so if you understand what is involved.

This guide provides a comprehensive outline of the financial elements to be considered.

The guide considers four main elements: Selection of Appropriate IT Systems Understanding the True Costs Procurement Methods Example Financial Calculations

Use of the guideUse of the guide

AimAimThis presentation is prepared to support and give a general overview of the ‘How to Budget for an IT Strategy’ Guide and should be read in conjunction with the publication.

Selection of Appropriate IT Selection of Appropriate IT SystemsSystems

Procurement of IT can be split into three categories:Procurement of IT can be split into three categories: HardwareHardware::

Equipment, Computers and Peripherals: the procurement of hardware should be planned to support the requirements of your IT strategy.

Infrastructure, Wiring: when considering financing the infrastructure needed for your IT system, it is important that the basic wiring should,if possible, remain stable. You need to consider how the wiring may best be used within your building.

Software:Software: Your IT strategy should consider factors such as: compatibility of

operating systems, implication of software upgrades on hardware requirements, how an upgrade is implemented and compatibility with clients’ software.

Support:Support: The support of both hardware and software needs to be financed.

Support agreements can vary to mirror your needs with differences in responses and fix times. A key consideration is the criticality of the technology to the business.

UnderstandingUnderstanding the true cost the true cost

The first step in any financing arrangement is to understand The first step in any financing arrangement is to understand the true costs of your IT requirements.the true costs of your IT requirements.

Depending upon the type of purchase, the cost can be made Depending upon the type of purchase, the cost can be made up of many elements.up of many elements.

The true cost includes the following for which allowances The true cost includes the following for which allowances will need to be made:will need to be made:

Purchase pricePurchase price

Maintenance contracts and/or renewable licenses.Maintenance contracts and/or renewable licenses.

ImplementationImplementation

Support and managementSupport and management

TrainingTraining

Upgrades and refitUpgrades and refit

Back up and recoveryBack up and recovery

Protection (anti-virus)Protection (anti-virus)

Purchase pricePurchase price

It is important to understand the terms and It is important to understand the terms and conditions of the sale, i.e. what warranty is conditions of the sale, i.e. what warranty is included in the sale.included in the sale.

When purchasing software it is important to When purchasing software it is important to understand the licensing arrangements, i.e is the understand the licensing arrangements, i.e is the software ‘bundled’ with the hardware, can it be software ‘bundled’ with the hardware, can it be upgraded?upgraded?

Maintenance contracts (hardware)Maintenance contracts (hardware)

The cost of a maintenance contract is often not as clear as The cost of a maintenance contract is often not as clear as the purchase price. The period after the manufacturer’s the purchase price. The period after the manufacturer’s warranty runs out must also be considered.warranty runs out must also be considered.

Also consider the third-party computer components that are Also consider the third-party computer components that are not covered by the computer manufacturer but by the not covered by the computer manufacturer but by the peripheral’s manufacturer.peripheral’s manufacturer.

Compare the following when choosing the best method of Compare the following when choosing the best method of financing your hardware maintenance:financing your hardware maintenance:

An external maintenance contractAn external maintenance contract

The cost of employing a person to maintain your The cost of employing a person to maintain your equipmentequipment

Extending the manufacturer’s warrantyExtending the manufacturer’s warranty

An appropriate mixture of the aboveAn appropriate mixture of the above

Renewable licenses/maintenance Renewable licenses/maintenance agreements (software)agreements (software)

Support and maintenance may not be included in the original Support and maintenance may not be included in the original price. Also, when purchasing software a current licence may price. Also, when purchasing software a current licence may be required.be required.

Some software may come with an upgrade condition Some software may come with an upgrade condition attached and when your IT strategy involves exchange of attached and when your IT strategy involves exchange of information with third parties you may well be forced into an information with third parties you may well be forced into an upgrade to ensure compatibility.upgrade to ensure compatibility.

Care should be taken when installing software onto multiple Care should be taken when installing software onto multiple machines as you may be breaking the licensing agreements.machines as you may be breaking the licensing agreements.

You will need to consider each of the following when costing You will need to consider each of the following when costing software licenses and agreements:software licenses and agreements:

Annual license or maintenance contractsAnnual license or maintenance contracts

UpgradesUpgrades

Additional licensesAdditional licenses

Implementation costsImplementation costs

The cost of implementing IT solutions is often The cost of implementing IT solutions is often underestimated.underestimated.

Full details of implementing an IT strategy are given in Full details of implementing an IT strategy are given in Construct IT’s, “How to Implement an IT Strategy”.Construct IT’s, “How to Implement an IT Strategy”.

