Budgeting maintenance and support for IT

What does IT do, anyway?

Well, among other things, IT spends money. In many modern companies, the expenditures made through IT are among the highest in the company, second only to salaries and marketing.

What does that mean? It often means that when cost-cutting time comes around (as it tends to do, in cycles, at most companies), there’s a particularly harsh spotlight that shines on IT expenditures, and a vast amount of pressure emerges to reduce these, quickly.

Unfortunately, the “quickly” part of that last sentence just isn’t realistic. A lot of IT expenditures can’t be turned off (or down) at a moment’s notice. In many or even most cases, the company has already signed (and paid for) maintenance agreements with hardware and software providers that typically last a year, if not longer.

It turns out that it’s nearly always harder than I expect to get my senior management peers to intuitively understand what I call the “substrata” of maintenance/operations. By “substrata”, which you’ll recall is another word for “foundation or groundwork”, I mean the ongoing “keep the lights on” expenditures that most of IT spending falls into. Once you’ve purchased a software license or a hardware product, you basically have to pay maintenance in order to protect your investment in that technology. While you can certainly choose to no longer pay for support/maintenance, or to even abandon your use of a product altogether, those decisions tend to come at discrete juncture points (once a year or maybe twice a year for each product or service), not every month. Stopping the payment of maintenance on a product or service is possible at those juncture points, but often pretty risky, since mission-critical systems often depend on it. Equally, completely stopping use of a product or service is often fairly thorny and long-winded in its practical implementation.

This all seems obvious, perhaps, but do believe me when I tell you that this reality doesn’t always penetrate. At various points in my executive career, I’ve been asked, after a bad quarter or two for the company, to “cut IT spending” by a given percentage. On the face of it, it’s not an unreasonable request, of course; it’s only fair that IT be asked to do its part in corporate cost reduction in times of need. Yet, other than through cutting labor, or by reducing planned future expenditures, it turns out that cutting IT spending in the way that’s really desired, at the drop of a hat, effective immediately, is very difficult indeed.

What can you do, then? The best approach is to remember your charter’s third prong: reduce costs. In other words, cut costs all the time, not just on demand. Every time you renew a product (hardware or software), it should be regarded as an opportunity to examine closely whether your expenditure on that product can somehow be reduced or even eliminated.

Secondly, remember (and constantly remind your fellow executives, because quite honestly, they tend to forget) that everything you add to your environment (hardware, software) costs money in recurring fees. The corollary of that is that the timing of those recurring fees makes a lot of the IT spending (practically speaking) non-discretionary, at least in the short-term to medium-term sense. Essentially, you’re creating a portion of your budget that simply can’t be cut. And it’s best if everyone gets on the same page about that. Of course, if you’ve been consistently cutting costs throughout the year, that should buy you a lot of good will when the belt-tightening begins.

Next time: how to avoid the “rubber stamp” maintenance renewal syndrome, with some real-life examples.