IT's Biggest Money Wasters
Even in these lean times, where tech budgets are trimmed to the bone, money gets wasted. Companies routinely overspend on software licenses and service-level agreements. It's possible to have too much bandwidth at your disposal and to store too much email on company servers, not to mention the billions of dollars still wasted on paper and ink. Then there's the inevitable project from hell that ends up swirling down the toilet, dragging your precious IT resources behind it.
It doesn't have to be this way. Though there's no one-click solution to any of these money wasters, there are ways you can stanch the flow of dollars and use it on the items that will make your IT organization shine. Here are the secrets.
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IT's biggest money waster No. 1: Dusty software licenses
Collectively, U.S. companies are paying billions for shelfware -- whether it's software that was never adopted or for employees they no longer have, and often at prices that are higher than what is actually needed. A 2010 IDC survey of midsize and large businesses found that well over half of enterprise applications are underutilized, with anywhere from 25 percent to more than 75 percent of licenses paid for but unused, notes IDC analyst Amy Konar.
"Organizations typically use less than 50 percent of an installed ERP system and are paying significant licensing and maintenance fees for modules and functionality that are not providing value to the business," says Kathryn Douglass, managing partner of IT consultants WillowTree Advisors. "They need to review their named-user licenses and renegotiate agreements to remove unused or duplicate users from licenses. The difference between a 2,000-named-user license and a 1,500-named-user license can easily be $500,000."
Small and midsized businesses may be able to get away with using an Excel spreadsheet and their accounts payable records to true-up their software needs. But larger, more complex operations need enterprise-level software that can track software assets, gauge their use, and optimize the licenses accordingly, says Steve Schmidt, vice president of product management for Flexera Software, maker of application usage management solutions.
Every company should start by collecting information on the software they are paying for and what they actually use, says Schmidt. For many companies, that tends to be a one-time event instead of a continual process. Asset tracking and license optimization need to account for such details as downgrade rights and second-machine use rights. Global companies may have concurrent agreements that allow them to use one license 24/7, shifting from one physical location to another as the day progresses. Even users of cloud apps need to closely monitor their usage levels -- which can be hard to do manually.
"You want to be able to combine that information in an intelligent and automated way so that you can make good decisions about optimizing," Schmidt says.
For large enterprises, the amount of money left on the table is far from trivial. Procter & Gamble used Flexera's FlexNet Manager Suite to eliminate unnecessary licenses for its Oracle and SAP products, trimming more than $30 million from its annual software budget.
The other option: Ditch those draconian licensing agreements and go open source, says David Wood, CTO for the Jun Group, which distributes video content for companies like Nike, Wal-Mart, and Coca-Cola. Open source software can't solve every problem, but it's come a long way in the past 10 years.
"Outside of certification-driven fields like finance, health care, and the military, most Oracle (and former Sun) customers are overpaying massively for Unix and relational database capacity and features that are never used," says Wood. "The software licenses run to the millions, and once they have built on this foundation, the victims can never escape. The rationale was that you don't entrust a big business infrastructure to open source hippies. It was wrong 10 years ago and it's ludicrous today. Are Google or Facebook running their websites on Solaris or Oracle? I don't think so."
IT's biggest money waster No. 2: The paper chase
Remember the "paperless office"? Turns out it was just another fantasy, kind of like "clean" coal or change we can believe in.
Despite the influx of digital technology over the past 30 years, U.S. office workers still consume an average of 10,000 pages per person every year -- about $80 worth -- according to the Lawrence Berkeley National Laboratory. Nearly half of that paper ends up as trash before the day is out.
U.S. corporations spend $120 billion per year on paper forms alone, notes a Xerox study. But the costs don't end at paper. Ounce for ounce, the ink inside a typical printer cartridge is 15 times more expensive than Dom Perignon champagne, according to Chronicle Research. Filing that paper, copying it, mailing it, storing it, and finding it again can add up to more than 30 times the original cost of printing, per a 2005 study by the Minnesota Office of Environmental Assistance.
Have we convinced you yet?
A paperless office is still not very likely. But a less-paper office is entirely doable. Step one: Get rid of forms that need to be processed by hand, says Paula Selvidge, VP of user experience at PerfectForms, a business process automation company
Next page: Out-of-control email
"Companies often use paper forms to complete daily tasks or electronic forms that are then printed out (vacation requests, time sheets, bill-back spreadsheets, etc.)," says Selvidge. "Copies of these are sent to another group of people, like HR, after that -- the next step in a long, overly complicated approval cycle -- and finally handed off to the department head. You multiply this by the hundreds of admin tasks that require approval every day, and you can practically see the trees frowning."
