Are You Benchmarking Your Technology Environment? If Not, Start Now
I’ve spent the past three months showing IT, finance and procurement leaders ways to think and act strategically during this unprecedented period of COVID IT management through our series of BrightTalk webinars, our 15-session virtual event Technology Expense Management Expo, and in discussions with many of Amalgam Insights’ subscribers.
In this blog, I am going to switch gears into some tactical guidance for overseeing technology on a day-to-day basis based on both my practitioner background and a set of interviews I conducted for a recent research initiative on benchmarketing technology management initiatives. This tactical advice is critical as IT does its part to eliminate as much spending waste as possible so the organization can save or bring back jobs. Within each enterprise, nonprofit, government agency, or other organization, IT has the power and the responsibility to cut IT costs and save jobs. Benchmarking technology environments will go a long way toward achieving that goal.
A Quick Review on COVID IT
Amalgam Insights sees the IT department as a primary steward of the business with the tools, insights, and ability to save money that the organization may turn around and use to fund salaries or stockpile. When IT can find and remove $100,000 or more in unnecessary spending, it has conserved enough cash needed to bring back a job. Cash management and job creation are the crucial mandates in 2020.
Getting to that point demands effort. Since April 2020 when COVID became a core driver for technology, I’ve been hosting webinars and writing blogs that give IT, finance, and procurement leaders a roadmap. As a short refresher, start by following the IT Rule of 30, which states that every unmanaged IT spend category (network, cloud, telecom, mobility, SaaS, etc.) contains, on average, 30% in waste.
Make sure you have exited the survival stage of COVID IT and entered Stage 2 (securing the business) or Stage 3 (auditing the environment). At this point, savvy organizations have already benchmarked their current technology environment compared to their pre-COVID spend, as Amalgam Insights recommended completing this stage in the first three months of COVID quarantine to maximize savings. But if you haven’t started, the time to do this is now. Benchmarking will provide a clear picture of where the organization can get rid of waste and make sure that IT, finance, and accounting professionals are taking appropriate measures.
Making Technology Expense Management Productive: Start With the Invoice
Expense management practices start with invoice management. Approaching this domain with poor discipline and consistency results in immediate lack of control. As a starting point, the cost of processing technology invoices exceeds that of handling a standard invoice for almost any other part of the organization. Amalgam Insights estimates that the average IT subscription invoice costs between $35 and $95, which is far above what the average business invoice costs. Cloud, telecom, SaaS (Software as a Service), and mobility invoices come with an extreme amount of detail. Combing through these bills for inaccurate charges consumes time and attention. For the most part, organizations estimate the cost of standard invoice processing at $5-$10 per invoice; this accounts for labor, office supplies, and due diligence. The value for processing IT invoices, however, can run as much as ten times higher.
Why? IT invoices feature so many more line items, surcharges, taxes and fees than others. Amalgam Insights recently interviewed 17 organizations to better uncover the situation. We found that the base invoice processing cost stands at $10 and can go up to $20.
Then, there’s another $10-$30 for parsing, or digging into all the line items. (Incidentally, we discovered that telecom analysts managed an average of 645 line items per hour during manual audits. Within those records, our clients identified dispute points worth between $306 and $800. All this speaks to why parsing is so difficult and how it increases invoice-processing expenses.)
For various reasons, most of these businesses’ unmanaged bills had incurred late fees. That added $15-$45 per invoice. (More on late fees below.)
On top of all that, much of the technology billing world has no standardization, especially in the cloud world. So, confusion around naming conventions can contribute to delays in processing – which brings up another issue. Nobody spends all their time painstakingly reviewing every single line item on an IT invoice every single month. Such a task goes beyond the scope of peoples’ time and capability, especially when they oversee tens of thousands, or even hundreds of thousands, of line items each month.
(Pro tip: Amalgam Insights recommends organizations take advantage of automating technology expense processes or engaging managed services for spend over $1,000,000 per year. Use a solution, software, or service to automate and offload processes to interpret invoices and support data synchronization. This removes burden from the IT staff, and greatly improves accuracy and cost recovery.)
When considering all factors, the cost of a single IT invoice can work out to anywhere between $35 and $95, or three to 10 times more than a standard invoice.
Invoice Management: A Note on Late Fees
The average IT bill amounts to between $1,000 and $4,000. Of course, there is a broad variation that can reach into the millions of dollars for large accounts. On the flip side, the IT department can receive small, one-off bills each month. Think of all this information from a late-fee perspective. Late fees inflate bills by 1.5-2%, which quickly adds up. Addressing this issue alone will save the organization a significant amount of money each month.
Pro tip: IT vendors often send bills late, which increases late charges. The technology invoicing world is notorious for being inconsistent in terms of quality and timeliness. Amalgam Insights recommends IT departments correct this problem through contract negotiations. Include invoice timeliness and thoroughness as requirements for doing business.
