As I continue to dig through the legacy systems in my organisation, yesterday I stumbled across an interesting piece of paradoxical software development, something that is probably common in many organisations.

A piece of code set up to save money that has ended up costing more than it ever would have saved.

(For the more technically minded, a set of processes that extract attachments from emails into our CRM system and save them into a Sharepoint repository rather than natively within the CRM.)

At the time it was felt that doing this work would save on Cloud storage costs in the longer term, as the per GB charges on one system were significantly higher than on the other. It was all with good intentions. What wasn’t factored in was the ongoing costs of maintaining a piece of code that would replace standard functionality in a commodity, “ever green” cloud product.

The short answer is: Don’t do it, kids.

But what it’s left me wondering is if the days of IT projects being justified on cost saving grounds are now well behind us?

There was a moment of revelation that I had a few months ago when reading Simon Winchester’s book Exactly, a history of precision engineering. Put simply, one invests into machines to drive scale.

Imagine a physical manufacturing process. One person produces 10 widgets every day.

You have the option to buy a machine that can create 100 widgets every day. It costs the equivalent of 5 peoples’ wages for each year you own it.

The machine makes perfect sense as long as you can produce and sell an increased number of widgets. Your costs are justified because of an increase in production capacity as long as there is a market for the widgets, and you have enough cash to get the raw materials to make them. You will also almost certainly have to make some unpleasant decisions about your widget makers’ employment status.

Imagine another scenario. You don’t own a car and you walk everywhere. You then decide to buy a car. You probably will still walk to many of the places you used to, but car ownership now opens up a whole load of alternative places to travel too that were simply out of reach before. Mostly traffic jams, but you get the point.

In neither of these cases does one say that investment in machines is to save money.

Now look at most IT investment proposals. And still there will be mythical hours saved through streamlining of activity that means that suddenly a bunch of costs can be saved. You know the kind of thing – 30 seconds quicker in system boot time for 2,000 employees every day = 4,300 person/hours/year at an average hourly rate of £20/hour = cost saving of £86,000 annually which justifies the new laptops.

This is hokum.

Investment proposals for technology should be determined on one or more of the following things:

  • ability to increase revenue for an organisation (through new market, new customers, selling more, increasing quality etc)
  • ability to increase the volume of activity where there is a demand to be met
  • ability to reduce costs and which costs will be stopped when as a result (the IT isn’t saving the cost – it’s stopping spending on something else that saves the cost)
  • ability to comply with regulation in a way where the cost outweighs the risks

The bottom line is that very little technology investment, from my experience over the years, does much to reduce costs. It very often drives new costs, and those costs can often be greater than the ones potentially saved. But it can drive new opportunities, revenues and ways of working that are beneficial.

Too often the framing for all of this is the ultimate problem. IT is a cost centre, not a profit centre. And without a P to go with an L, there’s only one place to focus.

2 thoughts on “Saving cost?

  1. Well said Matt, The question I always try and get my teams to think about is whether the technology change meets the goals of the business. In all my time I have never found a company who’s purpose is to save money, it is not their reason for existence. I have however found many companies with a goal of being more cost effective and rarely do IT cost savings materialise mainly because a holistic view of the cost is understood. In my mind the reason for failure is the lack of understanding of “cost of change” both in the original implementation and in the maintenance of the asset going forwards. It is akin to buying a car which has a loan payment value which is the same as your monthly bus pass and forgetting you need to fuel, insure and service it. I am sure technology is not alone in making these errors. I am sure local councils make these mistakes when the embark on changing say refuse collection services and the like.

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