As we progress along the road of this pandemic-driven recession, CIOs and IT departments need to keep a clear-eyed view of the future and the tasks that we are held to manage. Because even as we deal with all the challenges of remote work, distributed decisions, and uncertain economic environments, we are also held to the challenges of supporting future business needs and supporting the next generation of technology, which continues to be created and launched.
This means that we need to follow the path of COVID IT
If you’ve followed the stages and actions we recommended in our webinar series or at our Technology Expense Management Expo, you’ve passed through the stage of pure survival, securing remote work, and auditing your environment. Now, we are at Stage 4, which is to gather best practices, celebrate successes, and train employees on the New Normal.
A key aspect of Stage 4 and Stage 5 is the use of data and analytics to support better decision making, improved forecasting, more nuanced automation, and more accurate models and workflows to make sense of complex business phenomena as your organization continues to move from BI (Business Intelligence) to AI (Artificial Intelligence).
To prepare business data for future needs, Amalgam Insights recommends the following steps:
First, improve data collection. This means treating all data in your business as something that will be reused to provide value and cleaning up all existing data through data prep, data quality, and data transformation tasks. It also means putting data into the right format: the age of the relational database as the only tool for analytics is disappearing as non-relational and NoSQL databases have come to the forefront and graph databases like Neo4j and Amazon Neptune finally start their ascendent rise as relationship analytics and semantic search start to eclipse standard Boolean AND, OR, NOT and SQL-based logic.
This isn’t to say that SQL is going anywhere. I still recommend that anybody using data start with a strong foundational knowledge of SQL, as this is probably the only skill I learned 20 years ago that I still use on a regular basis. Skilled relational data querying will always have an important role in the business world. But for business analytics and data managers trying to figure out what is next, consider how to expand your data sources, data quality, and data formats to fit what your company will ask for next.
Second, contextualize your data. One of my favorite sayings, first attributed to Jason Scott, is that “Metadata is a love note to the future.” The ability to prioritize, categorize, and contextualize data sources, fields, and relationships is vital to supporting the future of machine learning and natural language analysis. This means supporting data catalogs, data unification, and master data management tools to bring data together. This stage of data maturity is easy to ignore because it requires getting business context from relevant stakeholders to manage and define data. Given that it can be hard enough to get business users to simply enter data accurately and consistently, the effort to get data definitions and context can be intimidating. But this is a necessary precursor to having “smarter” data and to making the “smarter” decisions that businesses are promised by analytic and machine learning solutions. And the combination of data prep, cleansing, and context make up the majority of work that data scientists end up doing as they try to create relevant models. Solutions that Amalgam Insights recommends most often in this area include Alation, Atlan, Collibra, Informatica, Qlik, Talend, Unifi, and the offerings from megavendors SAP, Oracle, and IBM.
Third, make visualization tools and outputs ubiquitous. Every person in the company should have access to relevant metrics that drive the company. It’s 2020: we’re beyond the time of Skynet and the Terminator, Blade Runner, HAL, and other iconic cinematic visions of the future. The very least we can do is make basic charts and graphs available and accessible to all of our co-workers. Find out what prevents line-level employees from accessing and using data and break down those barriers. Amalgam Insights’ experience is that this challenge comes from a combination of not knowing how to find the right data and how to form the right charts. The answer will likely come from a combination of natural language enhancements driven by the likes of ThoughtSpot, Narrative Science, and Tellius as well as visualization and reporting specialists such as Yellowfin and Toucan Toco and embedded analytics specialists such as Logi Analytics and Izenda.
Fourth, shift from reporting and discovery to predictive analytics. Over the past decade, Tableau has been a fantastic tool for data discovery and continues to lead the market in helping companies to find out what is in their data. However, companies must start thinking of data not only in terms of what it tells us about the present, but how it helps to structure our work and forecast what is next. Data can be used to structure descriptive and predictive models through iterative and guided machine learning. Google’s work with Tensorflow stands out as an end-to-end machine learning solution. During Amalgam Insights’ short existence, DataRobot has quickly risen to become a leader in automated machine learning and its acquisitions of Nexosis for accessibility, ParallelM for MLOps, and Paxata for data prep help have stood out. Microsoft Azure, Amazon Web Services, and IBM Watson also have their own services as well: there are a variety of options for modeling data.
By taking these steps, you can ensure that your data does not fall prey to a premature death as it is rendered obsolete or surrounded by enough technical debt to become functionally useless. If you have any questions on how to better support your data from a future-facing perspective, please contact us at research @ amalgaminsights.com to set up a consultation.
I was recently chatting with Andi “TEMGirl” Pringle on LinkedIn about career options and skills for the telecom and technology expense analysts. Given that most of my jobs over the past 20 years have been related to telecom billing and expenses, I have a few opinions on this topic. So, to start with…
First, here’s the reality. Telecom expense management is a commoditized job. Telecom spend is not growing, on a global basis, from year to year and CIOs don’t think of telecom as one of their top priorities compared to digital transformation, cybersecurity, process automation, artificial intelligence, or customer experience.
So, where can you go from here? For now, if you’re managing $10 million or more a year in spend, then your efforts should be preventing enough to justify your salary on a revenue per employee basis. Part of your job is to show your manager that your efforts are saving several hundred thousand dollars a year or more by finding those Zero use circuits and phones, optimizing services, and keeping people up and running because nobody will do it for you.
But you also need to upgrade your skills for the long run. Telecom will continue to become just another app running on the network and cloud computing has already eclipsed telecom as being more strategic in importance even though the global market for cloud computing is still only about $250 billion compared to the $1.4 trillion on telecom.
So, there’s a few different directions you can go in depending on whether you want to focus more on the data, finance, technology, project management, strategy, or consulting aspects of the job.
Data Science/Analyst: If you want to dig deeper into the data, you need to understand relational databases and then how to deal with the statistical modeling and analysis of data. Start by learning SQL, the lingua franca of data and the one technical skill that I’ve used consistently over the last 20 years. Then you’ll need to use Python, and/or R along with statistics and calculus classes to understand modeling and to know what you’re doing with your statistical and modeling libraries. The data science role is all about fitting the right algorithms and statistical models to your data, but it all starts with the database and setting up queries. This is actually where I started when I got into telecom, as I had both a computational chemistry and a competitive fantasy baseball background where I’d work on tweaking player forecasts and performance variances. Back then, we used SAS and SPSS rather than R, but tools change over time.
Accounting: Learn some basic financial and managerial accounting as well as micro and macroeconomics. These classes will help you to track costs more effectively, get some business context for costs, and to broaden your skills from telecom-specific cost management to business-wide cost management. The differences aren’t enormous and, frankly, I think telecom expense is one of the hardest costs to manage. A project management or operations management course doesn’t hurt either, as a lot of this role is understanding costs, resources, and business drivers for planning and forecasting. But having an accounting and basic finance background will allow you to translate IT cost management to a broader planning and budgeting capability. This was what Planful CFO Shane Hansen spoke about at our recent Technology Expense Management Expo.
IT Management: Amazon is the new Cisco and there is more new cloud spend this year than telecom spend. It all goes back to tracking storage, network, and compute units across every service, but dig into the service types and learn about cloud services just as you’ve learned about USOCs, FIDs, and service order fields. Cloud providers are the new telcos in terms of being the providers that power IT. Interestingly, a lot of these cloud bills are in the hands of cloud architects and developers who are learning to manage cloud costs from scratch. This management practice is often not called Cloud Cost or Cloud Expense Management (because that would be too easy) but is also called FinOps or a section of Cloud Service Management. We had multiple sessions on cloud infrastructure and software management at the TEM Expo from Corey Quinn, Robert Lee Harris, and Lukas Smith.
Project Management: The PMP is the key certification here. Even if you don’t work on getting the certificate, since some of their materials are starting to get dated, their recommended topics and PMBOK are a helpful starting point. One of the reasons I was glad that Upland Software was an exhibitor at the TEM Expo is that they provide both technology expense and project management software together. I think it’s fundamentally important to have a single toolset to manage projects and cost structures. This is actually a trend in the telecom expense world as a number of solutions start to have SD-WAN or network project management modules as a part of their solution. I think the TEM players will be pushed to go farther.
