Most IT departments spend as much as 80% of their budgets on routine maintenance and day-to-day operations, while only 20% is spent on new technology or business-process enhancements, according to surveys by Gartner and other research firms.
The conventional wisdom is, with the total IT budget being constant, it is better to spend more on new initiatives and minimize spending on legacy systems. This way of thinking has some important downsides, mainly because the inherent nature of maintenance costs and “truly” new initiatives is as different as apples and oranges.
Here are some examples of conventional thinking I’ve encountered:
As a post-facto informational ratio, the ratio between maintenance and new initiatives can be useful, because it highlights where the net maintenance costs are heading. It might also be a driver in a decision to outsource some legacy systems. However, this ratio should be used with caution and not as the main driver for budget discussions. The distinction between maintenance costs and new initiatives should be guided by the business needs, within an IT services lifecycle framework.
The concept of a ratio between maintenance and new initiatives is easily understood and hence attractive, but it is a poor tool to manage your IT portfolio.
The main reason is that new initiatives and investment proposals should be judged on their own merit and not be subjected to a push caused by a blind chase for a ratio. Common sense dictates that each investment proposal should be looked at individually and in conjunction with the whole IT strategy and portfolio of business functionality and IT architecture.
Each major proposal, each major change, each investment needs to be able to stand on its own in terms of rationale and return on investment. The desire to shift the legacy- /new-initiatives ratio should not be a factor in the approval of an investment. Using the ratio as a tool to guide your budget can lead to a major misalignment with the business.
There are some additional arguments to be made against using this ratio:
The definition of the split is akin to nailing pudding to the wall and can hence be too political. If you are planning an upgrade to your SAP environment, do you consider the cost a part of the maintenance or is it a new initiative?
If you are embarking on a major new project setting up ITIL processes, is that part of putting your house in order and a legacy cost, or is this something “new”? A friend in the aforementioned Midwest financial services company puts it as follows: “… the issue we face … is what qualifies as a new initiative and what qualifies as maintenance. The line is fuzzy and gray so it makes it hard to truly achieve the ratio.”