Wednesday, January 17, 2007

Hidden Costs of Information Technology

Think of an iceberg. Only a little of it is above the water. Most of it is below the waterline.

It is the same way with Information Technology (IT) costs. The costs of hardware and software are "visible;" they are "above the waterline." Hardware is cheap. Software probably costs more than the hardware it runs on nowadays. Together, these "visible" costs are a small part of the total costs.

Here's an all-too-common scenario. Your organization invests in new systems (hardware and software). The investment is supposed to save the organization time and money while improving quality. But employees, vendors and customers don't have the skills they need to use the new systems nor the time to learn. No money has been set aside to provide training to people. The organization's business processes are not consistent with the way the the new systems are configured, so either you have to change the new systems or change your business processes to accommodate the new systems.

Low and behold, in this all-too-common scenario, the organization doesn’t save any time or money and quality goes to hell. In frustration, the organization scraps the new systems, goes back to the old ways of doing things, and writes off the time and money spent.

Many organizations fail to appreciate the hidden costs of information technology and do not provide for them. So, let's look at the whole "iceberg" of IT costs -- both above and below the waterline, the visible and the hidden costs -- depicted in the graphic below.


  • Hardware and software are the visible costs, above the water. They are small in relation to the size of the hidden costs, below the waterline.
  • Staff training and development costs make up a large portion of the hidden costs. You have to raise and continually maintain the competency of your staff so they can effectively make use of the hardware and software you provide. These costs include the cost of the time your staff spends in training and development.
  • Business process automation means changing the way that you work and the way your clients work with you. This also represents a sizable cost, depending upon whether your organization chooses to “pave the cow paths” or reinvent your operations. Reinventing is more disruptive and costly, but it promises greater benefits.
  • Procedures and standards are necessary to safeguard your systems from threats to privacy and security. If you are a healthcare or financial services institution, by law you have to have adequate policies and procedures in place (ref. HIPAA and Graham-Leach-Bliley).
  • Corporate policies are important for success in order to provide an environment which fosters change and learning.

Don't be victimized by the IT iceberg. Understand that there is more to IT than hardware and software. Plan and budget accordingly.

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