How to take charge of technology expense sprawl
Neil Buckley, Apex BI: something CFOs should know about but all too frequently don't.
We’re starting to see massive lines of credit emerging as enterprises and individual business units embrace the convenience offered by everything-as-a-service, with cloud spend set to triple over the next decade and Software as a Service (SaaS) and Infrastructure as a Service (IaaS) among the fastest-growing investment areas.
According to Hyoun Park, CEO and principal analyst at Amalgam Insights, SaaS is expected to grow from a $70 billion market to a $115 billion market by 2025, and the IaaS market will grow from $50 billion to $150 billion in the same period.
The Internet of everything has complicated the issue even further with virtually every employee, using a range of communications tools, hardware, software and cloud-based services. Technology is already among the leading five organisational expenses and is fast heading toward the top of the list. Moreover, technology expenditure has moved away from long term Capex projects with massive Capital outlay to short term operational expenses, monthly contracts - switching services ‘on’ and ‘off’ at will which requires a management platform that keeps close tabs on IT expenses.
The growth is great but can also end up being the CFO’s nightmare as they struggle to take charge of the expenses related to technology sprawl. It is a familiar scenario in a world of digital transformation of businesses, these costs can easily get out-of-control with a multi-million Rand price tag attached to it.
SMEs, may, to some degree be able to stay abreast of expenditure, but many large organisations are losing control of expenses when confronted with increasing technology sprawl. Management of a growing range of services, vendors, platforms and contracts supporting the digital enterprise has become a complex and time-consuming task for large organisations in particular. Many CFO’s are still attempting to reconcile and allocate technology expenditure using archaic spreadsheets and a range of disparate management solutions, and are, therefore, putting their businesses at risk by excluding vital information and overlooking unnecessary spending.
We often notice that financial reporting relating to technology spend is performed at a very high level - often just a one-liner per GL code for example - which makes it almost impossible to identify the root cause and/or source of expenditure spikes.
5G connectivity is another example of where we can expect to see technology spend increasing exponentially as users and businesses increase their use of cloud-based services. The potential downside of this super high-speed connectivity is that users could consume massive amounts of costly data in a matter of minutes.
Enterprises can find themselves in the position of paying for mobile contracts for employees who have long since left the company, running software nobody uses, overlooking vendor service fees that were not agreed to, or neglecting to scale down on dollar-billed cloud services used for a long-since completed campaign. Many are discovering communications overspend at the end of the month – far too late to prevent the costs from being incurred, and yet others are finding that their IoT SIMs are proving far more costly to operate than they expected. As incredible as it sounds - these unnecessary expenses can amount to millions per annum.
A more sophisticated approach to managing technology expenditure is required and purpose-built technology expense management (TEM) software is really the only way for enterprises to effectively monitor and manage expenditure across the entire ICT environment.
Visibility; control, commercial compliance and cost allocation.
Effective TEM platforms underpin proactive cost avoidance measures, streamline reporting and cost allocation across the entire environment, enhance efficiency and support infrastructure optimisation. In a nutshell, they go far beyond helping enterprises to reduce technology costs.
Over the past year, large enterprises in South Africa have moved their focus from simply managing mobile and fixed-line spend to trying to understand their entire vendor, service and technology mix and how to bill consumption and costs back to individual departments at the end of each month. TEM helps them track – right down to a granular level and in near real-time – exactly which business units and which users are consuming what technology resources and at what cost.
Moreover, TEM platforms support analytics, strategic planning and financial forecasting, and enable organisations to benchmark performance vs expenses across all business units. They can also support an inventory component that serves as a single point of reference for all hardware, software and licences, with alerts in place to notify the enterprise of contracts nearing expiry. This helps inform future procurement and even supports business continuity by providing the new CIO with an ‘at-a-glance’ overview of the entire technology environment. TEM enables organisations to gain control of complex technology categories, where discounts, credits, service level agreements and hidden optional fees can cloud expense management.
Advanced TEM takes a formal and modern approach to technology service, infrastructure and expense management, introducing a robust open platform that seamlessly integrates multiple systems and sources of data to deliver a single, meaningful view of the environment. With this single view, enterprises are empowered to create policies, rules and alerts to manage and control the environment proactively, as well as gaining highly accurate and granular BI and reporting capability.