In addition, the reason of shifting projects from the category of maintenance to new initiative can be inspired by a desire to move budget money around—a new initiative might be considered a capital investment and does not immediately show up as an expense. An easily manipulated metric is a political metric.
The metric mainly depends on the IT architecture and build-up history of IT. New initiatives are seldom totally “forward-thinking” and really innovative. Most of the time, your new initiatives will not be implemented in a vacuum, but will be a layer on top of an existing infrastructure.
A company with a massive ERP, e.g., SAP, will have a fundamentally different and higher ratio than a company with multiple applications. The company with the ERP will spend time optimizing this ERP, which is considered a maintenance cost. The company with the multiple applications will invest in new applications to fill business functionality gaps, which are considered new initiatives.
This makes it impossible to compare the ratio in one firm with the ratio in another firm and reduces the usefulness of the ratio as a benchmarking tool.
Business doesn’t care about the ratio, as long as they know that, a) the total IT budget is under control; and b) they get the services they need. IT is becoming more and more a commodity, as Harvard’s Nicholas Carr pointed out in his article “IT Doesn’t Matter”. The ultimate question should be about the ratio effect on the business functionality and services offered, as they are the reason of existence of IT. Changing the ratio does not link to a direct or obvious benefit for the business.
The net amount of the costs for the legacy systems should decrease year-over-year, regardless of new initiatives, for two reasons. First, Moore’s Law is ubiquitous in IT: the cost of networks, servers, hardware should go down over time. We all know the painful experience of buying an electronic item and then seeing it advertised three months later for 25% less.
Second, the IT department should get better at managing its environment and using its known error database and gradually reducing the total number of recurring incidents. This feeds into the total cost of ownership (TCO) management, which should go down because of the gained experience.
The main source of IT’s headaches are changes. New investments and major changes should only be pursued when the environment is mature and stable. New initiatives for the sake of being more forward-thinking can be disastrous. IT departments are already buckling under the yoke of more and faster changes every year. New initiatives could take energy and time away from the essential goals of providing a stable IT service to the business and enabling maximum business productivity.
The important aspect is not to blindly follow a hybrid and pleasantly easy-to-understand ratio of IT investment versus IT maintenance expenses, but to rationally dissect the purpose and usefulness of this ratio and to compare apples with apples, and oranges with oranges lest we wind up with some hard-to-digest fruit salad.
Jan Vromant is a process architecture consultant, focusing on outsourcing and ITIL best-practices and is a lead in the Outsourcing Advisory Services of Deloitte Consulting, LLP. Before joining Deloitte, Jan worked at Royal Dutch/Shell, BMC Software, PricewaterhouseCoopers Consulting, and Hewlett-Packard.