Managed Service Providers: Being on the vendor side can be an interesting way to work with multiple organizations, sometimes at once, to figure out what similarities and differences exist beween organizations. It can be easy to get stuck in the specificities of your own organization and miss out on some of the best practices and innovations that exist in the market at large because they don’t align with your own organization’s specific governance and compliance issues. Also, being on the vendor side can be a gateway into learning how the management of TEM as a business works and can be a gateway either into moving to service, product, and consulting roles or to become a manager or to learn how to be a full-time consultant on your own.
And finally, if you enjoy either teaching the topic or solving a specific type of TEM problem, you may be better off either as a consultant or industry analyst. (Note: this step requires you to be part of the front office and to either develop or hone your sales chops!) This is the leap I took 12 years ago when I became an industry analyst and I’m always glad to discuss how I did it and where you can learn this craft.
If you’re currently a telecom expense analyst or manager, I highly encourage you to go in one or more of these directions to upskill yourself and continue moving up in your career. If you have any questions about any of these paths, please don’t hesitate to ask me at hyoun @ amalgaminsights. com.
One of the tactical problems I get asked about most often is how to manage cloud Infrastructure as a Service within an IT cost management environment. As someone who recommends boh telecom expense management and cloud cost management solutions, I’ve seen that the paradigm typically used for telecom, servers, on-prem software, and other traditional IT assets and services doesn’t work as well for cloud both because of the transient nature of cloud services and that public cloud is often purchased solely by technical buyers, with professional sourcing and finance professionals being left out entirely.
This has led to a new practice that has been called Cloud Cost Management or, alternatively, FinOps(even though the abbreviation FinOps does not refer to the Operations of Finance or the CFO office, but that’s a debate for another time…)
In practice, this means that even the most basic general ledger or Active Directory taxonomy used for the vast majority of business costs is not used for the cloud because the people involved don’t know where to start. From a practical perspective, this means that cloud buyers often don’t get to take advantage of the business structure that most of the rest of IT purchasing has and end up having to recreate basic business categories from scratch.
As you start managing cloud services, you will most likely have to tag your resources within your management solution of choice because of the relative financial immaturity of cloud management solutions.
(There are exceptions: Apptio Cloudability, Calero-MDSL, CloudHealth by VMware, and Tangoe being the best examples)
The basic starting point for tagging is to look both at financial management and operational management.
For financial management, ask your controller or accounting team how they break down IT costs, then use the same categories for your tags. It’s usually some combo of employee ID, cost center, profit center, geography, project ID, General Ledger ID, but every company does its books a little differently.
Then the operational management is based on your IT org’s view of technology management, which could include applications, projects, technologies, staging environments and software supported, cloud service categories, functional IT tasks. This process is well-aligned to an IT Finance or Technology Business Management approach where technology is aligned to specific operational and functional tasks and responsibilities. But you may also need more granular tags that assign each resource to automated governance, security, data transfer or architecturally defined tasks. Each task or function should roll up to a functional manager, project manager, or stakeholder.
In thinking about the operational side of tagging, we recommend looking at Apptio Cloudability, CloudHealth by VMware, CloudCheckr, and Replex as starting points.
These tags end up being the taxonomy for your cloud environment and should ideally match up with existing IT taxonomies across IT asset management, project management, service management, and financial management. Otherwise, you risk reinventing the wheel and using up tags on categorization that only makes sense for yourself or your immediate team.
In addition, after creating these tags, you may also want to group these tags into larger dimensions that are associated with a specific use case, solution, or output with the goal of having shortcuts to manage what can be an intimidating number of services, resources, and tag combinations.
Over the next couple of months, Amalgam Insights will be providing more guidance in this space both with our SmartLists on Kubernetes Cost Management and Market Leaders in Technology Expense as well as releasing our videos on managing cloud costs from our recently completed Technology Expense Management Expo. If you have any suggestions for key issues we should include in these reports, please let us know at firstname.lastname@example.org.
And in case you missed it, here’s our recommendations for managing cloud cost from earlier this year.
On July 9, 2020 there was an announcement that Google had formed an organization called the Open Usage Commons, or OUC. In a previous blog I laid out the case that this organization was a horrible idea from an intellectual property (IP) management and licensing perspective. In a nutshell, this new organization is holding the trademarks, and only the trademarks, from open source projects. Copyright would continue to be managed through the current open-source licenses and organizations.
As someone who spent several years as part of the intellectual property management industry (at a company literally called IP.com) and as an advocate of open source for 30 years, this struck me as unusual, unnecessary, and suspicious. Ultimately, my experience told me that the OUC added unnecessary complexity and confusion to otherwise straightforward open-source projects. I finished the blog with a call to fork the projects. Pretty harsh words from an analyst who’s usually a pretty positive guy and a big fan of open source.
The follow-up question to the “why this is bad” blog has been “why then is Google doing this?”
I think the reason is much simpler than complex IP problems alluded to by the OUC website. Simply, Google wants to benefit from open-source development but not lose all control over the IP. It’s hard to maximize software revenue when the IP and brand are controlled elsewhere. There are a few organizations – Red Hat and Canonical are good examples – that can generate revenue from open source effectively. Google, on the other hand, has been a reliable and good actor in the open-source cloud-native community while consistently remaining in the third position for cloud services, behind Amazon Web Services and Microsoft Azure.
The fact is that piece of software that Google
developed is making lots of money for many other companies while Google remains
stuck in the number three slot in the cloud market. The software in
question is, of course, Kubernetes.
If you rewind three years ago, Kubernetes was only one of many orchestrators. There was Apache Mesos, Rancher Cattle, Docker Swarm, Cloud Foundry Diego, and others in addition to Kubernetes. At the time, there were few large deployments of container architectures and the need for orchestration was just emerging. Fast forward to today, all of those competitors to Kubernetes are more or less gone and Kubernetes dominates the orchestrator market. Even more important, Kubernetes has become the base for the emerging next-generation IT platform. It will form the core for new architectures moving forward for years, perhaps decades, to come. Neither Google nor anyone else could have predicted that Kubernetes would be the powerhouse that it has become. In the meantime, many large rivals have entered the Kubernetes market including VMWare, Rancher (recently purchased by SUSE), Canonical, Microsoft Azure, Amazon Web Services, and HPE.
Kubernetes has become a massive, open governance, open-source, platform play that Google can’t monetize any more than anyone else. Red Hat was acquired by IBM with a $3B+ valuation, much of it because of OpenShift which is based on Kubernetes. Red Hat is now central to IBM cloud and platform strategy and their primary cloud growth engine. Rancher was acquired by SUSE (for a rumored $600M to $700M) because of its Kubernetes platform. Kubernetes is to Google, what the Docker Engine was to Docker – a key piece of heavily adopted IP that they make less money with than their rivals.
Meanwhile, Google is invested in other homegrown open source projects in the Kubernetes ecosystem, especially Istio and Knative. Istio, one of the projects whose trademarks are under the OUC aegis, is used to implement a service mesh control plane for Kubernetes. It has shown an almost Kubernetes-like uptake in the market and is included in a number of key Kubernetes distributions including Red Hat, Rancher/SUSE, HPE, and IBM. It has long been expected by the cloud-native community that the Istio project, including the trademarks, would become part of the Cloud Native Computing Foundation (CNCF) just like Linkerd and Envoy, two other service mesh projects. Google has instead launched the OUC to take ownership of the Istio trademark.
The head of Google Cloud Services, Thomas Kurian, came from Oracle and is steeped in Oracle’s software business practices. It is easy to imagine that, to him, Google is giving away valuable IP while rivals make all the money. The OUC is a way to retain control of the IP while not appearing to abandon the open-source movement. The board of the OUC consists of two Google employees, one ex-Googler, and, according to Google, a long-time collaborator alongside two others. That doesn’t suggest independence from Google. Even if the project is transferred to the CNCF in the future, Google can still call the shots on branding and messaging through the OUC.
