IT as an asset
Most companies are engaged in driving improved performance based on revenue growth, cost and margin. But an equally fundamental and crucial performance factor is how efficiently a company manages the assets that support the generation of revenue in the form of working and fixed capital. This includes the company’s investment in IT infrastructure.
Assets have a straightforward role: to be productive and to create profit. If they don’t perform this function, then you could argue that they have crossed the line between asset and liability, and should be candidates for disposal.
So, how should IT be classified: as an asset or a liability? This depends on how efficiently the company uses the capital that is invested in IT. When you view IT as an asset, you need to consider asset turnover to gauge productivity. And to do that, you need visibility of the true costs incurred and the revenues generated.
Here we come to the classic IT dilemma: accurate costs can be difficult to establish because they are often spread across the business and accounted for in different ways. For example, the cost of power may not be correctly attributed to IT and may be shared across departments.
The revenue contribution that can be assigned to IT can be very difficult to assess, sometimes to the point where assumptions are the only pragmatic option. Unless you are running an IT-centric business, it is all too easy to underplay the role of IT in revenue generation in favour of sales and marketing.
The objective it to be able to account for IT in a consistent way that reflects its true costs and revenue-generating characteristics. Anything that can reduce, predict or improve the visibility and management of IT costs can be a useful tool in driving improved IT productivity.
Cost control
Opportunities for cost control can simultaneously be apparent and elusive. Lack of standardisation creates duplication of both technology and process, creating waste and additional expense. But the cost of standardisation can be an obstacle, with other – apparently more deserving – projects taking priority. As a result, problems persist and costs rise.
The real loser in this scenario is the business itself. Diminishing IT budgets and rising infrastructure costs can only lead to one conclusion: more IT budget gets spent on running the infrastructure (keeping the lights on) and less on driving innovation through new IT projects.
The blocker is the sheer capital cost of improvement and modernisation. IT infrastructure improvements may well provide significant long-term benefits, but with no imminent boost to the business, the short-term ROI is difficult to project and the expenditure is hard to justify.
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