Simply converting required forms from paper to digital instantly saved $10,000 for one school in Fremont, Calif., Selvidge says.
Step two: Get employees to stop needlessly printing all or parts of emails, Web pages, or other electronic documents that don't really need to be on paper, says Kent Dunn, VP of sales and business development for GreenPrint, which makes software that helps users conserve paper and ink/toner by avoiding unnecessary print jobs. GreenPrint claims an enterprise with 5,000 PCs will avoid printing some 6.3 million pages, saving nearly $400,000 annually.
Even moving from cutting paper checks to using electronic deposits will save one pound of paper per employee each year, saving employers an average of $176 per head, according to a study conducted by Javelin Research and sponsored by PayItGreen, a coalition of electronic payments vendors.
"There are no magic buttons that an organization can press to solve the print waste problem," says Dunn. "In the end, individuals are responsible for creating print waste, and they have to be involved to make it go away. Once people are engaged, they have to be empowered with the right tools to solve the problem, and then the organization must enforce the print reduction targets it established."
IT's biggest money waster No. 3: Gold-plated service-level agreements
Whether it's for help desk services, Web hosting, or server uptime guarantees, too many IT organizations are paying for Lexus-level service when a Toyota Camry SLA is more than adequate.
"Most sourcing agreements for IT services include amazingly high service levels," says Matthew H. Podowitz, independent IT consultant and author of The IT Value Challenge blog. "But how many businesses really require 99.999 uptime 24 hours a day, 7 days a week?"
That five-nines uptime agreement may mean your site or servers will only be unavailable for perhaps 15 minutes per year, he adds. "But if you paid for only 98.5 percent uptime, and your systems went down for maybe a dozen hours a year, so what?"
Unless that downtime puts you at a competitive disadvantage or causes revenue to slip through the cracks, it probably won't make a difference, he says. There are exceptions, of course. If you're a county government, you don't want to reduce the uptime for your 911 emergency service, but your accounting data probably doesn't need to be accessible 24/7/365.
Even IT departments where labor and outsourcing budgets have been trimmed to the bone can still save money by taking a hard look at their service-level agreements, especially in the area of help desk support, says John Baschab, senior vice president for technology solutions and staffing firm Technisource.
"Overserving particular areas is a big source of overspending in the operating budget," he says. "A hard look at benchmarks and numbers will help here. One specific area that should be evaluated is the help desk or incident management area. Companies would often like to move to a prevention model (e.g., end-user self-service) instead of a cure model, but it can be difficult if you don't already have effective SLA measures in place because as you change models it is hard to tell if you have actually reduced the incidents. The worst case is investing in a preventative model but not cutting down on the total incidents."
The hardest part, says Baschab? Deciding what services are essential and which are merely optional.
"The most difficult part is separating the needed services vs. the 'fat' that can creep in over time," he adds. "This requires careful analysis and considerable experience in benchmarking, IT demand management, service-level setting, and governance."
IT's biggest money waster No. 4: The email monster
You already knew email was a productivity suck, but it also sucks money out of your organization in terms of storage, maintenance, software licenses, server upkeep, and the constant battle against spam, malware, and data leaks. It's a problem that will only get worse.
Netizens sent 247 billion emails a day in 2009, per the Radicati Group, with enterprise email accounting for roughly a quarter of that total. By 2013, email volume will double -- creating a massive storage headache for enterprises.
"Resources consumed by email messages and their attachments are a major concern for many companies," says WillowTree's Douglass. "A 10,000-user organization without mailbox policies consumes an average of 30GB of storage per day from email messages alone."
Using software configurations or an enterprise email management tool in conjunction with an email archive policy can cut storage costs by managing retention, enforcing limits on the size of file attachments, and redirecting users to third-party collaboration tools like SharePoint, where large files can be shared more efficiently, says Douglass.
"Monitoring and understanding the habits of email users and helping them find alternate ways to send, store, and retrieve information can result in significant storage cost reductions and, as an added bonus, increased email performance," Douglass adds.
But others argue that the proper place for email is the cloud, where the rising storage, maintenance, and security concerns are somebody else's problem.