The key problem for Google is that the software industry doesn’t work like it used to.
You can’t be half in and half out of open-source.
In the end, this is more likely to drive vendors to other projects such as Linkerd or Consul and reduce support for Istio. Istio may also go the route of OpenOffice, Java EE, and MySQL. In all three of those projects, where Oracle asserted control over some or most of the intellectual property, disputes broke out over licensing and technical direction leading to forks. The OUC is a clever Google take on the Oracle playbook. Incidentally, each of those forks, LibreOffice, Jakarta EE, and MariaDB have thrived, often overtaking the mother project.
The OUC increases fear, uncertainty, and doubt. The only way for Google to fix this and regain the spirit of open source is to refocus the OUC on IP education and transfer all Istio IP, along with the project, to CNCF. They should find similar homes for the other projects in the OUC portfolio. That is how they can regain the confidence of the open-source community.
Google’s failure to monetize their IP and maximize cloud revenues will not be alleviated by this move. Instead, they will lose their open source credibility and make partners suspicious. Simply put, this is not how open source works. This looks too much like a misguided attempt to control popular open-source software such as Istio and Angular. There are real IP management and licensing problems that the OUC can help to fix. They need to work on fixing those problems and not controlling trademarks.
Key Stakeholders: Chief Information Officers, Chief Financial Officers, IT Finance Directors and Managers, IT Procurement Directors and Managers, Accounting Directors and Managers, Telecom Expense Directors and Managers, IT Operations, IT Strategy, FinOps Directors and Managers
Why It Matters: IT will bleed cash through incomplete inventory management. Organizations need liquidity to save jobs and to survive a recessionary environment.
Top Takeaway: IT has the tools, capabilities, and obligation to create a solid inventory practice that eliminates wasteful spending while providing employees with the right resources and preparing companies for a future of digital transformation
This blog marks the final installment in our series on managing IT in the Time of Coronawith an intense focus on inventory, the foundational piece of a strong IT management practice. If IT does not have complete insight into the assets and services for which it is responsible, then everything – expenses, optimization activity, equipment assignments, etc. – is inaccurate and creates waste across the board.
Right now, halfway through a year fraught with the impacts of COVID-19 and quarantine on a hobbled economy, cash flow is king. All organizations and departments are living or dying by this metric. As I’ve repeated in every blog and webinar since mid-April, IT holds the keys to freeing up cash for the rest of the business, but CIOs and CFOs ignoring the potential savings in IT are doing their organizations a disservice. IT has the ethical obligation to conduct the analyses that expose and correct financial waste, especially in light of the first stage of COVID IT, Survival, where corporate controls took a back seat to basic operations.
The IT Rule of 30shows that every unmanaged IT spend category (network, cloud, telecom, mobility, SaaS, etc.) contains, on average, 30% in waste. March, April, and May were a perfect example of uncontrolled and unmanaged spend environments. Thirty percent of hundreds of thousands or even millions of dollars is a lot of money, more than enough to bolster cash flow and fund salaries.
And while the pandemic has created the impetus for finding cash, it’s also bringing to light any aspects of IT that have gone unmanaged. Here’s why it matters.
Amalgam Insights estimates that three-quarters of organizations in the United States have frozen their IT budgets because of COVID.
At the same time, employees who started working from home with little notice and few resources bought applications and other tools, often consumer-grade, without IT’s knowledge – and charged the company. This shadow purchasing means IT has a lot of new inventory to account for and track, and even rein in wherever possible. Cleaning up known and shadow inventory will undoubtedly uncover significant amounts of unnecessary spending the organization can end or repurpose. With that in mind, let’s look at inventory through the lens of telecom, mobility, IaaS and SaaS.
The Nitty-Gritty of Managing IT Inventory
Remember, inventory is the bedrock of expense management. It supplies all the information that feeds into invoices, contracts, and services. Without thorough, transparent, and constantly maintained inventory, the rest of an expense management practice becomes an unreliable source of data and a money-squanderer. IT experts want to avoid this and want to be good stewards of the business, but they need to gain operational and financial control of their technology portfolios. Here’s how to get started:
Centralize all service orders. There’s no way for IT to know what it owns unless it knows what has been ordered. The problem is, mobility, cloud, and bring-your-own everything has led to one-off, hidden, obscured, decentralized service ordering. It’s not just about the volume of orders – it’s the number of people who can submit orders using credit cards and corporate email addresses. IT must implement a single source of truth where employees place service requests or document orders so IT can track every inventory component.
Align service orders to inventory. First, IT needs to figure out whether a service order actually got completed. That sounds basic but it is a shockingly common occurrence. Amalgam Insights finds that IT orders do not get completed for a variety of reasons including problems with billing systems, information getting lost in translation, and human mistakes. Before proceeding to step 3, make sure service orders and inventory match.
Categorize and/or tag inventory. Assign what has been ordered to the appropriate business department and make sure that information lives in various systems throughout the organization. That way, all databases contain the same details. Repositories Amalgam Insights recommends linking to IT inventory include: HR systems, Active Directory, general ledger, single sign-on, IT asset and service management, project management, cloud management, and governance.
IT can communicate with these systems either directly or through tagging. The overarching idea is that integration aligns inventory change and tags to employee and project changes – and nothing gets lost in the shuffle. We’re all aware of the example of an employee who leaves the organization and whose mobile phone ends up unused in a drawer, even while the cell phone carrier charges for data and service, or who sets up a processor-intensive job with five duplicate instances that never get turned off.
Discover what is missing. To truly understand inventory, IT must understand who is creating the inventory. This is a constant challenge. Anyone with a credit card and an employee ID can place orders. To combat this, think not just about what you’re supporting but the roles that would order the technology you’re supporting. Inventory is a team effort. Knowing that, identify and speak with your key technology orderers to learn why they are ordering phones, SaaS, and other technology services. Find out why they are adding to the IT budget when IT is trying to control costs and how they are governing the services that are ordered. By doing so, IT will learn what tools it hasn’t been supplying to help employees with their productivity. Managing IT is not about stripping staff of resources – it’s about empowering them with the right platforms and equipment, while getting the most for the money spent.
Track, track and track again. Breaking this down, this first means tracking all aspects of inventory features. It is not enough to know that IT has ordered a phone line or a cloud service or an application – you need to know the associated features.
Second, IT must track logins and usage for all assets and services. Cloud invoicing is like call accounting on steroids for those with a telecom background. Eliminate any and all zombie services that drain resources long after the owner has left the company or project has been completed. In the time of COVID-19, organizations especially cannot afford to pay for something they do not use.
Cross-check invoices with inventory. This one is pretty basic: Invoices and inventory must match. No exceptions. When it comes to telecom, Amalgam Insights sees 80% of bills with at least one error. There is a lot of room for mismatches between invoices and inventory with telecom. Technology vendor marketing and sales departments like to change service names, tiers, and features frequently to provide better deals. But these frequent customizations pave the way for wrong charges.
IT needs to vet all of its large bills (all bills, really, but especially those most prone to problems) hawkishly each month. For its part, public cloud invoicing and inventory generally have few inventory errors. But the inventory problem for cloud comes into play with shadow IT, or employees placing orders outside of IT’s knowledge (but whose costs still end up on IT’s shoulders). SaaS products, like cloud, feature so much agility that tracking who is buying what and when is hard. At the same time, SaaS companies, like telecom suppliers, change pricing, features, and tiers often. A $10 plan can become a $50 plan, or vice versa, overnight.
Prioritize contracts based on inventory portfolio. This essentially boils down to bringing together two worlds – that of inventory and that of sourcing/procurement. In an ideal scenario, the people in these departments will have a strong working relationship and pool their strengths for the good of the organization.
