The Biggest IT Expense -- Should You Be Spending That Much?

It is almost that time again–when companies start compiling their budgets for the following year. As the IT department continues to grow in importance, many business leaders are taking a second look at their tech investments. Overall, the average percentage of funds that companies dedicate to IT spending has not significantly changed. Several recent studies suggest that on average tech spending will either increase slightly or remain the same this year.

However, how those funds are allocated may change year-to-year and vary from one organization to another. When it comes to prioritizing tech expenses, CIOs and other IT leaders must make some tough decisions. They are asking questions like: what is my biggest expense, and am I paying too much for it? We are looking at the most common expenses in IT departments and identifying the most important considerations when making a big investment.

The Biggest Expense for IT Departments

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The typical expenses in IT departments today can usually be divided into two categories: maintenance and innovation. Historically, maintenance was the primary focus for IT teams. Now with the rising use of technologies like social media, collaboration tools, CRM systems, wireless presentation software, wearable devices, cloud computing, and more, IT leaders are also being viewed as a resource for innovation. CIOs are even becoming more heavily involved in strategy formation, with the percentage of funds dedicated to innovation initiatives rising.

However, maintenance costs continue to claim the majority of expenses. In a recent global survey by Spiceworks, IT leaders expected to spend 41 percent of their 2015 budgets on hardware and infrastructure.

 

Organizations often need to update their systems every several years to remain secure, competitive, and efficient, but it can be costly. With tight budgets, CIOs are expected to make the smartest tech investments. Understanding the actual cost and value of expenses can help IT professionals make the best decisions for their organizations. How do leaders know when an expense is worth it? Below are some key questions to ask before making an IT investment.

Cost Considerations

What are the long-term costs?

When purchasing new hardware, some organizations make the mistake of focusing solely on the sticker price. It is easier to obtain discounted systems and devices now than it was years ago. But, a cheap initial price can turn into a costly burden if it performs poorly and continuously needs maintenance.

 

If you are investing in a new hardware or software, it is essential to examine how long the investment will remain relevant and useful. The technical term for this is total cost of ownership (TCO) has existed for decades and may seem outdated. Some companies have adopted another way to calculate costs. It’s called TCS, or total cost of services. This emerging method anticipates costs of maintaining hardware, while also factoring in costs of labor and internal and external services like: hosting, data storage, and security measures.

Will it help increase efficiency or generate revenue?

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What value does this new investment bring to your company? Will it increase worker productivity and engagement? Can it help foster collaboration or provide valuable data insights about your customer demographic? These are all questions that the CIOs from 10 years ago were never expected to answer. To CIOs today, these are critical considerations.

Many organizations are consulting tech leaders about strategic decisions in various departments–from recruitment to marketing. Also, technology has become a vital part of those departments. When new tech-driven programs are proposed, CIOs are likely to be one of the main influencers. Others are increasingly looking to them to identify the best value for their tech investments.

 

If you find that your company is spending a significant portion on one area, then it could be time to reassess whether or not it is worth it. By asking these questions, company leaders and IT professionals can make smarter, more profitable decisions.

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