May 27 ’10
Business Perspective: Wrong IT Decisions
The IT department is the core of the modern enterprise and one of the keys to its success. While making decisions that affect the technology and systems deployed by the IT department is difficult, business success depends on correct decisions being made to minimize costly errors that can impact a company or organization’s ability to remain competitive in the marketplace. One area where costly errors can easily be made is in the understanding of the true cost and the Return on Investment (ROI) of various information technology expenditures.
According to Dot Alexander, senior analyst at CedarRidge Consulting Group, “There are many misperceptions about information technology cost vs. real/actual cost. What’s needed is an effective model for comparing information technology cost and ROI where managers can look at the variables that have impact and provide a fact-based, accurate measure of the validated cost combined with the ROI impact associated with change.”
Managing the cost of and gaining the most benefit from information technology depends heavily on understanding the cost and the business benefits to be received. Management needs to know the cost of various alternatives to keep the Total Cost of Ownership (TCO) as low as possible while also meeting the needs of the business. When companies give consideration to such ideas as replacing their mainframe systems with so-called modern systems, knowing the costs and the expected ROI sheds light on what can otherwise simply be "a sale caused by vendor influence." It is during these types of analyses that it’s often quickly discovered that "rip and replace" options really aren’t an option at all due to an inability to forfeit the business knowledge encapsulated within existing information technology assets.
The factors impacting ROI are complex. Different business processes have different characteristics and costs. ROI is a popular metric because of its versatility and simplicity. That is, if an investment doesn’t have a positive ROI, or if there are other opportunities with a higher ROI, then the investment alternatives calculation makes a difference in averting costly information technology decisions. An accurate ROI needs to be calculated before a decision is made, and an accurate ROI calculation depends on having good analyst metrics in place that are both historical and predictive.
Service-Oriented Architecture (SOA) is another key aspect of modern decision-making concerning information technology. As an architecture that’s positioned to support flexible and process-oriented responses to changing market conditions, SOA also insulates applications from environmental middleware, preserving the value locked within existing information technology assets in new environments. The result is the ability to turn large applications into components that can be reused, thereby increasing agility and flexibility as companies want to evolve their software and hardware to aid the business.
This strategy helps separate the calculation of software ROI from hardware ROI. Application architecture choices are key in this context. IT department managers are using standards to determine what choices provide the most benefit for the least cost. Reuse of assets is a key issue. IT department managers can use predictive models that support the ability to adapt to business change.
Predictive models based on the cost per MIPS per day have greatly aided decision-making for information technology. By using MIPS per day, the different server and System z systems can be compared. The System z10 frequently is measured at $3.13 per MIPS per day in our work. A reasonable comparison can be made by translating the dollars per MIPS per day into dollars per GHz per day and comparing cost per GHz per day for servers to the System z. Generally, System z costs are at least seven to 10 times less than the server costs. This is significant for cloud computing decision-making.
Be sure to get an accurate and honest business perspective. Information technology decisions are very important and can drive a successful company into ruin if top management isn’t careful.