True Technology Costs Require Deep Analysis

It has become clear to me that most small- and mid-sized business owners struggle with the notion of “cloud computing.” There is a comfort in knowing that the needed technology resides in your building and that you have people you pay regularly to take care of it. There is comfort in ownership and control.

The downside to that ownership and control is the associated expense.

Unfortunately, most small- and mid-sized business owners do not know how much they are really spending on technology. Typical accounting systems tend to blend the technology spend within broader categories. There is no standard report that aggregates technology expenses. A proper calculation tends to require some analysis work.

Technology spend is made up of several components that can be identified. The first major component is spending that took place to build the existing technology environment at the business. This includes spending for server and desktop hardware, associated software licenses, network devices, phone systems and any related consulting, in-house labor or other services labor. Even though this is a “sunk cost,” it is important to understand the amount invested.

The second major component is spending required to keep the technology environment operating. This component includes hardware / software on-going license and maintenance fees, consulting services, in-house labor, data / voice line cost and cost of telephone minutes.

The third major component is spending needed to keep the environment refreshed or up-to-date. Hardware ages, breaks and must be replaced. Vendors upgrade software and force you to stay current or risk losing support. As the business grows, more technology capacity is needed, leading to more servers and desktops with related expenses. Many times new software is needed to better support the business operations.

The fourth major component is the cost of lost staff time and productivity in dealing with technology that is slow, broken or is a poor fit for the business needs. A poorly built environment or one showing some age will tend to cause more and more lost time. Unlike the first three components, this one is difficult to express in hard dollars, but is very real.

Once the true technology spend of a business is calculated business owners are typically surprised. The aggregate spending tends to be far more than they would have expected. The question quickly turns to, “Where are the savings opportunities?”

My experience has been that most small- and mid-sized businesses technology hard dollar savings come in three main areas: hardware and software consolidation or elimination, reductions in labor cost, and reduction in data/voice expense.

Most small- and mid-sized businesses tend to have more servers in operation than needed. Extra servers mean extra payments for hardware/software licenses, maintenance fees as well as the requirement for costly labor hours on a regular basis. Most server activities can be consolidated onto two to three prime servers using virtualization and older servers with their associated cost structure eliminated.

If a business is able to move to a cloud computing software environment, most of the business servers and associated cost structure can be totally eliminated.

In addition to saving hours through server consolidation, improving the technology environment to simplify the management time required tends to produce significant savings in labor cost. Moving as much of the technology environment to the cloud as possible allows even more savings to be realized.

Reductions in data/voice expense can typically be realized in most businesses. Companies experienced in data and voice contracts should be used to review and assess the opportunities. There is usually no charge for this type of service provided you work with a firm that will place your service with carriers.

With a good understanding of the current technology landscape and related spend, areas of potential savings for a business can easily be identified. When cloud based options are brought into the evaluation, business owner’s initial struggles with the notion of “cloud computing” might quickly become an afterthought.