By Mark Koivisto
The costs of your computer information technology (IT) closely parallel the ownership models of water treatment system solutions. When presented a water treatment system solution, consumers have choices related to acquisition (cash, finance, lease) and related services (installation, maintenance, on-going delivery of consumable products). When presenting the acquisition options to a prospective or current water treatment customer, the following items are usually included for a “rent” or “buy” proposal. Table 1 illustrates—in a rent vs. buy water treatment system solution decision—a few of the benefits of renting (“outsourcing”) vs. buying (“in-house”). The terms “out-source” and “in-house” are terms often used in the computer industry to identify if a particular function is performed by your company and staff (in-house) or contracted to vendors (outsource).
Total cost of operations
As a matter of practice, tabulating your costs related to your technology operations can be a valuable exercise. Compiled results can prove beneficial as new and improved “in-house” or “out-sourced” technology solutions are developed that may benefit your business. The following checklist highlights various categories that comprise the information technology costs for your business. The business cost categories are:
- Hardware and software,
- IT infrastructure,
- IT operations,
- Opportunity costs, and
Depending on the circumstance, many organizations bounce between outsourcing and retaining certain functions in-house. For example, customer service may be handled best “in-house” with trained employees, whereas customer statement printing and mailing may be handled most effectively with an “outsourced” vendor. A clear understanding of what your company does best, what business functions are outsource candidates, and adapting your business to take advantage of what’s best for your business and employees can lead to significant improvements in your operation.
The following checklist (see Table 2) is provided to assist in developing total costs for your business. This type of analysis can serve as a means to highlight key areas for potential improvement. The costs vary for each business, and various staff members may be able to contribute information so that all costs can be identified.
Six ways to improve with IT
- Do something about it—The checklist in Table 2 is provided as a means to help any business owner or manager understand the costs that comprise expenses for their organization. Taking action to examine even a few of these areas may yield telling results. Feel free to add lines for additional items or categories relevant to your particular business.
- Others are doing it—In today’s market, it’s possible to uncover some excellent savings in various expense categories. Many of your peers are finding savings in their organizations and you can, too. The elimination of one extra, unused telephone line, for example, could save several hundred dollars per year.
- Set a goal—Tabulating your costs and setting a goal to improve your position by 10 percent, for instance, may yield a great return. Your efforts to self assess your costs and change your cost structure may exceed your expectations.
- Talk to experienced vendors and others in your industry—It’s very possible they, through their vendors or with their staff, have discovered ways to reduce costs or take advantage of new and improved methods of operating their businesses with technology. By collaborating with peers and knowledgeable vendors, you may find new ways of operating that you’ve been missing.
- Measure your IT expenses as a percentage of sales—Tabulating your costs and measuring them as a percentage of your company sales may prove beneficial. This allows you to compare your business to other businesses to assure you’re in line with industry averages.
- Watch out for hidden costs—There are multiple costs that often aren’t quantified but are real, and could be the most significant of all costs. For example, the time one employee spends supporting another employee’s personal computer could result in overtime pay or an employee not completing their primary work in a timely manner. Another example of a hidden cost might be costs that should be incurred. To illustrate this, if a vendor’s software maintenance price is too low so updates aren’t made to support your business, perhaps it would be good to be paying additional for maintenance to keep software up-to-date for your business.
Organizing IT expenses
It may seem an obvious thing to do, but many organizations lack a centralized location where expenses related to information technology are maintained. When it comes time to evaluate options related to information technology, the records aren’t available, and it’s difficult to compare the current environment to the new, proposed environment.
To assist in this organization, it’s usually helpful to have the following information maintained in a central location:
- General ledger printouts detailing accounts for postage expense, billing forms expense, software expense, hardware maintenance, outside labor for contracted computer projects, and various expenses directly related to computer operations (computer operator expense).
- Fixed-asset records for computers, software (server and desktops), and data center assets (postage meters, air conditioning units, bursters, decollating equipment, furniture and other equipment).
- Software license agreements for all acquired software including database licenses, vendor licenses, desktop computer licenses, and other agreements for services such as required for a website hosting agreement.
- Internal labor costs for various categories of labor (usually office staff, office management, route and service management, delivery, service and installation as well as other labor categories). Related benefit costs for the labor categories should be added to create the true cost.
- Operational details such as truck leases, cost per mile driven by delivery trucks, occupancy per square foot, shrinkage of inventory, special insurances related to information technology, and internal productivity charts provide helpful insight.
By compiling this information on a regular basis, you’ll be ready to analyze various vendor proposes that could positively impact your business. In some cases, a solution may eliminate costs, improve productivity, increase revenues, or provide additional means to free employee time to service customers more effectively. By having a well-organized file of information technology costs, you’ll be able to evaluate the payback for various opportunities that are presented. The decision to “outsource” a function, or service a function with an “in-house” solution will be more effectively made when you’re organized in advance of a vendor or internal proposal to improve efficiency and reduce costs.
Opportunities exist today to increase revenues, improve operational efficiencies, reduce costs, and take advantage of industry best practices—all of which increase the value of a water treatment business. Small, incremental changes can have the effect of having great impact on financial performance. Having the courage to explore these changes, realize the potential effect, and adapting improved methods of operation can optimize the overall costs of information technology.
About the author
Mark Koivisto is director of sales and marketing for Unco Data Systems Inc., of Minneapolis. He has worked in multiple capacities in the computer application and networking industries, and has over 13 years in the water treatment and bottled water industries. His experience includes large and mid-tier account experience at GE Capital Information Technology Solutions and International Network Services. Recent successful projects include sales and marketing program development, and cost reduction and operational improvement efforts. He can be reached at (952) 908-2237, (612) 670-7144 or email: email@example.com