Some points to consider are:Some points to consider are:

Project management and supplier co-ordination (if Project management and supplier co-ordination (if required)required)

Data conversion (if required)Data conversion (if required)

Resources required to implement the new systemResources required to implement the new system

Reduced productivity due to downtimeReduced productivity due to downtime

Training costsTraining costs

Internal support and managementInternal support and management

You may need to consider Internal support, which can You may need to consider Internal support, which can include:include:

Back up of data, changing back-up tapes and ensuring Back up of data, changing back-up tapes and ensuring that they are kept safethat they are kept safe

Day to day maintenance such as unjamming printersDay to day maintenance such as unjamming printers

Getting to system working after a failureGetting to system working after a failure

Reviewing new software and upgradesReviewing new software and upgrades

Installing new software and upgradesInstalling new software and upgrades

Giving new users access to a particular systemGiving new users access to a particular system

Explaining to users how to use an applicationExplaining to users how to use an application

TrainingTraining

Training is a very important element in a successful Training is a very important element in a successful implementation and sufficient allowance should be made in implementation and sufficient allowance should be made in your calculation for this element.your calculation for this element.

Training falls into three categories:Training falls into three categories:

1.1. Awareness; understanding what the system can doAwareness; understanding what the system can do

2.2. Application training; using the application to carry out Application training; using the application to carry out processesprocesses

3.3. Retraining and advanced training; learning to use the Retraining and advanced training; learning to use the products betterproducts better

There are a variety of ways of providing training that can be There are a variety of ways of providing training that can be considered:considered:

External TrainersExternal Trainers

Train the trainer, then use internal Train the trainer, then use internal resources to train your own staffresources to train your own staff

The use of a super trainer who will train The use of a super trainer who will train the other usersthe other users

Disaster recovery and back upDisaster recovery and back up

It is vitally important to understand the need to make back It is vitally important to understand the need to make back ups of the data being used.ups of the data being used.

This may be carried out at little cost by your own staff.This may be carried out at little cost by your own staff. A major financial implication to consider is employing the A major financial implication to consider is employing the

services of a third party to provide a back system.services of a third party to provide a back system. What do we mean by back up:What do we mean by back up:

The process of making a copy of all your data on a regular basis The process of making a copy of all your data on a regular basis (preferably daily) and storing it off site or in a fireproof safe.(preferably daily) and storing it off site or in a fireproof safe.

In the event of a major system failure, this data can be reloaded, i.e. In the event of a major system failure, this data can be reloaded, i.e. returning you to the position you were in at the last back-up.returning you to the position you were in at the last back-up.

What do we mean by disaster recovery:What do we mean by disaster recovery: This is where a system/computer fails and is out of action for some This is where a system/computer fails and is out of action for some

time.time. With a disaster recovery plan in place the data can be loaded onto a With a disaster recovery plan in place the data can be loaded onto a

similar machine.similar machine. Once this computer is in place then you can begin working as normal Once this computer is in place then you can begin working as normal

again.again. Once the original computer has been fixed you can then transfer this Once the original computer has been fixed you can then transfer this

data from the replacement machine back to the original machine.data from the replacement machine back to the original machine.

Protection (anti-virus and security)Protection (anti-virus and security)

Another cost which should be taken into consideration is Another cost which should be taken into consideration is the provision of effective software protection through anti-the provision of effective software protection through anti-virus and security software.virus and security software.

The ongoing purchase of this software is essential in the The ongoing purchase of this software is essential in the modern office.modern office.

Procurement methodsProcurement methods

The guide investigates some alternative methods of paying The guide investigates some alternative methods of paying for the IT strategy:for the IT strategy: An alternative to purchasing often considered is that of An alternative to purchasing often considered is that of

hiring or leasing.hiring or leasing. Less common alternatives such as ‘risk and reward’ and Less common alternatives such as ‘risk and reward’ and

the use of an Application Service Provider (ASP) are the use of an Application Service Provider (ASP) are well worth consideration.well worth consideration.

Each alternative should be considered and discussed with Each alternative should be considered and discussed with your supplier when procuring an IT system.your supplier when procuring an IT system.

Hiring, rental or leasingHiring, rental or leasing

With the rapid pace of development of new technology you With the rapid pace of development of new technology you may consider that hiring or leasing of equipment is the best may consider that hiring or leasing of equipment is the best option.option.

The benefit of a rental arrangement is that it does not tie up The benefit of a rental arrangement is that it does not tie up your financial reserves.your financial reserves.

