e-Finance Trends: Managing technology spending is not that simple

Are we spending too much on technology? Are we spending too little? Can we rationalise it? How do we assess where we stand? It is difficult to get a simple answer. Our technology cost depends on many factors. It depends on what is inherited and need to be sustained.

It depends on what kind of hardware and software mix we are carrying. Is our enterprise system's architecture homogeneously planned?

Are our operating and support systems standardised? Are our business application suites grouped properly? Do we have too many hybrid systems criss-crossing? Does a change in one system have a multiplier impact requiring a series of changes in other systems?

There has been a lot of research on how organisations spend on technology. On an average, 25-30 per cent of technology budget is for normal maintenance just to keep the systems running, 40 per cent of expense is towards implementation, while the rest is spent on procuring software and hardware.

How do we react to the findings? It should force technology managers to take stock of their house. How do we reduce our technology costs or get more? How do we minimise the portion of cost spent on just sustaining the operation?

Analysis

We need to analyse our cost components at the micro level. Let us start with maintenance components. The maintenance involves business application, database, system and hardware. All these components require frequent enhancements.

We need to ensure that all the components perform at the accepted level, are secure and have high availability. We need to ensure that they serve the business right, and at the right cost. What is the right cost of maintaining the application? As per Microsoft, if we look at the five-year cost of software, the initial purchase price constitutes usually only around five per cent of it.

This may vary drastically depending upon many factors, but the point should not be missed.

Managing the cost of maintenance is of prime concern for organisations. Do we have too many staff supporting existing applications? What is their nature of support? Do we have too many divergent applications under different platforms?

Such a situation will require divergent skills to be maintained in the organisation, which means increased cost.

There is a case for consolidation of system environment and we need to plan for it. This rationalises the skill sets required to maintain the systems.

We have seen many instances where we had to maintain some staff and obsolete skill sets just to maintain an old, out of sync system which had to be kept alive. These are expense components which become unavoidable if we do not plan for these to be phased out in a timely manner.

Outsourcing

What about applications whose maintenance is outsourced? In principle this should help in cost rationalisation, but does it? What is the staff support in-house? Is it minimal, enough for operational maintenance?

If we still need a team, the purpose of outsourcing is defeated. Is the system parameterised enough to support business needs? If we need to refer to solution vendors for every business related change, then outsourcing may not work.

Is the maintenance support well defined? Is the application behaviour robust enough to eliminate the need for in-house technical experts?

We are in an era where we need to focus on core competencies, rationalise the cost and optimise the performance by strategic outsourcing. We need to select our solutions and vendors who can help us with this.

Outsourcing should have a measurable increase in performance. It should resolve problems faster and in a proactive manner. It should eliminate the need to duplicate the resource in house. If it does not, we may need to look at options of better and more structured application systems.

What about rationalising software and hardware costs? How do we manage implementation cost?

The author is the assistant general manager of Doha Bank