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By Steffani Lomax
IT Asset Management (ITAM) is the process for tracking and reporting the value and ownership of financial assets throughout their lifecycle. In order to better manage and optimize their IT assets and benefit from significant cost savings, risk reduction and greater business efficiencies, organizations should embrace and implement this discipline. When companies fail to take ITAM seriously, they are simply rolling the dice and leaving everything to chance.
Many IT Asset Managers wish to improve their ITAM programs; however, they struggle with obtaining executive buy-in, sponsorship and funding to make this happen. What are the common internal obstacles? Do any of these objections sound familiar?
“Our leadership team doesn’t see the benefits of investing in a formal ITAM program.”
“We don’t have enough resources, and our existing team is already overburdened.”
“We can’t get budget approval to bring in better tools.”
The underlying issue is that many senior executives view ITAM as a cost burden rather than an investment in their business. Due to this pervasive point of view, the IT Asset Manager must prove and communicate the ITAM value proposition: that a solid ITAM program will lead to significant cost avoidance and savings opportunities, and represents an investment in the business. The IT Asset Manager must develop a strong business case to gain executive buy-in and sponsorship, educating the leadership team about the organization’s ITAM requirements, expected benefits, risks and ROI. What are the steps the IT Asset Manager needs to take to generate a new, more compelling business case for ITAM?
As a first step, let’s review some important industry statistics that have appeared recently in the publications and presentations of a leading IT industry analyst firm:
Each of these individual statistics alone is compelling; together, they are staggering.
Another compelling statistic was presented at the SAM Summit 2013 in Chicago, where a panel of executives from Fortune 500 companies stated that their ITAM teams spend 50 – 70% of their time on software audits annually. These statistics alone demonstrate the critical importance of a robust ITAM program, and can be incorporated into the body of a business case.
Savings from a Robust ITAM Program
A company that establishes a formal ITAM program will realize significant cost avoidance and savings opportunities. What are the key areas where these savings can be found?
Risk of Doing Nothing
Not only are there significant cost savings associated with improving an ITAM program, but there are also risks associated with doing nothing. What are the major risks?
In part II of this 3-part series, we will review the steps to building the new business case for ITAM.
By Steffani Lomax
Now that we have reviewed the options for outsourcing, what’s next? We need to conduct a financial analysis for each option. This is a critical step in determining whether or not to outsource, and which functions to outsource. What is the process, at a high level, for conducting the financial analysis?
First, identify the cash flow elements. Know what to measure in terms of real or soft dollars, understand your current “business as usual” cost and create various models based on the options available. Secondly, understand your corporate objective for Return on Investment (ROI) and actual payback period. Next, calculate the ROI by assessing the cost and savings using the following calculation: (Gains – Cost)/Cost. Finally, calculate the Net Present Value, or Present Value of future cash flows minus Investment. Then calculate the Internal Rate of Return, measuring and comparing the profitability of each investment.
Here are some examples of companies that have chosen a hybrid outsourcing model for their ITAM function:
Fortune 1000 Pharmaceutical Company
A Fortune 1000 pharmaceutical company manages ITAM in-house; however they have chosen to outsource software compliance and audit preparation. They arrived at this decision after an audit by one of their leading software publishers. They received a letter from an external auditor indicating that their software supplier requested an audit. Knowing that they did not understand their compliance position with this publisher, they engaged an external consulting firm that specialized in software licensing. During the engagement, the consulting firm determined that the company would owe their publisher $25 million if it did not change some of its licensing schemes. The consulting firm brought this exposure down to $500,000. Through this process, the pharmaceutical firm realized that it needed to engage software licensing and audit preparation experts to mitigate significant financial and compliance risk.
Fortune 100 Financial Services Company
A financial services company manages hardware and some software internally; however it outsources management of its leading software supplier contracts and associated licensing through a Managed Services provider. Over a decade ago, one of their largest software suppliers introduced the company to this Managed Service provider to help their customer understand their compliance position in real-time. The Managed Service provider proved that it could not only manage this contract and the licensing efficiently, but also presented numerous other significant cost avoidance opportunities. As a result, the company retained the services of the Managed Service provider for this task, and also asked them to manage all of their largest software contracts and licensing.
As you can see from these examples, companies often choose a hybrid approach to outsourcing ITAM, as this provides them with greater efficiencies and cost savings.
In conclusion, as you undertake the process of determining whether or not you should outsource, assess your current program to determine the gaps and risks. Consider insourcing and outsourcing options to fill the gaps and eliminate the risks, and then analyze the expected financial ROI from the selected options. Choose the approach that best meets your business, technical and financial requirements – then you are ready to implement your new, more efficient and cost-effective ITAM program.
Please feel free to comment on this post; let us know about your outsourcing experience, plans or questions!