Naked CIO: The true cost of IT

It's all very well trying to put price tags on everything the IT department does. The trouble is you end up knowing the cost of everything and the value of nothing, says the Naked CIO.

People have argued for years about how to cost out IT services. Yet there's no real consensus on what model works best.

In principle, billing IT services to a department is a good way of controlling costs and allocating overheads proportionately.

The problems start when you have to decide how to cost these services and what direct impact that decision might have on collaboration and alignment.

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The whole approach also opens up the possibility of departments going off the reservation and considering outside services where costs may be lower.

This debate might be fuelled by accountants looking for better accountability or by IT professionals frustrated by continued budget constraints in organisations that do not understand the cost of provisioning services to the business.

But I have always been a proponent of grass-roots innovation as is evident in my objections to offshoring and outsourcing. Anything that stifles an organisation's ability to innovate and be agile is something to root out.

Yet, increasingly, I see projects that do not get deployed or where the capacity spent is more expensive than the value the solution provides.

It is an ongoing concern and one that IT departments at large have failed to solve. Business cases, cost justifications, project management methodologies are all ways to try and put more emphasis on the cost-value relationship of initiatives - but they don't work in many cases.

To represent this cost, or for that matter the relative cost of opportunity, perhaps cost-based services models are the way to go.

Opportunity cost is a big issue for me. In my organisation, as everywhere else, the amount of IT projects and development is always greater than the resources available to support them.

So when projects are ill-conceived or badly thought out, the net result isn't just the cost of resources and ancillary services, it is also the opportunity cost lost in providing other services that these resources could have provided.

Cost-based models drive a wedge between business and IT and this type of services-based arrangement makes business alignment more difficult.

Equally, not every project is all about cost. Some projects are worthwhile because they have a new benefit that is not driven by the bottom line. These types of initiatives may be lost under cost-based models.

The goal should be solely about trying to get appropriate buy-in, transparency in cost and effort and for all projects to have a net long-term benefit to the business.

If there is a perfect model that supports this I would love to hear about it.

Until then, while I won't support cost-based services, I will try and define and get the business involved and understanding the overall cost and effort much more regularly.