Total IT Spending as Percentage of Revenue Paper

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1. In your own words, describe a typical database. What kind of information is stored in a database? Who are the typical users of databases?

2. Choose three IT metrics from pages 31-44 in the PDF IT Benchmarking. Describe how those metrics would be useful in managing an IT organization. The MATURITY IT-Benchmarking (Links to an external site.) video should be helpful in formulating your response. Also, explain why comparing those metrics for one company to the same metrics for another company (benchmarking) might be helpful.


Then Give some thought about two post from others student. (4-5 sentence)

A. IT metrics are quantifiable measurements that help IT leaders efficiently manage the business of Information Technology. Defining, measuring, and reviewing IT metrics helps IT leaders build a foundation for conversations about the value technology provides to the business IT metrics help CIOs determine the value of technology and build confidence in IT performance. IT metrics help in evaluating IT investments, performance, and delivery.

Below are the 3, IT metrics, I have chosen to describe how these metrics would be useful in managing an IT organization

  1. Total IT spending as percentage of revenue

Information Technology investments represent a growing percentage of corporate spending, and many organization stakeholders expect investments to be aligned with business strategy. In addition to the traditional industry benchmarks, investment strategy increasingly depends on existing technology capabilities, business strategy, and the competitive environment. As CIOs’ mandates change from value preservation to value creation, optimizing IT investments has become a top priority for them and their stakeholders.

Total IT spending as a percentage of revenue is a key metric that most organizations use to benchmark their IT spending levels. It is calculated by dividing the company’s IT operational spending plus depreciation by the firm’s total revenue. It can also be calculated on a cash basis by using total IT spending, including capital spending, and omitting depreciation. Although the calculation is straightforward, it is essential to understand how this metric varies by industry, company size, and region.

For example, if the CEO heads up a healthcare company, the CEO will want to look at the percent of revenue figure for IT departments in other healthcare companies. Perhaps the industry typically has a technology expense of 2.5 percent to 3 percent. If the IT department has a percentage much larger than that, perhaps the CEO will need to understand why the IT shop is not functioning as efficiently as others within the industry. The CEO will also want to know how the company can beat the industry averages. The key here is that the expenditure must be an investment that provides quantifiable and tangible benefits to the company

  1. Total IT spending per user

One mistake that IT leaders make in bench marking their IT spending levels is only to look at their IT budgets as a percentage of revenue. To get a more complete picture, it is advisable to use other ratios as well, as shown in the below Figure 1. For example, look at IT spending per employee or better yet, IT spending per user. The latter is more significant, because IT organizations must support users whether they are employees. Healthcare companies, for example, tend to have many more users than employees. On the other hand, in some companies, especially in manufacturing, not all employees are users of IT.

week 2 fig 1.png

  1. Total IT spending per PC

Nearly two-thirds of small businesses and organizations are expected to buy new IT equipment every year, replacing one in four office computers. Vendors now offer powerful computers at discounted prices, but what will this equipment really cost you in the long run? Whether you purchase a PC, notebook, server or other network hardware, you will likely experience sticker shock once you factor in the total cost of ownership (TCO).

Tight budgets and limited expertise often keep small organizations from making effective IT decisions. However, understanding hidden technology costs can help to reduce unnecessary expenditures and reallocate resources to more important business

An unmanaged or poorly managed desktop PC costs more than $5,000 per year. When factoring in associated network costs, such as firewalls, storage, servers, routers, printers and internet connectivity, estimates exceed $8,500 per PC annually.

Remember that the initial purchase is just a fraction of the total cost of ownership (TCO), which means a $1,000 PC could cost more than $15,000 over its three-year lifespan. If a 10-person organization upgrades its PCs every three years, it likely spends a minimum of $120,000 managing those computers after the purchase.

IT spending is really a balancing act between hardware, software and services. According to Gartner, strong PC management is the key to overall cost reduction. The more money allocated for direct IT expenditures, such as operations and administration, the less money will be wasted on lost productivity and downtime.