Frankly, inventory folks do not care to negotiate contracts and sourcing/procurement managers do not want to track inventory. Melding certain aspects of each unit into the same set of priorities will create benefits including:
Replacing obsolete services with new ones
Showing where to prioritize negotiations and price discussions
Using monthly and quarterly inventory trends to negotiate better rates and services
The biggest takeaway from each of these steps is that inventory is not a standalone effort within IT. It is a team undertaking. Representatives from legal and finance might even need to get involved. So, maintain strong cross-departmental relationships. Keep tabs on who has been ordering, and whether or how ordering has fundamentally changed. Learn each spend subcategory to understand who IT may need to be talking with to pivot or put the kibosh on spending.
Conclusion: Clean Up Inventories One Category at at Time
Do not tackle every inventory category at once. You’ll quickly become overwhelmed and miss critical details. Start with one bucket and figure out which stage it’s in: Prepare, Herd Cats, or Optimize.
“Prepare” means getting the inventory across your IT subscriptions up to speed. This includes centralizing service order data, aligning the service orders to inventory, and then categorizing the inventory.
“Herd Cats,” the intermediate stage, requires doing discovery to understand how IT has changed since March, when most organizations in the United States started shifting to remote work. Knowing how resources have been reallocated, added or removed will contribute to contract renewal talks and/or any difficult discussions with vendors. Checking expense management, Single Sign-On, and invoice management solutions will provide guidance on what is missing from the IT view of inventory.
“Optimize” takes place after the first two phases, and ties back to the aforementioned notion of prioritizing contracts, vendors, and spend categories based on inventory portfolio.
This process needs to be conducted methodically, one IT category at a time. There’s a lot of cleanup to do as a result of all the changes caused by COVID. Give the IT department one to three months to accomplish this. I recommended starting this process back in early April to our advisory clients and in late April to our webinar attendees. If you haven’t started yet, clean up the inventory now to take advantage of COVID-related amnesty and goodwill that currently exists across IT vendors.
Get your inventory clean and you’ll save yourself, your colleagues, and the organization a lot of heartache as we all face some hard times. And cheers to you, IT, for doing so much to free up cash, and save and bring back jobs. In many ways, you are unsung heroes.
***To continue your trek as an IT hero, join us at TEM Expo, which is still available at no cost until August 12to learn more about how to prepare for COVID IT and take immediate action to cut costs. I especially recommend watching Andi Pringle’s session on The Art of Inventories, Robert Bracco and Dana Risley’s session on IT Financial Management, Shane Hansen’s session on Cash Management, Robert Lee Harris’ session on Cloud Savings Cost Management, and our Executive Panel on the Future of the Technology Expense Management Market.
***And if you’d like to learn more about this topic now, please watch our Amalgam Insights’ webinar on Inventory.
Key Stakeholders: Chief Information Officers, Chief Financial Officers, IT Finance Directors and Managers, IT Procurement Directors and Managers, Accounting Directors and Managers, Telecom Expense Directors and Managers, IT Operations, IT Strategy, FinOps Directors and Managers
Why It Matters: Poorly managed ordering on IT subscription services leads to as much as 5% waste in the overall IT budget. During COVID-19, especially, this level of overspending cannot continue and can be quickly remedied.
Top Takeaway: Following Amalgam Insights’ recommendations for IT service orders provides a way for IT to bolster the organization’s overall cash position.
When it comes to reducing technology costs, service order management stands out as perhaps the most overlooked area. Few CIOs and CFOs consider their IT service order processes when trimming expenses, which is part of why Amalgam Insights estimates 90% of CIOs will end up missing opportunities to effectively cut costs without harming their environments. IT, finance, procurement, and operations must correct this unintentional neglect now. Analyzing and adjusting service order management practices will contribute significantly to trimming spending and saving jobs during the COVID-19 pandemic.
How Much Waste Results from IT Service Ordering Issues?
On average, companies lose or waste IT subscription outlay to the tune of 2-5%, because of poor service order management. This blog delivers guidance to empower IT and its cohorts in attaining the strongest cash position possible for the organization. This will prove critical as the coronavirus crisis continues to generate uncertainty, fear and doubt.
Acting on the insight here will assist in getting closer to Stage 4, where IT moves into more strategic activity. Reaching that phase, though, requires following the directions for controlling Corona and quarantine-related issues that Amalgam Insights has consistently laid out in our series of blogs and webinars.
There is a specific route that leads from procurement to payment. The nine steps comprise:
Service order or request creation
Service order approval
Service level agreements
The biggest risk for leakage lies in steps 4, 5, and 6 – so that’s where this blog focuses. Before we go further, though, be aware that momentum on the third step, purchase approvals, is slowing. The deeper the United States gets into the pandemic and a recessionary environment, the harder it will become to obtain permission to buy resources. I expect companies to lock down any spending that exceeds .001% of total bookings in a billion dollar company, which equates to a $10,000 purchase. These are the purchases that will require C-level approvals. All in all, expect purchase approvals to remain tight for the rest of 2020, and probably into 2021.
Still, IT can pitch in to mitigate overspending by eliminating that 2-5% of losses and waste I mentioned, as it relates to poor IT service order management. Correcting that situation begins with acknowledging that IT service orders differ from standard service orders.
For instance, IT must verify the order has been placed correctly with each provider or vendor based on the vendor’s terminology and proper technical terms, then understand what service order approval status means, and then shift to handling the physical and virtual aspects of provisioning associated with each service order.
In other words, IT service orders demand technical skill, especially for subscription-based services, including IaaS, SaaS, enterprise mobility, and landline telecom and networks. The people with that expertise need to ensure the orders adhere to the ABCs: Active, Billed, Compliant.
What Does Active Service Ordering Mean?
Active service ordering means tracking the order to be certain that functionality, billing, and integration are all active and in place. This gets especially complicated with networking and cloud infrastructure services. Taking networking as an example, network service can be combined with ports, physical infrastructure, security, network management, and other components; each element needs to be tracked.
The same goes for cell phone service orders. IT needs to track not just the device itself but also rate plans, features, access permissions, and applications.
An active service, then, meets these criteria:
Proper billing plan in place
Has the proper start date
Accounted for in all relevant systems
Functional checks require a holistic view as IT can’t verify a service’s functionality without also validating all integrations and billing plans. Determining functionality is easiest with a SaaS or mobile application – you just log in and work. With network and IaaS, this grows more complex. Network services have physicality – trenches to dig, cable to install, and extensions to wire and program. Each of these services needs a combination of functionalities to run for a service order to be completed. And this is why technical skill is needed: Tracking down all those functions is difficult if someone doesn’t know what the service entails or how it is implemented.
Make sure an active service fulfills the five benchmarks above before moving to the next step: Billing.
What Does Billing Mean in the Context of Service Ordering?
Here, IT must evaluate whether the service order is assigned to the right office, region, cost center, project, and stakeholder. If any of those points misses the mark, expect to waste or lose money. And since that is not an option, here’s how to accurately translate service orders into billed services:
Check rate units. Whatever the unit is – kilobytes of data, minutes used, etc. – make sure it is correct.
Check the time. For example, ensure a cloud service bills for 30 days or 720 hours (or 730 if dividing 365 days into 12 months). Amazon Web Services recently billed more than 1,000 hours per month for some services. A 30-day month does not contain 1,000 hours.
Check service names. Companies change service names, rate plans, dimensions and features for services, and even do wholesale offering alterations. When this happens, confirm whether the services match contractual obligations, including discounts and service level agreements. Often when marketing makes a decision, the vendor does not update its systems or is unable to replicate marketing promises within its billing systems. And errors occur.
Check cross-charging and tagging. Evaluate whether the charges and tags across departments align with the correct departments, users, locations, and projects. This data flows into cost and inventory management, too. Amalgam Insights highly recommends making those practices much simpler and smoother by doing things right the first time. This will avoid constant, retroactive cleanup.
Check the start date. Compare the start date with the bill and actual activity. It’s not hard or uncommon for days and weeks to get messed up or to use an American date format rather than a global format (Does 11/7 mean July 11 or November 7?). Plus, a vendor might accidentally charge for a service that didn’t provide or that was supposed to be bundled into a package or a larger umbrella of services.