"For companies with up to 1,000 people, having an in-house Exchange architecture is a huge waste," says Gary Bahadur, CEO of KRAA Security. "Email is definitely one of those things that should be outsourced to the cloud. You no longer have to worry about the costs associated with hardware and software licenses, downtime, combating viruses, or emergency calls to IT admins at 3 a.m. A hosted email platform is backed up automatically, has a 24/7 staff, is more up to date on security patches, and is staffed by email experts instead of tech generalists. If you want to save some money, host your email."
Next page: Projects gone wild
IT's biggest money waster No. 5: Excess bandwidth
You can't be too rich or too thin, nor can you have too much bandwidth at your disposal -- at least, that's the common belief. But many companies are wasting their money on bandwidth they don't really need instead of doing a better job managing the bandwidth they already have, says Andrew Rubin, CEO of network visibility/optimization provider Cymtec.
If a problem arises anywhere on the network, IT's first response is almost always to throw more bandwidth at it, he says.
"If you've got a T1 line, then it's time for a T3. Still too slow? Then go for a 100Mb pipe. But when they look at their actual bandwidth usage they find out they've got a 100Mb pipe but are only using 1 percent of it."
Companies that have overbuilt their networks shrug and say they'll eventually grow into it, says Rubin. "A better approach is to build a little ahead of the 8-ball, but manage it as tightly as humanly possible," he says. "Understanding what's happening and having great visibility and control is how you can get the most out of your investment."
At a certain point, bandwidth becomes a status symbol; if a company buys Tier 1 bandwidth, they think it makes them a Tier 1 player, says Jun Group's Woods. That's not necessarily the case.
"Deep down, ambitious executives believe they will be the next eBay, and that's a good thing," Woods says. "So when it comes time to build, small companies buy expensive servers or managed hosting ('to grow into') when Amazon's cloud will serve them surpassingly well. Medium-sized companies buy elaborate blade infrastructure and Tier 1 bandwidth in major markets like New York or San Francisco, when they only need downmarket hardware and more affordable hosting solutions. And they will never meet a salesperson who doesn't agree."
IT's biggest money waster No. 6: IT projects gone wild
Ambitious, big-budget IT projects often seem to have failure built in from the start. In survey after survey, IT organizations have reported project failure rates of 30 to 70 percent.
The tech industry is rife with stories of multi-million-dollar projects that are late, overbudget, or simply abandoned. According to the Standish Group's 2009 CHAOS report, one out of four IT projects is never completed, collectively costing companies billions of dollars.
"The most common root causes of IT waste I see follows a theme of poor IT project management," says Chris Stephenson, partner and co-founder of Arryve, a Seattle-based strategy and management consulting firm. The biggest problems? Failure to adopt a standard way to measure a project's success (or lack thereof) and a hands-off approach from management.
"Too often, IT-related projects are a series of hand-offs from the business to the developers to the testers to operations," he says. "Without involving all parties throughout the entire project, alignment is quickly lost and duplicative work efforts occur. I'd estimate the time to complete projects that do not follow [sound IT project management] rules double the cost and time of IT projects. They also increase the risk of low business adoption or outright project abandonment."
The biggest single money suck in most failed projects isn't software or hardware -- it's the cost of employees whose time has gone into them, says Curt Finch, CEO of Journyx, a maker of Web-based time-tracking and project management tools.
"IT projects fail because they are out of control, overbudget, or broken," says Finch. "Companies must figure out which of their IT projects are high-risk and which ones are low-risk. The best way to measure that risk is to track employee time spent on projects, while simultaneously estimating how much of the project is complete. If the project budget is 1,000 person-hours and 50 percent (i.e., 500 hours) is used up but the project is only 15 percent complete, then you know you have a high-risk project -- and a big problem."
You can avoid an endless money pit by following a few commonsense rules, says Finch. For example: Don't start projects you know you can't finish or take up three projects when you have the resources to complete only one. Take the pulse of your project on a regular basis. If it's only 10 percent done but you've spent 15 percent of the money, odds are the numbers will only get worse. Give accurate status updates; if a project is behind schedule and/or over budget, hiding that fact will only hurt you later.
"This is all very basic -- not easy, but basic -- yet almost no one does it well," Finch says. "If a project is in trouble and management really wants it to succeed, they'll find a way to help. Otherwise, they'll start looking for someone to blame. In that case, you'd better start looking for a new job."