Unfortunately, the reverse is also true. Because of declining IT budgets over the last few years, organizations have been forced to hold back on new purchases and temporarily band-aid ailing IT systems. However, pinching pennies on proper infrastructure and management procedures will cost you dearly in the long run.

Therefore, a good benchmark of IT spending per desktop (or, per PC/laptop) is needed, to know if the organizations IT spending for PCS is as efficient as others within the industry. So, IT spending per PC metric will help business to benchmark the IT spending levels for PCs.

This can provide another perspective in cases where users have more than one desktop/laptop, users share PCs (e.g. across multiple shifts, for example, in a hospital), or where there are a significant number of desktop computers in laboratories, classrooms, or other shared environments. These scenarios also need to be considered while keeping the IT benchmark in mind.

The intent of benchmarking is to compare your own operations to that of competitors or other companies and to generate ideas for improving processes, approaches, and technologies to reduce costs, increase profits and strengthen customer loyalty and satisfaction.

Not only can you get an organized overview of your company and how it performs on different levels, you can also be competitive. Benchmarking means you can easily spot when a competitor is doing well or beginning to struggle, both prime times to evaluate your own strategy.

References

IT Metrics and KPIs. (n.d.). Retrieved from https://www.apptio.com/it-metrics-and-kpis

Kark, K., & Shaikh, A. (2017, November 28). Technology budgets: From value preservation to value creation. Retrieved from https://www2.deloitte.com/us/en/insights/focus/cio-insider-business-insights/technology-investments-value-creation.html

Research Bytes. (n.d.). Retrieved from https://www.computereconomics.com/

Reh, F. J. (2019, July 26). Why Your Business Should Be Benchmarking and How to Get Started. Retrieved from https://www.thebalancecareers.com/overview-and-exa…

B. Metrics can play an important role in achieving excellence as they force the organization to pay attention to their performance and prompt management to make adjustments when goals are not being achieved. Following are the three metrics that I selected for this discussion:

  • IT staff headcount change from previous year
    • Staff headcount is important as it is the most expensive operational expense for a company. If headcount is not tracked at a minimum of an annual bases, it could balloon out of control causing an IT organization or any organization to fail due to unnecessary expenses. Headcount metrics are also important to evaluate salaries and wages in order to determine pay increases and to figure out the number of employees by department or location in order to assess staffing needs.
  • IT staff turnover
    • Voluntary: This type of turnover usually occurs because the employee is unhappy at work, whether because of conflicts, improper compensation or management, or even because they weren’t the right fit for the job, team, or company. The metrics for voluntary turnover aid in understanding why team members are leaving. These metrics are important as they help organizations resolve any internal issues that may be occurring that cause employee’s to leave. If this metric is high, it should raise a red flag to review the reasons why and create resolution.
    • Involuntary: This type of turnover occurs when an employee is not a good fit for the organization. It could be due to poor performance, behavior issues, or reorganization. These metrics are important in case of potential litigation or unemployment filings.
  • Annual training allocation per IT employee
    • A common metric is training expenses per IT employee. This metric is helpful in tracking development costs. It also helps management make smarter investments in developing personnel. Organizations are realizing that day-long training courses are both expensive and inadequate in providing the continuous learning experience sought by employees. Investing the available budget in continuous learning experiences will lead to a much more effective training program for employees.

Benchmarking allows an organization to focus on best practices and allows an organization to get detailed comparisons between themselves and other like companies. Benchmarking is also a way of discovering what is the best performance being achieved and by what company. It could be within the company, by a competitor, or by an entirely different industry. This information can then be used to identify gaps in an organization’s processes in order to achieve a competitive advantage.

https://www.paycor.com/resource-center/why-employee-turnover-is-the-single-most-revealing-hr-metric (Links to an external site.)

https://chconsultinggroup.com/2015/10/what-is-benchmarking-and-why-is-it-important-to-your-business/

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