Check the taxes, tariffs, discounts and other surcharges. Our next blog goes into more detail on this topic. For now, make sure IT knows how service orders fit into the regulatory obligations for which it is responsible.
The Importance of Compliance in Service Ordering
Finally, it is incumbent upon IT to ensure compliance – making sure each service is governed, compliant and secure.
This gets difficult. Each IT subscription service has its own set of governance, compliance and security tools. In addition, different states, countries and regions feature their own requirements. Naturally, all that – and, ultimately, compliance – looks different in the case of each technology type:
Enterprise mobility – Must have unified endpoint and wireless expense management as part of an enterprise mobility management program.
SaaS – Needs SaaS operations management, single sign-on.\, and software-asset management.
IaaS – Needs cloud access security broker protections and cloud service management.
Frankly, these considerations build a solid argument for centralizing order sourcing. Everyone who orders a service outside of corporate or IT policy will be liable for ensuring compliance – and no one truly wants that responsibility. IT must educate employees accordingly and enforce processes for service ordering.
Conclusion: Bringing It All Together
IT must know the technical aspects of what makes a service active; the financial and accounting aspects of what makes a service billable; and the security and legal aspects that make it compliant. All these factors will vary across IT areas. Thus, some level of technical acumen is absolutely necessary. If operations handles service ordering, for instance, then have someone with the technical expertise review orders before proceeding. Abiding by all this advice will help IT drive its service orders to active, billed, and compliant end states and close that 2-5% waste gap.
This introductory blog is a starting point for managing service orders. If you are seeking outside guidance and a deeper dive on solutions and vendors that can help you manage your IT environment, Amalgam Insights is here to help. Click here to schedule a consultation.
***Join us at TEM Expo, available on-demand until August 13 at no cost, to learn more about how to prepare for COVID IT and take immediate action to cut costs. In context of this topic, Amalgam Insights recommends watching sessions by Denise Munro on Taxes, Fees, and Surcharges, Wayne Webers on The Trouble with Technology Expense Management, David Schofield on Maximizing Wired and Wireless Negotiations, Shane Hansen’s presentation on Cash Management, and Larry Foster’s presentation on Explaining the Value of Technology Expense Management.
***And if you’d like to learn more about this topic now, please watch our webinar on Service Order Enablement.
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 13to 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.
As organizations throughout the United States look toward a third quarter of COVID-influenced operations, it’s imperative to keep considering all the ways IT can act as steward for the business. Over the past couple months, Amalgam Insights has provided guidance for moving from survival mode to functioning in ways that conserve cash and save jobs. We’ve hosted webinars and published blogs covering everything from adjusting network resources to managing the nitty-gritty of cloud expenses.
Now we begin to pull all of that together for a bigger picture. IT must support all newly remote staff as well as all network, mobility, cloud and SaaS costs, and stand accountable for every decision. And because it appears COVID-19 will be around for some time, the pressure to perform is nowhere near close to relenting. With the reality of another 6-12 months of operational challenges similar to what we currently face in this pandemic recession, Amalgam Insights aims to help IT level up to best prepare for top-level financial discussions. IT already handles expense management. Now it’s time to elevate, and understand and speak the language of IT finance.
Clearing up Confusion
Before we go too far, let me clarify the term “IT finance.” Just because someone touches IT costs or expense does not mean they do IT finance. Most expense analysts work either with accounting or sourcing personnel, but rarely speak with the planning and budgeting personnel who hold the power of the purse. Expenses are the tactical, day-to-day entries that finance uses to calculate more strategic business metrics, such as cash flow, income, and business projections.
IT finance cares about the expense manager’s role to cut unnecessary costs and improve the organization’s cash flow based on the IT Rule of 30. Every unmanaged IT spend category averages 30% in waste. Waste crops up in circumstances including mergers and acquisitions, layoffs, furloughs, project changes, shifts in technology commitments, and so on.
In general, and the following will vary depending on vertical and profit levels, IT can save around 1% of bookings, which is equivalent to 5-6% of payroll or 15% of operating margin in the average enterprise, by cleaning up technology across the organization. How do you do that?
Review our blog on the 6 Stages of Managing COVID IT, as well as the subsequent insight we’ve provided. The takeaway now is that everyone should at least be in Stage 2 or 3.
Stage 1, in April, was all about survival. End users did what they needed to make sure they could work from home. Much of this they accomplished without following company policy. That’s valid and it’s okay. Still, the time has come to clean up, and enable and empower everyone to make good decisions. Part of that mandate includes making sure IT delivers insightful, meaningful input to CFOs and controllers. That’s where IT finance comes in.
What Is IT Finance?
Simply put, IT finance creates a shared vision of corporate health among IT, finance, and the rest of the business by looking at the planning, budgeting, and forecasting activities that highlight how people are using IT. That translates into giving employees the tools they need and aligning IT with revenue and key business goals. IT finance includes the following metrics that demonstrate what is happening with the costs that are saved or controlled through expense management:
Income: This is actual profitability based on receipts, Cost of Good Sold (COGS), SGA (Selling, General, and Administrative) Expenses, debt interest, and other relevant inputs.
Cash management: This deals with monthly cash flows and reflects the company’s current cash position and ability to conduct day-to-day business. IT departments in touch with finance can ask if cash can be reallocated back to IT or to other parts of the corporate budget while IT departments who are not part of this discussion will simply be treated as cost centers to be slashed to the bone.
Business outcomes: This gets into return on investment and payback periods (more on these topics below). The information tied to business outcomes justifies IT’s investments.
Budgeting and forecasting: These practices show how IT costs are measured, and how they reflect demand within the organization.
Further, IT finance looks at cross-charging for IT assets and services to create more granular business plans and forecasts. This plays into the point about how end users put IT to work. To assess this, IT finance pinpoints every user/owner, cost center, profit center, department, location and project tied to each asset and/or service.
(Pro tip: Waste easily occurs when a user/owner moves among departments or leaves the organization, or when someone else takes over a project or resource. IT must record all such changes as it exits survival mode. Doing so not only will eliminate unnecessary spending, it also will provide the details for tracking how each cost rolls into the organizations’ finances.)
Understanding IT Finance’s Key Metrics
To speak the language of IT finance, it’s critical to know and present the following key metrics:
IT as Percent of Revenue. This metric displays the IT budget as a percentage of the organization’s overall revenue – all sales, receipts, etc. It then looks at how much of that revenue goes toward IT. Core IT tends to rank around 3% of an organization’s revenue with a great deal of variability based on verticals, geography, and company size.
Operating Margin. Next, analyze actual profitability. On average, US companies average a profit margin of about 7%. Whether your margin is 1% or 20% makes a huge difference in what needs to happen operationally in planning your IT budget.
Payroll as Percent of Revenue. Taking the IT Rule of 30 into account, this metric means there is a chance to affectds 5-6% of payroll, on average. Controllers, CFOs and their teams may not spot this as an obvious opportunity, so IT must point this out and speak the language of finance.
Return on Investment. This metric presents the ratio between net profit and investment cost from a project perspective. Many IT departments only know how to present either raw cost or the Total Cost of Ownership to their leadership and are poorly equipped to demonstrate or articulate potential business opportunities in the language of finance.
Cost of Capital. This is how much it really costs the organization to use money and is typically tied to a company’s realistic expectations for growth over the next year.
Net Present Value. Your finance team uses this metric already (and the next one) to identify opportunities. Net present value essentially boils down to discounted cash flows associated with a project, portfolio, or use case.
Internal Rate of Return. This metric estimates the profitability of an investment and can be used by finance to list a variety of projects across all areas of the business to determine which are most profitable.
Finance experts rely on the last two, NPV and IRR, extensively. Therefore, IT must provide these metrics because they help CFOs to understand everything in front of them – all the finances related to IT, HR, operations, sales and marketing, and so on. If IT does not provide NPV and IRR, the department will fall a step behind all the other lines of business that are treating their outputs in language finance understands. IT has the immense power to save jobs, the ultimate goal of 2020, but needs to articulate these opportunities in mature business terms.