The exact comparison is difficult to make as you may wish The exact comparison is difficult to make as you may wish to consider the opportunity cost of employing your capital to consider the opportunity cost of employing your capital elsewhere.elsewhere.

All elements of an IT solution can be financed in this way All elements of an IT solution can be financed in this way including hardware, software licences, services.including hardware, software licences, services.

Most suppliers will be able to provide a tailored package to Most suppliers will be able to provide a tailored package to suit your individual needs. Variations you may need to suit your individual needs. Variations you may need to consider are:consider are: Length of agreementLength of agreement Profiling payments to match budgetsProfiling payments to match budgets Structuring agreementsStructuring agreements Technology refreshTechnology refresh

Risk and RewardRisk and Reward

As the use of IT continues to impact on business functions As the use of IT continues to impact on business functions that affect company performance, the tangible benefits of that affect company performance, the tangible benefits of using of using IT increase.using of using IT increase.

If the benefit of IT investment materialises then these If the benefit of IT investment materialises then these benefits should off set the costs of the investments.benefits should off set the costs of the investments.

If there is a tangible benefit from the introduction of IT to If there is a tangible benefit from the introduction of IT to your company then some suppliers may agree to a risk your company then some suppliers may agree to a risk reward contract.reward contract.

These are usually tailored to the individual companies and These are usually tailored to the individual companies and are dependant upon when the benefits of the introduction of are dependant upon when the benefits of the introduction of IT to your company are felt.IT to your company are felt.

As payments are based on direct savings this leaves you As payments are based on direct savings this leaves you with a more profitable organisation and a new information with a more profitable organisation and a new information system.system.

However, just as reward is shared so is risk The IT supplier However, just as reward is shared so is risk The IT supplier is likely to want to pay an increased role in the decision is likely to want to pay an increased role in the decision making processes to avoid this risk.making processes to avoid this risk.

Application Service Provision Application Service Provision (ASP)(ASP)

An ASP will provide and maintain all types of software An ASP will provide and maintain all types of software application.application.

This service is provided by your company installing a sever This service is provided by your company installing a sever on your own network.on your own network.

This service is accessed by an Internet link on the This service is accessed by an Internet link on the application service provider’s network and it is fully backed application service provider’s network and it is fully backed up by duplicate centres on the network.up by duplicate centres on the network.

The ASP is responsible for ensuring the software is kept up The ASP is responsible for ensuring the software is kept up to date and running all of the regular maintenance functions to date and running all of the regular maintenance functions require to keep the application working correctly and require to keep the application working correctly and efficiently.efficiently.

The user buys the service on an all-in-cost per person The user buys the service on an all-in-cost per person accessing the service.accessing the service.

SummarySummary

This guide examines all the financial aspects to be This guide examines all the financial aspects to be considered when selecting and introducing an IT system.considered when selecting and introducing an IT system.

The key lessons are:The key lessons are: The supply of IT is a competitive market. Always compare The supply of IT is a competitive market. Always compare

costs and shop around when selecting a system.costs and shop around when selecting a system.

The true cost of an IT system includes far more than the The true cost of an IT system includes far more than the simple purchase price. When comparing costs try to consider simple purchase price. When comparing costs try to consider all the factors detailed in this guide.all the factors detailed in this guide.

Discuss with your suppliers the different procurement Discuss with your suppliers the different procurement methods available to find the arrangement most suitable for methods available to find the arrangement most suitable for your organisation.your organisation.

Finally, in a guide that concentrates on the costs of IT, it Finally, in a guide that concentrates on the costs of IT, it should not be forgotten that the introduction of IT system will should not be forgotten that the introduction of IT system will give tangible business benefits:give tangible business benefits:

IT Gives Business Benefits

When calculating the costs of an IT system, it is also important to try to calculate a return on investment. The Construct IT publication, ‘Measuring the Benefits of IT Innovation’, is useful

for this. An example return on investment calculation is shown for the local area network installation.

Thus a total investment of £92,500 has resulted in a saving of £152,000

SummarySummary

Finally, in a guide that concentrates on the costs of IT, it Finally, in a guide that concentrates on the costs of IT, it should not be forgotten that the introduction of IT system should not be forgotten that the introduction of IT system will give tangible business benefitswill give tangible business benefits::

Item Saving Return

Labour £40,000 Savings from reducing secretarial help

Materials £10,000 Reduced cost of paper and photocopies

Efficiency £52,000Eliminate time wasting by inefficient document sharing (4 hours per month @£15.hr per employee)

Increased Output

£50,000Increased profits based on using time saved for additional projects

Total Savings £152,000