Beware hidden costs in your IT organization

The recession has been a bitter pill for many IT organizations to swallow--not only are budget cuts and cost-cutting directives common, there has also been more scrutiny on the management of IT expenses.

Despite the need to shave expenses, not all enterprises know where to start, or what their Achilles' heel is.
In e-mail interviews with ZDNet Asia, industry watchers highlighted hidden or overlooked costs within an enterprise, and offer recommendations on what businesses should do to tackle these problems.

Annual maintenance contracts
Hardware maintenance contracts typically allow for the provision of periodical hardware testing and replacement, software updates and various other support services.

According to Manish Bahl, research manager at Springboard Research, most annual maintenance contract (AMC) agreements have "escalation clauses that drive up the annual maintenance costs", even though the contracts stipulate fixed monthly rates at the point of signing. "These include deployment of additional support personnel, increase in the scope of work due to expansion of business activities and vendors' strategic alliances with other IT vendors enforcing them to use particular hardware or software which may conflict with the organization's interest," he explained.

Enterprises, advised Bahl, need to consider all possible factors and meticulously examine loopholes while drafting the agreement.

Training and certification
Jason Tay, regional director, Extreme Networks, pointed out that if organizations have network systems running a variety of operating platforms, they may need to spend a significant amount of resources on training and certification of staff to ensure that they are qualified to operate the company's IT systems and equipment.
"In some cases, re-certification is required regularly and the costs of retraining and re-certification can be quite substantial," he noted.

Unnecessary capital equipment and licenses
In a March 2008 research document titled Cost Cutting in IT: Eliminating Hidden Costs, Gartner analysts William R. Snyder and Jack Heine noted that most businesses "accumulate equipment and maintain software licenses that are unused and unlikely to be used".

Removing unused equipment and doing away with unnecessary licenses can cut 1 percent to 2 percent of the annual operating budget, said the authors.

Pierre Mirlesse, vice president of Asia-Pacific and Japan enterprise sales and services under Hewlett-Packard's imaging and printing group, noted that inefficiencies in the enterprise printing environment could translate to significant costs. Citing a Gartner report, he said active management of office printing can lead to a 10 percent to 30 percent reduction in "recurring spending on document output".

Options such as HP's Managed Print Services offer businesses the "opportunity to upgrade their printer fleet to reduce their total cost of ownership by managing capital outlay, simplifying hardware procurement, managing older equipment effectively and disposing the devices in an environmentally responsible manner", according to Mirlesse.

Delaying upgrades to more energy-efficient equipment
HP's Mirlesse added that newer equipment feature "fresh technology innovations", which can make it more attractive than sticking to old hardware.

In a printing environment, newer printers can reduce cost-per-page as well as energy consumption, he explained.

Increased data storage needs resulting from IT infrastructure expansion
Organizations, said Springboard Research's Bahl, typically fail to accurately capture the true cost of storage infrastructure. On top of looking at storage hardware and software costs, factors such as maintenance fees, facility charges, power and cooling costs and staffing expenses also need to be considered.

From another perspective, enterprises should not confine their decision-making to the cost of storage equipment but rather, accord equal importance to external infrastructure such as power, cooling expenses and operating cost, he said.

"Organizations need to be more coherent in their long-term IT hardware strategy than only addressing the immediate needs," added Bahl. "A high-end storage device may appear expensive at first [glance] but if it can run economically [it will emerge as] the most cost-efficient device over a long time-period."

Outsourcing transition
Bahl noted that while IT sourcing can help reduce businesses' IT spend, organizations sometimes fail to take into account costs incurred during the transition process.

"Vendor support personnel's missing critical application knowledge of [an enterprise's] business needs due to insufficient business training during the transition process, could result in an inordinate time to answer technical questions and fix application problems," he pointed out. "This will impact the business time which will add the significant cost to the company in completing the migration work."

Companies need to put more emphasis into proper training programs for vendors, as well as include the means to evaluate the vendor personnel's understanding and competence for the corresponding job function.