Chris Hodder
I once worked for a large multinational where we had a running joke about budgeting. Annual spend would be fixed in January and you could do almost what you liked with the money in the first three quarters of the year. Then, come September, everyone would realise they’d burnt through their budget already and in Q4 things would grind to a halt: projects frozen, no travel, no expenses, and so on. Then the inevitable round of redundancies, reshuffling and organisational ‘efficiencies’ would come next.
Meanwhile, new budgets would be fixed for the following year, but you wouldn’t start on any projects budgeted for until you’d implemented the changes necessitated by the previous year’s cuts – by which time it would be almost summer and people would be going on holiday. Then it’d be September again before you knew it, there’d be a new wave of cuts and the cycle would start all over again…
This may be a slight exaggeration, but I’m sure that many organisations caught in this kind of annual budgeting cycle, and relying on capital expenditure for IT investment, will find it a familiar scenario. One where, in reality, not much gets delivered on an annual basis, not to mention the inability to respond rapidly to changing situations throughout the year.
A more agile approach
An alternative to this is to switch to budgeting on a monthly basis, allowing for a far more agile and efficient approach to delivering IT services – which is more crucial than ever in the current business and economic climate. However, this requires teams to adopt a different way of thinking – based on ongoing, operational expenditure combined with a more flexible attitude.
However, many businesses that we’ve worked with at CIH are slow to adopt this opex mindset when it comes to their IT service management (ITSM). And that surprises me as these days most are used to this way of operating when it comes to other areas – cloud being the most obvious example.
Since cloud moved into the enterprise IT mainstream, most businesses wouldn’t think twice about paying, say, AWS on a monthly basis purely for what they actually use, rather than dishing out large amounts up front for costly on-premise servers and sweating the assets for as long as possible.
In this scenario, they completely understand the advantages of paying as they go, as it keeps waste to a minimum and allows them to rapidly scale up or down as the business requirements dictate.
However, the very same company might not understand that the same principle works well when it comes to ITSM. I’ve seen clients pay large sums up front for permanent on-premise licences for a system they’re planning to use for, say, five years. They’ll often end up paying way over the odds and soon find themselves with an outdated version – or, worse, in a situation where they need to change products because of a change in business circumstances, but can’t.
Value and flexibility
A far better way to find the value and flexibility you need is to outsource your ITSM to a managed service provider who will bill on a monthly basis.
Think about it in terms of the people cost. Which of these represents better value? To pay an in-house Cherwell administrator £50,000 per year, or to pay a managed service provider (MSP) £3,000 per month – where the provider is likely to be more skilled (as that’s what they do all day).
And, beyond the question of value, which situation would you rather be in if your business requirements suddenly change – for example, if you need to scale back quickly on your ITSM costs?
It’s clear to me that the MSP option offers greater value for money, better service, improved outcomes, and the ability to flex as and when required.
Getting the best from your supplier
Opting for a monthly pay-as-you-go deal with a supplier is also a great way to get the most out of your relationship with them.
The biggest benefit here is that it gives you the kind of leverage you wouldn’t get in-house or by paying annual fees to a third party. Say, for example, you have a looming deadline for a big project, but you’ve already burnt through your budget with your supplier before completing it…
If CIH were the supplier, and we were operating on a monthly basis, we’d be very happy to have a conversation about bringing forward some of your tokens from the next few months to help you deliver on time. We’d continue to bill you the same monthly rate, but use up more tokens initially and fewer over the next couple of months.
This is a far simpler and more flexible way of working. It also generally leads to more amicable relations between clients and suppliers and less stress all round!
A happy finance team
Working this way is also helpful when it comes to dealing with your colleagues in accounts – and CFOs and FDs will tend to thank you for it.
Recently, a client of ours found they were 150 tokens in the red at the end of the year. However, they signed up for another year of our managed service and we agreed to take 15 tokens a month off their account until they had cleared their ‘debt’. In the meantime, they continued to pay us exactly the same monthly fee.
So, their ITSM cost never fluctuated, which made for a smooth budgeting process that was easy to manage, while there were no awkward conversations or tricky approvals needed.
If you want to avoid regular Q4 cutbacks – and a disgruntled CFO – while enhancing business efficiency and agility, switching to an opex mindset is a great way to go. To have a chat about how to apply this to your ITSM, get in touch now.
