BUILDING THE BUSINESS CASE FOR IT ASSET MANAGEMENT – PART 3/4

In Parts 1 and 2 of this series we looked at aligning ITAM with business initiatives their associated IT projects, and identifying the specific benefits related to those projects. In this third part of the series we look at the additional benefits that may help support your business case.

While it is important that your business case is developed primarily around how it supports the project that will fund it, it is helpful to document the other benefits that will accrue to the organization as a whole as a result of this project. Bear in mind that these benefits should not be included if the mandatory elements of the project will not deliver them. If additional funding is needed to provide these, then a separate funding request should be submitted to secure budget for future investment.

Business-wide ITAM benefits

In this year’s ‘State of IT’ report, Spiceworks suggests that software spend will make up 26% of total IT spend while cloud and hosted services will account for a further 21%. Over the years we have frequently seen people quoting ‘industry data’ that promises savings of around 30% on both on premises software and SaaS. This is sometimes qualified to state that these savings apply when comparing organizations with reactive SAM to those who have achieved the level of maturity necessary for cost optimization.

While it is difficult to find the original source of this number, or details of the data used to support the 30% figure, anecdotal evidence suggests that this can be achieved over an average of 3-5 years. This figure includes savings from shelfware reduction (license recycling, reducing SaaS subscriptions), rightsizing of contracts, and reduction in maintenance and support spending. These are savings against budget, and do not take into account the costs incurred to achieve compliance where there are shortfalls, nor cost avoidance from reducing or eliminating audit settlements.

However, the IT department’s software budget is not the only justification for investing in ITAM, particularly as more IT is being purchased outside of IT budgets. The basis for these calculations is therefore difficult to ascertain. There is less information available about the impact on hardware costs of effective ITAM, but improving recovery rates from leavers and evaluating the impact of extended support vs. hardware refresh can generate significant cost benefits.

All these benefits are very operational and ITAM, or at least IT Finance, specific. As such, they don’t resonate with a wider audience, so it is important explain them in business terms. Many IT asset managers struggle to articulate the financial impact of ITAM benefits due to a lack of financial management experience. To overcome this, ask for support from a finance analyst or management accountant who can help with quantifying the benefits and present them in a way that will make sense to the people approving investments. The full benefits won’t be achieved immediately, so consider what incremental improvements you are likely to see in years 1, 2 & 3 post-implementation.

What to consider

When working out the impact of your benefits, you need to consider several points. We’ve made some suggestions below as to how you might come up with a realistic explanation of the impact (both financial and operational) of the broad benefits of ITAM:

Maintenance and Support - This area provides plenty of opportunities for quick wins. Most maintenance is paid annually and allows regular review of each support requirement in line with the payment schedule. When planning a review of maintenance and support, use the cancellation period to calculate the deadline by which a decision must be made. Cloud shift is reducing hardware support costs over time, but there is still scope for improvement. Software maintenance and support typically make up half of an organization’s software spending, with maintenance rates currently averaging around 22% of the license cost. Savings can be made by:

  • Cancelling unnecessary maintenance (it is important to check the contract as in some cases partial cancellation can lead to recalculation of the remaining contract line items).
  • Paying for the correct level of support based on an understanding of how it has been used (e.g. number or type of support calls raised).
  • Co-termination of renewal dates to minimize the administrative overhead involved with renewal payment, and the potential to renegotiate the support contract based on a view of the organization’s entire support spend with the vendor.
  • Renewing or cancelling subscriptions on time to avoid late payment penalties or auto-renewal, as well as avoiding any downtime that may be caused by late renewal.

Shelfware Reduction – unused assets (whether hardware, software or cloud services) can be reassigned or retired to avoid costs associated with maintaining them unused. Research by RightScale shows that shelfware for SaaS is estimated by survey respondents to be 30%, while actual wastage figures as measured by RightScale are 35%.

Audit – software license compliance audits have several impacts on the organization including business disruption, direct and indirect costs.

Calculating costs:

  • Cost of carrying out the audit (FTE days x standardized FTE cost calculation plus cost of third party assistance),
  • Cost of business disruption (impact of any project delays or effect on delivery of BAU services),
  • Cost of remediation over and above what it would have been if deal with proactively
  • True-up for total shortfall rather than licenses needed)
  • Paying list price rather than contractual price
  • Any interest payments or back maintenance
  • Any penalty fees or payment for the vendor’s cost of auditing.
  • Use details from previous audits and any data as to the frequency with which the organization has been audited to come up with the estimated annual impact of being audit-ready.
  • If you currently have financial provision made for liability you can include a reduction in this figure in your business case but bear in mind that you may find additional liabilities that need to be added to the current figure – however the overall trend over time should be downwards.

Intangible benefits

These are the benefits that do not have a direct financial value but should still be considered when assessing the investment opportunity.  These may include improved process efficiency and productivity improvements, reduced business disruption, minimizing reputational damage and improved vendor relationships.

  • Financial Insights – cost assignment, chargeback and showback. Regardless of how your organization deals with IT budgets, good quality ITAM data gives IT Finance the data they need to link costs to business value. The level of granularity of the data will dictate how much they can do, and IT asset managers often find that financial transparency is a key driver for increasing the level of granularity.
    As a minimum, it should be possible to demonstrate which costs are associated with which business processes, and therefore link them clearly to profit and loss impact.
    In regulated industries where cross-subsidization of one part of the business by another is prohibited, ITAM data is key to demonstrating conformance with regulation. In some organizations ITAM data is used to link cost down to the level of individual devices and users, so that the cost-to-serve of a particular product or service includes accurate data about technology costs. This information, more than anything, can be used to support business decision-making about the digital technology and IT services that the business wants to invest in.
  • Process Improvement – while there are many processes that can benefit from integration with ITAM, the most significant benefits are identified in creating robust processes for managing maintenance and support renewals and license compliance audits. Few organizations have consistent processes for managing these activities, and they are generally dealt with on an ad-hoc basis. Even where there is no appetite to centralize these activities, consistent processes result in improved outcomes and visibility of the business impact of these activities. Effective management of these activities can significantly reduce the amount of effort and resource required to support them, as well as ensuring that the appropriate organizational policies are observed, and the correct data is used. If any data exists on the FTE days invested in previous audits or renewals this should be used to support the business case. Research from the ITAM Review in 2016 states that the average software audit takes 7.13 months and consumes 194.15 hours
  • Provisioning and De-provisioning of hardware and software is much more efficient where the IT staff responsible have an up-to-date catalogue of available equipment and software to work with. Organizations which reclaim unused assets and ensure that appropriate levels of stock are in place for the level of demand that they are seeing can improve business productivity by ensuring that new starters and movers, or individuals whose devices fail, have the equipment they need to do their jobs as soon as possible. For new starters, it should be a given that appropriate equipment is provided by their start date. From a software perspective, delivery times can be significantly reduced for many products by having a catalogue of those products where stock is held (from reclaiming licences, bulk purchasing, holding buffer stock at prescribed levels) or where the contract allows the organization to true up in arrears. In some organizations average delivery times for most common software titles have been reduced from as much as 8 days to as little as 20 minutes.

In our next (and final) blog post in this series we look at business case presentation and the importance of providing all the necessary information to secure your investment.

To learn more about how to articulate the benefits of implementing an ITAM function to the business and gain executive support, watch the recording of our recent webinar ‘Building The Business Case For SAM’. As part of our ITAM best practice webinar series, Victoria equips you with step-by-step advice on how to identify and engage critical stakeholders. Listen on-demand now.