10 IT Investment Mistakes to Avoid
Many people in management positions consider the cost of IT to be an expense rather than an investment. If you cannot see a positive return from spending money on IT greater than the amount you spend….then I guess classification as an expense is more appropriate. Most expenditures for IT should result in higher company profits overall than without making the expenditure or you should not waste your money.
Failure to develop a solid IT Management Strategy that drives an IT Investment Strategy often causes businesses to install and maintain systems that do not adequately meet their business needs. This can lead to significant loss of productivity and high operating cost, compared to IT options designed around the specific needs of the business.
In this post, we highlight a few common mistakes companies make when budgeting for and investing in technology. Additionally, we provide some basic suggestions for ways to avoid these pitfalls.
Don’t Treat IT Only as an Expense
When a budget contains a single line item for IT, this is an indicator that the company considers IT as an expense. Typically, these companies focus primarily on cutting IT costs, rather than finding an ROI in an IT investment. If you want your IT systems to produce positive business results, you need to treat IT as an investment, and as an enabler for optimizing your core business.
You should manage an IT budget the same as you manage budgets for other departments within your business. Be sure to add sufficient detail to your IT budget such that you can define investment performance for each line item. Your IT budget may include items such as software license fees, server maintenance, end-user support, etc. You can accomplish this with a single IT budget for your entire company, or by including an IT category in each operational unit’s budget.
Rather than focusing on IT budget discussions on cutting IT costs, we encourage you to focus on IT budget discussions on increasing ROI from your IT investment by improving your business’ profit and operating efficiency. We recommend using a budgetary process to clearly identify who (or what process) within your operation is supposed to receive operational benefit by the IT resources being acquired…and then follow up with the end consumer to ensure the benefit is actually being received. The budgeting process can clearly identify the most significant investments and therefore create the target of the follow-up process.
Ready, Fire, Aim!
Have you ever created and implemented a plan when you were in such a hurry that you did not take the time to assess options and consider areas of concern? How did that work out for you? Most often, this way of doing business will yield less than satisfactory results. You can often avoid these situations with advanced planning, while you have time to consider and investigate your best options. We address this aspect in more detail in the following sections on planning for disaster, replacement, and upgrading, and consulting with industry professionals.
Failure to Develop an IT Investment Strategy
A well thought out IT investment strategy begins with developing a business strategy that considers IT as an investment and an enabler for optimizing your core business. The key here is having an overall business strategy documented in terms of a plan. A good plan should provide the transition of the thought process from high-level strategy to actual tactics used to implement the strategy.
When you recognize IT as a fundamental component of your business, your approach toward planning and budgeting for IT will naturally sharpen. You will clearly understand the key business drivers that shape your IT system design as you embed them in achieving operational objectives. Your business and IT strategy should include regular assessments of the health and effectiveness of your IT system, and its contribution to the overall profitability of your business.
Failure to Develop an IT Management Plan
Your IT investment strategy should include important aspects of your IT Management Plan. An IT Management Plan defines how your IT system helps your company meet its business objectives, and provides mechanisms for tracking progress and meeting those objectives. A quality IT Management Plan will also define maintenance and replacement costs and frequencies for system components, both of which factor into investment value decisions.
Don’t Invest in IT without Defining Needs (both IT and general operational) of Each Operational Unit
In order to optimize your IT system design, you need to analyze all aspects of your business and understand the IT investment value for each operational unit. Do not make the mistake of deciding an overarching IT plan without detailed consultation with each department to define their specific needs. As you gather this information, you can consider IT system designs that meet the needs of each department, while working together as a cohesive unit.
Don’t Shop for Lowest Price IT, Instead Select a System that Delivers the Best Value
When businesses consider IT as an expense as opposed to an investment, they often focus on IT cost control and reduction rather than value. This outlook typically leads to inefficient and COSTLY IT solutions. The unintended cost arrives in various ways.
While controlling costs is very important, considering only the expense aspect of the value equation is inherently a one-sided decision-making process and will result in an unbalanced operation. The initial capital investment and ongoing maintenance costs are important to the value equation, but they do not tell the whole story. Cost savings you may achieve by installing the low-cost option are usually offset by you losing the opportunity of having enhanced operations and streamlined business processes. Correspondingly, just because an IT-based solution costs more does not mean that it will provide more value to your operation.
To obtain the best value for an IT investment, you need an IT investment strategy that aligns with and enhances the core business functions. The most important part of the IT investment process is defining your business strategy and then correlating that strategy to specific tactics through planning and budgeting. This investment in time and effort (and sometimes using subject matter experts) is extremely valuable.
Failure to Plan for Disaster
While having a plan to utilize IT to achieve a business’ strategic goals is vital, planning to avoid downstream risks is also important. A company can completely waste the investment time and money in implementing and using IT-based solutions if you do not prevent disasters. Without adequate disaster recovery, the cost of lost data, damaged customer relations, etc. can become catastrophic to the financial health of your business. As such, the IT strategical and management plans should include solid proactive processes to avoid disasters and / or improve your odds of surviving them.
If you want efficient Disaster Recovery capabilities, you need to design it into the IT system architecture. Disaster Recovery is not always economically or tactically feasible to ‘add-on’ to older legacy systems. You need to address this important risk reduction measure as part of your overall IT strategy and investment decision.
Failure to Plan for Replacement and Upgrading
Like any other physical system, IT equipment has a lifetime. Hardware lifespan is finite. Planning for replacement and upgrading is more cost-effective and it helps businesses more accurately forecast future expenditures. Failure to plan for replacements and upgrades will undoubtedly challenge meeting your forecasted IT budget. Failure to replace and/or upgrade key IT resources in a timely fashion almost always results in unexpected expenditures that are higher (or just extra) than they could have been if properly planned and implemented.
To demonstrate why planned replacement is lower cost than waiting until it fails to replace it, consider the analogy of driving an old car. Sure, you save capital cost initially, but soon you begin to spend money on expensive repairs, and some failures can cause other costs such as replacement vehicle rental during vehicle repair. When these costs exceed your financial pain threshold, you end up purchasing a newer car. You did not avoid the purchase cost of the more reliable vehicle; you merely deferred it while you realized additional unplanned costs along the way.
Waiting until failure to replace components of an old and outdated IT system produces much the same results as you get when driving an old car and waiting for something breaks to fix it. Planning replacement provides a more economical solution, giving you the opportunity to effect replacement at opportune times and avoiding costly downtime.
Consult With Experienced IT Professionals
If you shop for your IT system only by comparing system costs, you may sacrifice significant value as described in this article. Consultation with a competent IT professional provides you with the experience and knowledge you need to help you formulate a winning strategy and to achieve a positive ROI on your IT investment.