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Accountability and IT Budgets in an Age of Increasing IT Debt

Posted by Henry Cheang | November 5, 2014 7:00 AM

A tale of debts

Over the past decade, companies have seen a dramatic shift in the way that they handle cash flows and IT debt. In 2013, companies accumulated a total of $7 trillion in cash and equivalents; this is more than double the amount of cash reserves that was held 10 years prior. However, even as companies hold on to significantly more cash, their IT debt is increasing rapidly. Global IT debt in 2014 totaled $500 billion, and that figure is expected to jump to $1 trillion by next year. Now, those are some big numbers – what precisely do they mean?

What is IT debt?

Gartner states that IT debt is “the cost of clearing the backlog of maintenance that would be required to bring the corporate applications portfolio to a fully supported current release state”. When we consider this definition combined with the huge volumes of money that’s currently being held in reserve, IT debt can be seen as an opportunity cost in companies.

Increased IT DebtIt is the accumulated value of what needs to be spent in order to update IT projects to current-day standards and to put these backlogged projects into action. As more projects are carried out, IT debt increases because the amount needed to maintain new initiatives after they are implemented further adds to the debt.

In a company,  who is affected by  IT debt?

Simple answer: IT debt affects everyone. However, those who are most impacted by the IT debt are those whose job it is to manage it, both on the front lines and at the more executive levels. CIOs and IT managers are those tasked with strategizing over how best to resolve the IT debt, whereas the rest of the IT department are the ones who have to deal with constant support calls to solve problems arising from using legacy systems and outdated software products.

It should be clear from the above description that CIOs and IT managers manage the larger scope of IT debt. They’re the ones who must budget properly in order to avoid creating a larger IT debt. However, that is easier said than done as other issues also cause debt to increase. One of the major contributing factors to IT debt is mainframe applications. Companies fail to update their applications at the right time, resulting in diminished ROI and expensive upgrades into the future.

This is understandable; IT projects get backlogged like any other business department. That said, however difficult it is to deal with these backlogged items in dynamically-changing technology environment, it is necessary. If a company is not up-to-date and lagging behind with technology, they are at a competitive disadvantage.

According to Network World , a company should do the following to reduce IT debt:

  • Not rush into anything new
  • Identify the main causes of their IT debt
  • Educate staff on the relevance of IT and its ability to enhance the productivity of the business as a whole
  • Ensure that workers are skilled enough to take on their IT projects

Dealing with such problems first requires an understanding of how and why they are caused.

4 basic causes for IT backlogs

  1. Past Investments can lead to a buildup of IT projects if not completed in a timely manner.
  2. Lack of skill among staff often leads to backlogging of IT projects as employees are unable to complete projects. Similarly, a general lack of employees will result in the same outcome.
  3. Prioritization can have a major impact on backlog. New priorities that must be urgently addressed will cause a bottleneck since old projects are left unattended. Additionally, past projects are not always the priority and therefore may not be considered as important revenue-producing activities. As a result, short-term goals are reached more quickly while long-term goals are pushed back further. In most industries, in almost every position, there are unforeseen events and items that come up that absolutely must be prioritized. When one item is set as a priority, another item is backlogged adding to a company’s IT debt.
  4. Externalities are factors that are out of a company’s control that nonetheless impact their operations. New technologies and changes can force companies to modify their strategies and change their planned courses of action.

IT debt is sometimes difficult to resolve because, like credit card debt, it can spiral out of control. In order to avoid this negative outcome, companies must work to keep their debt down and complete their IT projects in an organized fashion. Sometimes however, it just comes down to organization. If a company can monitor their assets and see what they are spending their money on, the company can see just precisely where they are being inefficient. This transparency makes it significantly easier for them to rectify their IT debt and better use their IT budget.

If your company suffers from IT debt or you wish to prevent it in the future, a good way to protect yourself is through the use of an IT and telecom expense management software. Cimpl’s sofware has been developed to help you efficiently manage your IT and Telecom assets in your workplace. If  this avenue to heightened accountability sound like something that would make your life easier then you should contact us at Cimpl! As Canada’s leader in IT and telecom expense management, we have been helping companies gain greater visibility over all their IT and telecom assets for nearly 15 years, and we’re confident that we can help everyone work smarter!

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Topics: Work Smarter, IT Budget, Bills of IT

Written by Henry Cheang

Henry has a lifelong passion for science and technology. This enthusiasm is put to good use in a cutting-edge software company like Cimpl. As product marketer, Henry researches market and user needs to develop user and buyer personas, contributes to product design, and helps coordinate product messaging. Henry also writes nearly the entirety of all documentation for Cimpl’s many successful platforms. In his spare time, Henry devotes much energy to family, friends, and martial arts. Henry recently completed his Master’s in Business and Administration from Concordia University, where he specialized in the study of marketing, organizational behavior, and corporate governance. He has authored academic papers on the latter two subjects; these papers form part of his bibliography of over 20 professional research publications.

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