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These days you can’t afford to waste money anywhere. But few firms have spotted one of the easiest ways to slash expenditures without damaging your business: reducing wasteful IT spending.
My 13 years in information technology, many as a senior IT manager for entrepreneurial firms, have convinced me that SMEs squander more money on tech than in most other operational areas. That’s because most have a weak understanding of IT and poor spending controls over it. The resulting IT leaks can be startling. A tap that drips once a second will waste almost 5,000 litres of water annually. If you have several leaks—and most SMEs do when it comes to IT spending—the drain on your bottom line will be enough to fill a backyard pool every year.
Here are five bad IT spending habits that are so common your firm is likely to be committing at least two of them. Fortunately, they’re easy to fix. And every dollar saved will drop straight to your bottom line.
Tracking only your capital costs
You can’t manage your tech expenditures properly if you don’t know how much you’re spending. The vast majority of SMEs only think they know their IT expenses. Their accounting shows the capital expenses for each IT project or business unit, but not the recurring operational costs that go with it, such as maintenance fees, licensing or service-provider charges.
I’ve seen several tech projects that looked profitable but turned out to be money losers once you factored in these other costs. I’ve also seen companies continuing to pay for services that were once important but are now used little or not at all. At my own employer, I discovered we were paying thousands of dollars per month in unnecessary service fees. You should determine your recurring costs, and cut the fat you find.
Falling for a low sticker price
Are your technical people forever tearing apart your equipment for minor upgrades or repairs? Chances are that’s because you didn’t realize how expensive a discount IT purchase can prove. It’s tempting to load up on a bunch of Bargain Bill’s PCs priced at a few hundred bucks less each than their brand-name rivals. But the 20% to 50% that you’ll save up front could cost you thousands over the lifespan of these desktops.
The Gartner Group, a Stamford, Conn.-based technology research firm, estimates the total cost of ownership of a technology asset can be up to five times as much per year as the original purchase price. If you find that hard to believe, think of how quickly the costs mount up to pay someone to fix a piece of equipment—plus the time of the employee idled while it’s being fixed.
Another temptation is to buy equipment configured for current needs rather than the fast-rising demands it will have to meet over its lifespan. But you’ll soon need to take it out of service for an upgrade, such as more RAM or disk space, a new DVD drive or more network-cable capacity. Although the cost per machine might be modest, it will be anything but once you account for repair time and lost productivity. Add up these costs across 20 or 100 machines over their lifetimes and you’ll wish you had bought them fully loaded from the start.
Permitting ad-hoc purchases
Many firms leave the responsibility for IT-related purchases up to their senior technology person rather than department or senior managers. They allow individual employees to ask the tech manager to upgrade them to the latest version of a software tool because it has a cool new feature and costs “only” $800.
But your IT department isn’t in a position to decide whether there’s a valid business case for this purchase. Unless an employee’s request seems outrageous, they go ahead and buy whatever they’re asked to, becoming order takers for individual staff. You might find they’ve bought dozens of external USB drives at $50 a pop for employees who’ve asked for one, even though most don’t really need one.
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