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.
You need to hold your non-tech managers responsible for judging the business merits of technology purchases and approving them before your IT staff place the order. This will give you an audit trail and make your staff think twice about whether what they want is a need-to-have or just a nice-to-have.
Paying retail rates
Running to a nearby store to buy technology-related products is so convenient it’s easy to overlook how wasteful it is. Not only are you frittering away money paying staff to go shopping, you’re spending far more than you would through other channels. One major Canadian retailer charges five times as much as a leading distributor does for simple products such as network patch cables. The same distributor offers office-productivity software such as Microsoft Word for 5% to 15% less than at retail. Multiply those savings by your staff count and you’ll soon get into serious money.
You should use a distributor and consider your technology purchases simply as another supplier agreement to be negotiated and managed. This will make it easier to do price comparisons and find lower-cost alternatives not available at the corner retail outlet.
Letting printing costs run wild
Most entrepreneurial firms remain deeply wedded to printing. A survey by OKI Printing Solutions, a Mount Laurel, N.J.-based printer manufacturer, showed that employees at 77% of U.S. SMEs still prefer printing documents rather than reviewing them on-screen. Yet few take any meaningful steps to limit their printing costs. That harms not only the environment, but also your bottom line.
You can stop this leak by using print-management software such as FMAudit and PrintFleet. These applications can automatically scale Web pages to fit standard paper sizes so they print right the first time, and track per-page costs so you can easily spot where your spending is out of whack.
You can also adopt simple policies that will yield big savings. These include setting your printers to default to double-sided printing and using passwords to limit colour printing to those employees who truly need it. In tough times, the last thing you need is to foot the bill for 50 full-colour invitations to your receptionist’s next house party.
Elliot Ross is an Ottawa-based senior IT manager. He blogs about technology issues for non-technology managers of SMEs.