Exploring ROI and Payback Periods in More Depth
Return on Investment and payback periods justify IT investments. For IT to get new technology funded, IT has to convince executives to fund technology that will support remote work and employees’ subsequent productivity and, as a result, boost the organization’s profitability.
Off the bat, know that “ROI” often gets misused. What means most to finance is the net return on investment; this is always a percentage. ROI on a project, then, must tally higher than the cost of capital.
(Pro tip: If IT cannot speak to how the ROI is higher than the current profit margin/rate of return, then finance will not sign off on an initiative. Another pro tip: Do not stretch ROI over too much time (i.e., 3, 4, 5, years). In fact, in today’s environment, anything with a payback period over 90 days is suspect and any ROI calculated over more than two years is making assumptions that nobody can truly predict. Address this situation by providing information on payback period.)
To that point, the unique circumstances of 2020 mean it is easier to look at spending from the view of payback period, or the time needed to get money back. As of right now look for rapid payback of three months or less. Anything more than that for the foreseeable future will make it harder to gain leaders’ buy-in.
Ways to Contextualize IT
Finance professionals assess three different categories to contextualize money. Really grasping the difference among these will give IT the acumen to rise from an expense to a finance mindset. As such, they are:
Statement of cash flows
This is the income the company (or department) has. Make sure to parse the difference between gross and net income. The latter represents cost of goods sold, sales and administration, and research and development; the former shows what the organization brought home. Note, however, that at this moment in history, finance experts are not so wrapped up in income/profit as a key metric. That may sound counterintuitive from a common-sense perspective but profit does not indicate cash on hand. Yes, profit influences valuations and stock prices, but throughout 2020, cash is king. Net income will help IT to show how its savings support bottom-line results.
These are all the assets and liabilities within the company (or department). The most common metric for showing this is Capital Expenditures (CapEx) vs. Operational Expenses (OpEx). From an IT perspective, show how spend plays into the CapEx and OpEx budgets. In the era of digital transformation and cloud, much of an IT department’s outlay will fall under the OpEx umbrella – which finance leaders often prefer. There is no depreciation or amortization associated with OpEx spending. In many cases, OpEx spending lends itself more easily to return-on-asset discussions. Though OpEx IT spending amounts to renting a service or asset, OpEx avoids the depreciation and inevitable replacment costs that CapEx provides (although OpEx spending comes with its own risks, such as uncontrolled usage). At any rate, providing data about return on assets can help finance understand in even more detail what IT is doing.
Statement of Cash Flows
Cash flows show what is coming into the company (or department) and leaving it.
This is the most essential context finance needs in 2020.
I cannot overstate this.
Organizations are living and dying by cash on hand. Do not just talk about cost optimization and moving CapEx expenses to OpEx. IT must know how all spending affects cash flow and be able to discuss that coherently and clearly with finance leaders.
Immediate opportunities to improve cash flow can be as extreme as paying bills late or asking for a bill “holiday” from vendors to keep cash in the interim. This is an artificial solution for maintaining cash in the short term if needed, and this level of cash management must be set up delicately with both executive approval and prior communications with vendors.
Conclusion: Top Takeaways for IT Finance in 2020
To prepare for fruitful IT discuusions with the office of the CFO, address on the items on this checklist:
Act on the IT Rule of 30: This is the primary way to reduce costs in unmanaged areas. It’s especially important to apply this rule to cloud IaaS and SaaS because those are the two IT areas growing in 2020; all else will shrink by 5% or more.
Define ownership for all assets and services. Again, this is a clean-up exercise. Accept that shadow IT ran rampant throughout March and April and get to work fixing the mess.
Remember that finance amounts to more than cost management. Finance entails planning, income, cash flow and understanding how money is used in the organization. This goes far beyond basic costs and billing management.
Create a shared vision for corporate health. Now is the time to figure out what it means to cut costs responsibly to save and bring back jobs. IT and finance professionals need to work together on this. Be proactive, not reactive.
Know how IT costs can affect key statements – income statement, balance sheet, and statement of cash flows. IT must understand how IT costs affect the business as a whole and when IT investments can exceed the value of their cost. This will make a big difference in discussions with finance professionals and allow IT to understand its impact on the company. IT professionals who just talk about costs and expenses without any context of potential value and business growth reduce their impact on the business because they position IT as a commoditized cost center. Basically, they sell their departments short. Provide context for what you’re doing.
Finally, provide the relevant metrics to justify IT investment. Right now everything has to be about cash management and saving jobs. Anything beyond that is nice if you’re one of the few companies going like gangbusters. But for most organizations, immediate payback period and cash are indispensable. Think about what will make an impact in 2020.
If you are seeking outside guidance and a deeper dive on IT Finance, Return on Investment, and making the IT case to Finance, Amalgam Insights is here to help. Click here to schedule a consultation.
Join us at TEM Expo available on demand until August 13 at no costto learn more about how to prepare for COVID IT and take immediate action to cut costs. In context of this topic, we recommend the following sessions: Robert Bracco and Dana Risley of MobiChord speak on the role of IT Financial Management, Planful CFO Shane Hansen speaks on the importance of cash management, and our Executive Panel digs into the IT Finance as a strategic tool for escalating the IT professional.
And if you’d like to learn more about this topic now, please watch our webinar on IT Finance.
COVID-19 and the worldwide shift to remote work has, perhaps irrevocably, changed IT. Before the pandemic, the IT department may have let some costs and shadow technologies slide. But now, there just isn’t room for slack.
In this installment in our series on COVID IT, Amalgam Insights looks at payment and invoice processing issues. This is a key area for IT, finance and sourcing/procurement to clean up together. The more waste the organization eliminates, the more cash it can save and the more jobs it an bring back – two main goals for any business in a recessionary environment. With that in mind, read on for more best practices that will help IT and its line-of-business counterparts navigate rough waters and steer toward recovery.
‘Normal’ No Longer Cuts Muster
Even in “normal” times (remember those?), IT lost a lot of money through inaccurate and unchecked invoices. Now, though, the situation has worsened. Since March, when the coronavirus pandemic started affecting most of the United States, IT experts found themselves adding and removing accounts galore. Either people had been laid off and IT needed to make the resulting changes, or people required more technology to support productive work-from-home experiences (and some of these extras slipped past IT’s notice – i.e., shadow IT). Either way, the chaos intensified.
Speaking of remote work, Amalgam Insights estimates that 42% of employees (over 60 million workers) in the United States no longer go to an office. That’s compared to an estimated 8% at the end of 2019. Clearly, COVID-19 has changed the nature of work for months or years to come.
For IT, the trickle-down effect comes in the form of shifting technologies to accommodate secure remote access, while simultaneously devoting attention to stringent expense management. This blog focuses on the latter issue; go here to read about the former. So, the best way to start paring and streamlining costs? Act on the IT Rule of 30.
The IT Rule of 30
The IT Rule of 30, based on our experience and research, states that every unmanaged IT subscription spend category – mobility, telecom, cloud, SaaS, you name it – averages 30% in waste. If your organization spends, say, $1 million a year on technology subscriptions, odds are that $300,000 is unnecessarily going out the door. Across all IT spend categories, this waste typically makes up 1% of bookings or 6% of payroll. In other words, that money amounts to salaries and/or cash that could (should) have been conserved.
Consider this, too. Every time a new technology or configuration of a technology (Bring Your Own Device for mobility, for example) enters the organization, the IT Rule of 30 comes back into play – even if expense managers have addressed existing spend categories. The work is never really done.
A Refresher: Where Are You in the 6 Stages of COVID IT Management?
Let’s step back a little. Before you can make much more progress, it’s important to know where your organization stands in the 6 Stages of COVID IT Management. In theory, by mid-May, the business would have just finished up Step 1, or Survivor: Shadow IT Edition, as we like to call it. By mid-June, organizations really should have reached Stages 2 and 3 – securing the business and auditing the environment.