The Importance of Dispute Management, The Right Way
I briefly mentioned disputes earlier. Contesting charges can be a profitable exercise. In fact, recovering money that should not have been spent contributes to the IT department’s overarching benchmarking objectives. But this needs to be done with cost-effectiveness in mind. Going after small dispute amounts one at a time will squander time and expertise; it will add waste. Don’t try to chase down every little dollar when more meaningful ones lie in wait. Instead, create a process for small disputes. Identify buckets. In other words, look for similar issues on other bills. Then, group them all together. Once their dollar amounts reach a predetermined threshold, then it’s time to initiate disputes.
Consider this: Amalgam Insights found that one time-consuming dispute can eat up to $20,000 worth of internal labor. That’s because the process can take several months. We’ve seen spans of six months or longer. And, these disputes pulled in people from a variety of departments – accounting, IT, legal, tax, finance. Therefore, understand the resources needed for a dispute – and make sure the dispute matters.
Inventory: A Key Step in Benchmarking Technology Expense Management
The IT department must track inventory on a regular and frequent schedule. Performing a new audit every 18-24 months or leaving an inventory to become stale over multiple years only contributes to more problems and drives up expenses. Instead, institute monthly inventory management, preferably with the help of technology management software, to stay abreast of every device, service, service plan and assets within IT’s purview.
Take mobility as a prime example. Keeping track of 10,000 devices each month runs about $8,100 without specialized software or services. This amount does not include costs associated with actually managing the devices from support, security, or other perspectives. This level of management accounts for knowing who has what, with no greater detail. However, IT resources require ongoing management to retain an accurate expense and inventory state. Sticking with mobility as our example, IT must tweak data plans and features often to prevent unnecessary spending. It also should examine upgrade cycles, and apps permissions.
As I’ve stated, automated technology management is crucial here. Without it, IT is looking at even more complicated inventory and invoicing problems. Yes, IT could just have a vendor help with an audit now and then. But those audits will start at $20,000 or more when based on contingency pricing if you’re working with a qualified auditor. In most cases, technology expense management software pays for itself, and, when used properly, maintains up-to-date inventory to save money and imporve operational flexibility.
Pro Tip: Opt for Managed Mobility Services
Many organizations try to do their own mobility management. This can work out all right with only a few hundred or so devices. But when we’re talking a substantial number, 1,000 devices or more, it’s really time to use a vendor. Managed mobility services (MMS) providers have infrastructure, people and processes that individual IT departments cannot replicate or rival. And they can scale to meet demand in ways that IT units also cannot. Because of this, the cost of using an MMS vendor rather than an internal employee actually goes down. Amalgam Insights has found that core mobility management services of expense management and basic service order management done in-house ranges from $7-$10 per device, per month. Conversely, turning over that responsibility to an MMS provider reduces that amount, on average, to $3-$6 per device, per month. This saves money and frees staff to focus on much more strategic areas of IT. The decision is a no-brainer.
Conclusion: Top Takeaways for Benchmarking
Remember, IT invoices cost between three and 10 times more than standard invoices. Amalgam Insights states that IT subscription invoices cost between $35 – $95 per invoice to process. The accounting/accounts payable departments need to be very aware of this reality. And to be frank, IT organizations that do not take this time to process invoices are losing money as low IT invoice processing costs indicate failure to conduct important due diligence.
Pursue single disputes worth $500 and up. Pool the small disputes until they add up to this amount, or more. Then go after recovery. Otherwise, they are not worth your time.
Look for late fees of $30 and higher per invoice. This will serve as an excellent starting point for getting unmanaged IT spend in line. Depending on how many invoices with late fees the IT department has, fixing late fees alone can turn into quite a slush fund.
Keep in mind: invoice management comes to about 40% the price of one-time audits. In other words, it is cheaper, and far more efficient and organized to maintain inventory management. Do this every month by making it a part of the expense management process and by obtaining or creating software tools to support your IT costs.
Consider outsourcing. Compare your current total cost of ownership on managing mobile, telecom, cloud, SaaS and other IT services in house to the cost of using a vendor. Chances are, the IT department will save a significant amount of money by using a partner that can scale and that knows service management inside and out.
Following each piece of this guidance will allow the IT department to benchmark the technology environment, and contribute to the organization’s aim of saving cash and jobs.
If you are seeking outside guidance and a deeper dive on your IT environment, Amalgam Insights is here to help. Click here to schedule a consultation with our analysts.
Join us at TEM Expo, now available on-demand until August 13 to learn more about how to prepare for COVID IT and take immediate action to cut costs. Associated with this topic, we recommend watching sessions by Andi Pringle on the Art of Inventories as well as Denise Munro’s session on the challenges of taxes, surcharges, and fees.
And if you’d like to learn more about this topic now, please watch our webinar on benchmarking your IT management practices.