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Thanks to its increasing intertwining with business processes, IT is becoming more

complex and costly to manage. The complexity is due in part to the natural evolution of
the businesss dependence on IT, and to the piecemeal and sometimes divergent nature
of demands on IT. Whatever the cause, complexity begets ambiguity and is therefore
undesirable.
CIOs are often baffled at the implications of operational and cost-induced ambiguity.
They are expected to keep IT costs in check, while maintaining operational excellence
and satisfying the need to grow and innovate. It is, from the outset, a task doomed to
failure if one doesnt have a firm handle on costs. Operational complexity is not the only
reason it is difficult to establish the true costs of IT. The following analysis highlights
some factors that make determining the true cost of running IT difficult:

The great divide


IT manages assets, businesses consume services and never the twain shall meet.
There is a fundamental disconnect between the way IT costs are generated and the way
they are recovered. IT costs include those associated with people, plants and the
equipment required to produce services such as e-mail or payroll. All business units pay
for the consumption of these services, often based on metrics that are proportional to the
actual consumption, such as number of users. The challenge for IT is to charge just the
right amount to the business units. It is not easy to cost the increasingly complex IT
server farms and application clusters. And charging out these costs equitably to the
business units is onerous, to say the least. There is also a moral hazard issue at play
here; if applications specific to a business unit are housed on shared infrastructure and
are supported by shared FTEs, it is financially detrimental to the other business units
that foot the bill for shared expenses. Cost ambiguity is reflected in the diminishing trust
of the business on IT, which often wears the blame for passing unmanaged costs to the
business.

Resource and cost duplication


In an ideal world, the CIO would control all IT related expenditure centrally, minimising
redundant expenditure and enabling accurate IT costs reporting. In reality, however,
most organisations have under-the-table applications that are not managed centrally by
IT. Quite often, business units have their own supplier relations for the management of

such applications, servers or peripheral devices, which do not make it to the IT budgets
and fall through the cracks.

BRAND POSTMaking

sense of business rules management

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Perception is reality
IT budgets, not the total cost if IT, are reported and discussed among the C-level
executives and the company board, and are therefore perceived to reflect the total cost
of IT. They do not, however, represent the full costs and are therefore misleading.

Budgetary constraints
To meet the budgeted operating expense targets, IT organisations often pull the plug on
maintenance activities and divert resources people and so on to activities that do
not impact profit and loss, which are often separately funded by the business. The
practice not only confounds the true cost of IT, it compromises ITs keep-the-lights-on
function by neglecting the otherwise essential maintenance activities.

Moral hazard
CIOs often find themselves explaining the value IT creates to justify increasing IT
budgets. It is not conducive to revealing the true costs of IT, nor does it provide incentive
to determine the cost. As the saying goes: What cannot be measured, cannot be
controlled. The new-age CIO must take a quantum leap and establish credibility as a
leader by determining, owning and controlling the total cost of running IT.