The bills IT received in May will reflect the first full month of COVID-based charges. And that’s where up to half of your savings may be hiding, in plain sight. If you’re conducting month-over-month invoice reviews (which most IT departments are unless they’re just super disciplined), follow the guidance below for uncovering a whole slew of savings opportunities.
Compare February, March and April invoices. Spending amounts will have fluctuated. Some areas will show increases while others will have gone down. Take note of the spending variances across these three months.
Check changes in accounts, features, and usage. Here, for instance, cloud resources dedicated to the headquarters office may show precipitous declines in usage because nearly everyone, is working off-premises. Conversely, as another example, you likely have a leap in mobility and SaaS accounts, features, and consumption that needs to be reconciled.
Identify abandoned technologies. “Abandoned” often translates into what is commonly known as “zombie” services, features and devices. Look for zero-usage services and equipment and any associated features. Typical suspects include old projects that have long ago wrapped up or devices assigned to an employee no longer with the company.
On a granular level, zero usage is harder to detect when employees have more than one device. And from a cloud perspective, the sheer amount of invoice detail can stymie even the most attentive IT expense expert. Automation and other tools come in very handy – but more on that in a bit. In terms of technology substitutions, employees may have swapped out one SaaS platform for another, but the organization continues to pay for the old one. In fact, this situation helps create an environment of duplicate types of services.
For example, organizations are supporting more video conferencing platforms than they need. Survey your internal end-users to understand which services are most useful and functional and then narrow down options based on true employee need. Invest the most with the most useful platform and then use that as an opportunity to boost contract-term negotiations with the chosen vendor.
Detect duplicate services: On a similar note, regarding duplicate services, explore what’s hiding in the IT shadows. During the scramble to remote work, a lot of staff brought their own apps to the corporate environment. Either security measures barred their accesses or they just couldn’t use the organization’s required counterpart for some reason, so they made sure they could perform their jobs by introducing their own technologies. The organization may be paying for some or all of these shadow IT resources. Determine what can be eliminated or condensed.
And use this time as a chance to build teamwork among expense-management colleagues as well as at-home employees. The idea is not to alienate anyone or make their jobs more difficult. IT must do what’s best for the organization all around. Pro tip: If you find a zero-usage service or device on April invoices, that’s a big sign the asset needs to go. If no one capitalized on it mid-quarantine, it’s unnecessary. Do not wait for three months of zero usage on invoices to get rid of these money drains. Make a difference in the organization’s cash position now. There is no place for complacency amid this pandemic.
Assess usage issues in greater detail. With zero-usage considerations out of the way, next look for overages. These will mainly show up in the mobility, SaaS, and cloud categories. Check out categories of usage that are typically either capped at a low amount of usage or priced at an exorbitant rate compared to normal services. For instance, that $10 base monthly charge may sound like a great deal for a mobile phone plan, but if it only comes with two gigabytes of data and your employee is using 100, that deal is likely to hurt your budget. Also look for geographic usage costs associated with roaming, transfer, and multi-region service usage.
Analyze Your Usage Data. If the IT department doesn’t already have a way to analyze data without overloading a person or a team, it’s past time to get one. This can be a system, a detailed algorithm, or a managed service provider with the requisite capabilities. There’s so much information to cull through and decipher – and then there’s the important follow-up work, including sharing results and strategies with procurement, finance, and other colleagues. Implement automation that scales alongside your needs because the amount of data to analyze will only keep growing.
Don’t overlook taxes, surcharges, fees, and discounts. If cash becomes a real issue for the organization, these areas will prove crucial to evaluate. And even if your cash position is stable, there is no reason to pay for something you shouldn’t. First, check the accuracy, validity, and consistency of taxes and surcharges. Respond accordingly to clean up where necessary. A $5 charge 5,000 times adds up to a big deal. Then get with the account manager for each major vendor to find out what flexibility there may be for late fees.
Next, determine whether any minimum annual revenue commitments are at risk because corporate assets went underused in March and April. Chances are, shadow IT compromised these contractual obligations. When talking with the vendor, you may be able to invoice “acts of god” circumstances that will alleviate fines or fees. Finally, make sure discounts match agreements made with vendors. Discounts can show at the line item, service, or account level, and therefore be hard to pinpoint. Expense and sourcing/procurement should work together to make sure discounts are showing up as expected. If they are not, initiate the dispute process. Above all, be proactive, not reactive.
If Your IT Organization Is Mature, Do This
The previous recommendations mostly apply to departments that need to refine their operations or that spend most of their money in an ad hoc manner; as a result, they review invoices each month. If your organization does not fit into that profile, it’s probably pretty mature. This means all IT services, devices, and other assets already are cross-tagged across categories including geography, cost center, project, and so on. It further means you can then talk with the assigned owner about the necessity of the service or asset with the goal of helping to drive IT strategy and working with your finance team on zero-based budgeting exercises and continuous planning exercises.
If All Else Fails, Go to Extremes
Finally, IT may need to resort to some extreme tactics during this recessionary environment, especially if the financials for the second half of 2020 are looking more dire than the first. If matters get worse, IT may need to do some or all of the following:
Reduce payments or pay late. This could go one of two ways. Say you reduce payments by $10,000 per month, but make a deal with the vendor that it will get that money at some point in the future. This may not be possible. However, if there is a way to balance the scale later, as it were, once revenue returns, the vendor could view this as a somewhat palatable option. If not, you may need to exert brute force by either reducing payments without vendor approval or stop paying altogether.
The caveat is that these approaches must first be set up with criteria that are provided to all of your vendors on the current state of the company’s finances and your organization’s needs. And this also requires the CFO’s support – and possibly the buy-in of other executives as well. These are draconian measures and top brass must know about and stand behind them. But this stance requires prior preparation: asking for reduced payments without transparency or executive backing is unlikely to work.
Review contractual obligations to pay. Look at escape clauses, contractual duties, and service-level agreements. Assess whether each of these has been met or whether the contract has been breached in some form. If anything sticks out as a way to void the contract, proceed as it makes sense.
Amalgam Insights does not present these recommendations lightly or cavalierly. The vendor ecosystem is critical to the IT environment and the relationships are vital. Ideally, IT and vendors will collaborate to find outcomes that work for both parties. The last thing anyone needs or wants right now is more strife.
Conclusion: Key Takeaways for IT Invoice and Payment Management in 2020
There is no doubt about it: the IT environment has undergone sudden and perhaps permanent shifts to COVID-19. Because of that, IT must know how and where to cut costs to ensure responsibility throughout the rest of the year (and probably beyond). To do that, keep the following in mind:
Remember the IT Rule of 30
Understand that the IT organization should at least be in the second and third stages of COVID IT by now
Identify new usage patterns, products, and vendors
Plus, join us at TEM Expo, available until August 13 at no cost to learn more about how to prepare for COVID IT and take immediate action to cut costs. In particular, Amalgam Insights advises sessions by Denise Munro on taxes, fees, and surcharges as well as David Schofield on contract negotiations for wired and wireless spend.
To learn more about invoice payment and processing and the tips and tricks that you may need in a pandemic recession, we’ve also recorded this recent webinar.
COVID-19 shows no signs of letting up in the United States. For IT, finance and procurement professionals supporting remote staff, this continues to present expense management challenges. In recent blogs and webinars, Amalgam Insights showcases ways to maneuver these issues as they relate to telecom and networking, mobility, SaaS; we’ve also provided in-depth recommendations for understanding the six stages of COVID IT.
Now we go into detail about a particularly difficult, yet critical, area to assess: cloud IaaS. Even if you have decades of experience evaluating telecommunications and IT invoices, cloud is a whole different animal. And I say “critical” because of all IT categories, cloud IaaS stands out as the one that will experience spending growth in 2020, given that it best meets the needs of a distributed workforce. Both of these realities add pressure to the expense management team’s responsibility to uncover and control costs tied to the organization’s technology environment.
Managing IaaS: 3 Core Challenges and Their Solutions
The influx of cloud services during the COVID-19 pandemic is highlighting issues that already existed but that expense managers may not have yet tackled. Takeaway? In a recessionary climate, you can’t put off addressing these challenges.
