Avoiding the IT Iceberg
The cost of Information Technology is bigger than you know.
IT costs are sinister. You usually think you’re done paying when you buy the new computer or pay the guy who repaired the broken one. But what you probably don’t see are the costs that scrape away at your budget every single day. Because IT costs are an iceberg.
Consider the iceberg. There’s a big chunk sticking out of the water that you can see; it’s intimidating, and if you’re smart, you’ll give it a wide berth. But there’s more to it. Beneath the surface is the rest of the Iceberg. And it’s always larger and more dangerous than the part you can see.
In the same way, some of your IT costs are visible, but most likely, the majority of them are unseen, lying beneath the surface, scraping at your bottom line.
So let’s look at just how big the Iceberg can be.
Hard and Soft Costs; Above and Below the Water Line
In the IT world, there are two types of costs—hard costs and soft costs.
You budget for hard costs. You can see a specific numerical value for them. They’re the price of new equipment. They’re the bill for repairs. Hard costs are the tip of the Iceberg, sticking out of the water.
Soft costs are not so clearly visible. You rarely see them on a receipt or bill. In a way, they are like gravity; constantly dragging on you until you accept the nuisance. Soft IT costs are often incurred as a way of trying to avoid hard costs—while trying to avoid a direct collision with the iceberg, one allows the bottom of their ship to be torn apart by the jagged and unseen ice below.
Examples of this damage inflicted by “saving money” are:
- Using obsolescent or even obolete computers or software
- Under-equipping staff with under-powered computers
- Leaving problems unresolved
- Improperly tending to network issues—such as accepting low internet speed, or limited connectivity
- Inadequately supporting one’s systems
Many association executives make the mistake of trying to save money in the short term by dangerously cutting IT costs. But the loss of efficiency winds up costing organizations money. Lots of money.
Not sure if you buy it? Take a look at the graph below. It shows how as computers age, their associated Total Cost of Ownership and Support Costs rise even as the Productivity of their users drops.
Effects of Computer Age on Operational Costs.
This graph illustrates how soft costs are incurred through using obsolescent computers. Computers are considered obsolescent when their operating systems have reached End of Life or when they can longer effectively run application software vital to the efficient operation of the organization.
Generally, computers have an optimal lifespan of about three years. After three years, software has either outstripped the hardware capabilities of a given system, or the system itself is beginning to breakdown. Will a computer older than three years still run? Of course. Will it run well and provide for best-case productivity? No, it will not.
The graph to the right illustrates this. Costs go up and productivity goes down. I’d be willing to put both of those trends in a file marked “Not Good for Business.” When the two happen simultaneously, I’d make a new file—“Very Bad for Business.”
This process is so insidious because the computer is not obviously broken so it isn’t urgently in need of replacement. But the computer is running poorly, draining staff productivity. And it’s that drop in productivity that is incurring a huge cost; lost time. When computers run slowly or experience problems frequently, your staff cannot do their job as quickly; they’re losing time. Lost time is lost productivity. Lost productivity results in lower efficiency.
But what does this actually cost?
A Real-World Example
One organization we've worked with didn’t really buy our Iceberg theory - they will remain anonymous by request. Management were so skeptical of the iceberg concept that they put a lot of time into determining hard and soft costs for themselves. They even hired an outside accounting firm to check their findings when the numbers didn't seem possible.
They found that their hard IT costs were $2,800 per month. As we established before, the hard costs are easy to determine—look back at your checkbook, and you’ll see that you paid for every hard IT cost.
This association then created a rigorous evaluation process to determine soft costs. It included salary, benefits, time spent using the computer, value of work done on computer, and level of work done on each system.
When they finished their evaluation, the results were unarguably astounding. It was determined that he organization's soft costs were $5,200 per month. That puts the total IT costs at about $8,000 per month.
Organization leadership were shocked. For good reason. Everyone expected soft costs to have a major budget impact, but nearly twice as impactful as hard costs? It was mind-blowing. And worst of all, there was no “oh, well there’s your problem” cost. Everything just added up. The cost of doing business had grown incrementally, but astronomically.
Associations can bleed themselves dry by trying to stretch equipment beyond its usefulness as this organization discovered.
So how to address this problem?
Like any good 12-Step Program, associations need to first acknowledge there is a problem. In this case, they need to be aware of the danger of soft costs. They need to realize that you can—must—control them.
Now that associations acknowledge the unseen threat, they must create a plan. This plan has to coordinate executive actions, staff actions, and IT service provider’s actions. Soft costs can only be minimized when everyone’s on the same page. Otherwise, the ship has too many captains, and the organization will plow right into those icebergs. It is imperative that the IT service provider has skin in the game. If they make money when the ship starts sinking, they may not be encouraged to steer the ship well. Everyone has to feel the impact and urgency of hitting the iceberg.
Next, associations need to make obsolescence obsolete. Outdated computers cost a lot. If its three years or older (or for Macs, four years), organizations should drop the computer like it was a plague-ridden rat. And nobody should even think about tossing said rat to the low-wrung staff or poor interns. Like the plague, poor performance can spread through an office. Inefficiency anywhere will cost money.
Do not hand old systems down. Recycle them, throw them away, or sell them to a third-world dictatorship—it doesn’t matter so long as they’re not costing you another dime.
Associations need to fix the little problems. Soft costs can snowball in a surprising fashion. If enough little problems accumulate, they become as bad as a big problem. If a computer is running a bit slowly, a mouse is acting up, or a printer is suddenly not working; someone needs to be alerted. As far as IT service providers should be concerned, there are no “little problems.” There should be “problems”, “big problems” and the apocalypse.
To sum up, keeping hardware and software up to date, tackling little problems up front, and making sure that soft costs stay at the front your budget concerns, you can safely avoid the IT Iceberg.