A Practical Approach for IT Governance

The True Cost Of IT

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Costs are generally factored into decision making either in the form of financial metrics such as “Return On Investment” or “Time To Break Even”, or into analytic frameworks such as value per dollar expended. If you take a myopic view of costs, then it will simply be the “hard dollars” that are actually expended.  Generally, to account for total costs, many prefer to use life cycle costs.  These are also “hard dollars”, but they are added up over the life cycle of interest.

Of interest are the soft costs.  The soft costs are very rarely taken into account for many reasons:  1) They are difficult to quantify; 2) They are generally subjective and vary with the individuals making the estimates; and 3) They generally tend to tilt the decision in directions that do not appear to be popular.  Take for example, cloud computing.  It is clearly valuable to leverage the cloud technology as it generally entails minimal up-front costs and has built-in on-demand scalability, flexibility, and lower operating expenditures.  In itself, the cost savings may be very attractive. Organizations take for granted that cloud computing is cheaper than building an infrastructure.  But organizations fail to take into account soft costs.   If the organization is not careful, they may end up with multiple incompatible clouds. Disaster recovery, data warehouses all become concerns of enterprises about the resiliency of cloud computing, since data may be commingled and scattered around multiple servers and geographical areas.  It may be possible that the data for a specific point of time cannot be identified.  Cloud computing is still a viable and attractive solution, however, these additional costs tend to blur the cost advantages.  Staff morale and the loss of technical expertise are also other soft costs not taken into account. The message is simple – account for all costs in making a decision.

Written by Subbu Murthy

January 2, 2014 at 7:09 pm

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