1. Huge Growth
Again, cloud spending will soar this year. Amalgam Insights expects public cloud spend to increase by an average of 30% across all enterprises. This may cause problems, if it hasn’t already, with budgets. But operating according to the IT Rule of 30 should help. That’s our calculation that any unmanaged category of IT contains about 30% waste.
So even though you’ll see about 30% growth in cloud, you may be able to reduce spending by the same amount with mature oversight.
2. Extremely Detailed Billing
Compared to telecom, cloud features even more granular invoicing. This applies to every cloud service or component the organization uses. Expense managers have to scour and inspect cloud invoices line by line to avoid missing anything, ideally with programmatic tools or algorithms to help manage the Brobdingnagian challenges of cloud bills.
3. Lack of Standardization
Cloud is no Ma Bell. The various vendors have never worked together and do not plan to work together. This means there is no standardization for billing terminology or structure. Your enterprise may benefit by creating or obtaining a glossary and ontology that brings together, correlates and defines the providers’ different references.
Spotting Opportunities for Cloud Cost Management
Organizations must get a handle on their 2020 cloud expenses now. COVID-19 has upended budgets, forecasts and consumption. Following these near-term suggestions will help IT, finance, and procurement regain control.
Identify the Cloud Boss(es). When it comes to the business side of cloud computing, most environments don’t have someone in charge. Now is the time to designate a person or team – executive and managerial stakeholders in charge of planning and budgeting – to oversee the business of cloud. Amalgam Insights has noticed cloud expense and planning tends to be a hybrid role. The ideal candidates usually have expertise in IT, finance/accounting, and procurement. Knowing that, some titles to consider are: Chief Information Officer; Controller; Chief Digital Officer; Vice President of Cloud; Chief Architect. By identifying an executive responsible for cloud and gaining the attention of this champion, cloud accountability becomes a bigger deal.
Analyze Service Usage. Cloud features myriad buckets and use cases. Therefore, IT has to pinpoint what goes where, why, and whether to tweak any ancillary resources (networking, as the primary example). As an example of the latter statement, consider Zoom’s recent partnership with Oracle Cloud. Since the beginning of COVID-19, demand for Zoom has rocketed into the hundreds of millions of users. Service degradation was inevitable. Zoom needed help and turning to Oracle helped it save what we estimate to be over 80% on its cloud networking costs, while achieving necessary failover and business continuity requirements. But speaking to our assertion that IT has to figure out how cloud resources are allocated, the answer isn’t always “off premises.” If you’re archiving core applications on-site, and even with legacy tools, you can probably keep operating that way. Financially and otherwise, this may still be the wisest choice.
Optimize Cloud Services. Businesses adopted a lot of cloud services between March and June of this year, often without realizing it as staff scrambled to work from home (shadow IT, anyone?). That created a situation ripe for optimization. Here are our top recommendations for saving money on cloud spend:
Check bills for duplicate resources and eliminate any that are doing the same job (if doing so won’t impact workflows).
Rationalize, and potentially turn off, idle services.
Right-size resources. In other words, understand how the cloud environment will change as the organization grows or shrinks. Pro Tip: Have a contingency plan and a backup vendor in case usage doubles or triples. The goal isn’t to wholesale migrate all your services to a new vendor, but to be able to add overflow or additional computing and services that may be more cost-efficient or agile onto another vendor.
Review discounts to make sure they are actually showing up on the bill. Cloud pricing is almost always accurate but providers do seem to have issues getting the agreed-upon discounts right.
Look at workload times. Turn off workloads when employees aren’t using them or at least turn them down during non-peak times.
Assess expiration dates. Which cloud resources have an expiration date and which don’t? Find out whether any cloud platforms are used for testing or development. Wherever it makes sense, ask cloud providers to remove expiration dates.
Ensure Project Governance. Don’t just bring in more cloud resources on a whim. This will create more mess. Instead, take a step back. You want to do right by the organization, avoiding waste rather than adding to it. The goal is to “measure twice, cut once.” Start by tagging and categorizing all existing cloud services, tracking both technical details as well as relevant business categories based on the general ledger and project management solutions. Tagging will enable essential tracking capabilities, and we explore this idea in greater depth below. Then assign expiration dates and vendor commitments – this is also where having a cloud boss comes in handy. After that, conduct a thorough review before launching any new cloud service into production mode. Turn off all test platforms so the organization does not keep paying for them.
Tag Categories. This practice is vital to cloud expense management best practices. How well the organization tags and categorizes cloud services plays directly into the efficacy and clarity of IT spending. IT needs to know why things happen in the cloud environment, and that won’t be apparent without tagging.
Here are the areas Amalgam Insights has identified as the most useful for tagging and categorizing:
Cross-charging: Link all cloud spending to the general ledger.
Project ownership: Every project and resource should have an owner and be assigned to that person. This works out most optimally if that person holds some level of IT responsibility with the business. Be sure to link this information to the human resources system, too.
Service priority: Make sure all cloud platforms used for testing and production are identified and have the appropriate service prioritization in place.
Region: Follow all cloud governance risk management best practices for every geography in which the organization operates. You don’t want to breach any compliance requirements.
Study Contractual Commitments. There are six main buckets to review for opportunities to save money on cloud expenses:
Time commitments: Cloud vendors often extend more discounts or more flexible terms to organizations that agree to use their services for multiple years.
Payment terms: Will paying upfront or over time serve the best interests of the business? It may be time to negotiate some flexibility depending upon the answer.
Potential growth or reduction: Build a number of scenarios based on different expectations; for example, operational usage may stay the same but software development or research teams may need to add machine learning workloads. That will affect pricing. Make contractual agreements based on those changes.
Potential investment in apps: What cloud usage is projected for the new apps being created? What data will they create and what services will they need to access? Although developers cannot fully predict usage patterns, the business needs to have a basic idea of potential cloud cost impacts and how app demand will change cloud costs.
Regional concerns: Figure out which regions need most access to the cloud, as regional pricing for services can vary significantly, leading to potential arbitrage opportunities.
Discounts: As discussed already, cloud vendors often get the pricing right yet omit the discounts or tiering changes. Make sure the organization gets the agreed-upon concessions.
Conclusion: Recommendations for the Future
Think about managing cloud expenses, especially during COVID-19, as doing your part to act as a steward of the business. As we’ve said before, every $100,000-$200,000 in IT expenses saved equates to a job saved or reinstated. When it comes to the cloud side of the house, introducing automation and reducing total cost of ownership are two additional ways to achieve that goal. Remember, cloud itself doesn’t just represent a cost-cutting measure compared to on-premises data centers, it’s also a tool that saves labor and provides for ongoing business agility and access to services that are more resilient to technical debt. The current economic climate is tough. People have a lot less time (and patience) for activities such as setup, administration, business continuity/disaster recovery, upgrades and performance tuning. Automate as many of these tasks as possible. Sure, that might mean opting for a more expensive cloud that comes with better Key Performance Indicators and Service Level Agreements. Incrementally, though, this will provide more value than a cheaper counterpart.
Alongside automation and the Total Cost of Ownership, don’t overlook the benefits of data and application development. As cloud vendors show their reluctance to hedge on discounts or payment terms, companies with skills in writing more optimized code and supporting better data management will have advantages in optimizing and cleaning up the cloud environment.
Above all, you don’t have to do all this alone. There are a number of vendors Amalgam Insights recommends that specialize in cloud expense management. Here they are, in alphabetical order:
CloudHealth by VMware
Keep in mind, each vendor takes different approaches and has different areas of strength. We recommend investigating each one to see how it fits your environment and needs. If you need unbiased help assessing the options, call on Amalgam Insights.
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.
Join us at TEM Expo, currently available on-demand until August 13 at no cost,to learn more about how to prepare for COVID IT and take immediate action to cut costs. In particular, check out sessions by Robert Lee Harris and Corey Quinn on managing cloud costs and avoiding the biggest mistakes that cloud vendors won’t tell you about.