What is the role of Technology in your business?
It is often difficult for us to gauge the importance of technology in our daily business operations. This difficulty doesn’t stem from the complexity of the technologies but rather from the ubiquity of the technologies we use. From your point of sales system to your smartphone, from your network attached storage device to cloud infrastructure, technology has become a necessity for all modern businesses. All these technology solutions increase the productivity, efficiency, and effectiveness of business operations and communication at a scale that would otherwise be impossible.
“Technology is no longer a part of the business rather it is the heart of the business.”
If you feel I am exaggerating, shut down your computer and mobile devices for an hour and try doing your work. How much work would you able to do?
What is the cost of IT for your company?
Whenever this question is raised, the answer usually is “it depends.” But that doesn’t help at all. As a business owner, small or big, we need to put a dollar value on all our costs. Our financial plan will have a big hole if we can’t include the cost of IT. And we all know that “failing to plan means planning to fail.” So, let’s try to dig a little and see if we can come up with a better answer than “it depends”.
The cost of IT can broadly be divided into three categories:
Hardware - from laptops and smartphones to networks and servers.
Software and services - including applications, SaaS, and cloud
Personnel - salary, hiring, training
Now the first two categories can certainly be planned. The devices and gear you will purchase, and the apps and software you will use can be pretty much set in stone. Similarly, personnel cost can also be ascertained- you can choose to hire someone or outsource your IT. The tricky part is calculating the cost of interruptions. How do we do it?
Interruption has two parts- lost time and opportunity cost. Lost time is the time your employees spend trying to solve their IT problems or in helping a colleague with their IT issues. According to a survey by Robert Half Technology, U.S. office workers on average waste 22 minutes each day dealing with IT-related issues. This translates to more than 91 hours per year spent dealing with IT issues by each employee.
Here is the math:
22 minutes/day x 5 days/week x 50 weeks/year = 5,500 minutes or 91.67 hours/year
If our average hourly rate per employee is $30 per hour, then
Cost of lost time = 91.67 hours/year x $30/hour = $2,750/year per employee
If we have 10 employees, just the lost time can cost us $27,500 every year. OK, now we are getting somewhere. We have a dollar value that we can associate with interruptions.
What about the opportunity cost?
In simple terms, the opportunity cost is the cost of the sacrifice you make when choosing one option over another. When your software engineer is spending time troubleshooting a network printer rather than writing code, he/she is sacrificing their time performing a task that brings lesser value to your company. The code written would definitely be of higher value than printer troubleshooting. The higher the value of an employee’s work, the higher is the opportunity cost. So if you are a founder/co-founder and have to spend time taking your laptop to the Genius bar or spend hours sourcing WiFi equipment, you are flushing cash down the toilet. The tricky bit is that this is an implicit cost, i.e. you don’t see a cash outflow in your books. Therefore, it is difficult to visualize and usually goes unnoticed.
When we hire someone, we expect to make some money from the work that they perform. Of course, there are exceptions. Certain jobs such as administration and HR don’t bring in revenue but enable others to do so. So companies generally expect the employees to make for the company 2 - 3 times their salary. A large part of this will go towards operational costs and overheads so the net profit would be around 50-100%.
Using a conservative profit of 50%, let’s do some math again:
Opportunity cost = 91.67 hours/year x $30/hour x 1.5 = $4,125/year per employee
So for 10 employees that will amount to $41,250/year in opportunity cost.
Therefore, the cost of IT or rather of poor IT operation and management is $2,750+$4,125= $6,876 per employee per year.
For a small 10 people company, this will be $68,760 per year.
There we have it, something much better than “it depends”. Now, this is a figure we can definitely work with. We have made a few assumptions, which can vary from case to case but once calculated, it shouldn’t vary too much.
Cost of downtime for the company
The interruptions we calculated above should not be confused with a company-wide downtime caused by larger events such as network outage or ransomware attacks. Such downtime has a much severe impact on the business, especially if there is no business continuity or data backup plan. Prolonged or frequent downtimes don’t just negatively impact your revenue, they also tarnish your reputation and diminish trust.
The impact of downtime is always much higher than we can imagine. After an interruption, we need time to refocus and get to the point where we were before the interruption. In addition, we have to deal with the stress and fatigue caused by the downtime as well as the knowledge that we are now behind on our work. Now, imagine such a catastrophe during peak season. Yes, it is scary, very scary!
How to reduce the cost of IT?
The cost of unmanaged IT and downtime is surprisingly high. But it is something that can be addressed rather easily. The good news is that if we address the lost time, the opportunity cost will also be cut down.
Properly managed IT operations will:
Make your IT system less prone to downtime
Your business will be better prepared to handle emergencies, and
Your business operations will be able to resume swiftly
As companies grow, they need to make a shift from firefighting IT issues to adopting a proactive approach. With the growth in size, the complexities in IT also grow and so do the costs of unmanaged IT and downtime. Getting proper IT management gives us the insurance we need to work without stress. Although it may not prevent the IT issues from ever popping up, getting the right IT support will definitely reduce the number of incidents as well as their severity. In addition, having a capable IT team at hand reduces much of the stress and fatigue caused by downtime.
Should you hire a managed IT Service provider?
Knowing all the cost, you may want to consider either hiring an internal IT team or outsourcing your IT management. Hiring external management for your IT operations can be a big step for small business owners. Considering how integrally IT fits into your business strategy, it is imperative that you stop treating IT as a liability.
“Remember, all the technology in the world is not worth anything if it does not boost your productivity and help you achieve your business goals.”
Rather than getting overwhelmed by the various IT challenges that your growing company will definitely face, a good plan will help you identify at which stage you will need to bring in outside help. Whether you decide to retain IT in-house or hire an IT service provider, the decision should be made based on your bottom line as well as how IT impacts your core competency.
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