Why Does IT Cost So Much?

Note: I originally published this article in University Manager Magazine Fall 2015 issue
http://www.kelmanonline.com/httpdocs/files/CAUBO/universitymanagerfall2015/files/1.html

Introduction

Across Canada and around the world, senior university leaders are watching their IT budgets continue to grow. In an era of greater cost scrutiny, this expanding demand from IT seems counterintuitive and senior university leaders are increasingly questioning why. The simple answer is that IT costs are growing because universities are using IT more broadly and more systemically in everything they do. Yet that answer does not fully capture the big picture. There are many forces driving up costs and we need to understand what we can control and what we cannot.

A Brief History of IT Cost, Complexity, and Importance

The diagram below outlines the changing role and characteristics of IT university organizations as they have evolved over the past few decades. Every year we discover new and useful applications of information technology in the university. Every year we add new technologies to the portfolio of systems we are required to support. Constant technological innovation means constant increases in technology utilization, penetration, and dependency in all aspects of university research, administration, teaching, and learning. As the importance of IT grows on our campuses, so does its complexity and cost.

Today we have a reached a point where IT is ubiquitous. Every participant in the university experience uses information technology. From board members accessing key documents on iPads, to researchers collecting data from underwater observatories, to students rating their professors online, we all utilize some aspect of IT every day.

In this environment, many of the cost drivers are no longer in our control. With internal and external forces driving change we face a vast array of controllable and uncontrollable cost drivers.

Uncontrollable Drivers of Cost Growth

The uncontrollable drivers of IT cost growth are all around us. We live in an environment of constant technological innovation and a university is not an island of splendid isolation. Key areas of uncontrolled drivers of growth in IT expenses are:

Breadth of Demand

Information systems are used by everyone on campus. Everything we do is impacted by IT. Every process on campus - from traditional financial transaction processing to more modern applications such as plagiarism detection - has an inherent IT component. In everything we do, we demand more and more information technology to get things done at the university.

Depth of Demand

The average person brings 1½ IT devices on campus with them every day; often a laptop, an iPad, and a smartphone. Not only are we using more systems, but we are using more devices to access those systems. IT must keep the response time fast while seamlessly supporting all points of access.

Increasing Compliance Demands

We are experiencing increased demand for information systems to support legislative compliance in areas such as privacy, copyright protection, and freedom of information. Today, a lawyer is often consulted before a new system is even considered. The legal and compliance implications of any system are adding a new layer of cost and complexity to everything we do in IT.

Increasing Security Demands

The IT world has become an increasingly dangerous place. Hacking has transcended simple acts of theft into high-stakes criminal cyber-attacks. We used to build firewalls, then we reinforced the firewalls. But that’s not enough anymore. The attacks are coming from inside and outside our boundaries. New security protection requires artificial intelligence tools to detect attacks inside the perimeter. These new layers of security are vastly more complex and expensive. 

Any Device

Increasing demand to support whatever technology the client desires is expensive. We used to set some base standards for personal computer access to our network. Our clients no longer tolerate that approach. Now we have to install infrastructure and software to support every device imaginable: Apple PCs, Windows PCs, Linux PCs, Apple tablets, Android tablets, Windows tablets, Blackberries, and more. 

Any Time

IT department budgets were established at a time when information systems were accessed during regular business hours. Today, accessibility to systems is expected 24-hours-per-day, 7- days-per-week. Not only is availability demanded, but round-the-clock staff support is required. This broadening of system and support availability requires more money to implement and sustain. 

Any Place

Similar to the Any Time cost driver, IT departmental budgets were established to support systems within the physical boundaries of campus. Those days are gone. Distributed learning, distance education, and multiple campuses across the globe now require access to all of our systems from anywhere. Building technical infrastructure to support the networking demand of this new world increases IT capital and operating costs.

Quality of Software

I taught a first year undergraduate business course recently. When the students discovered I was the CIO they told me “Your systems suck.” They were right. Compared to the cool apps they commonly use (Facebook, LinkedIn, Twitter, Instagram, etc.) our systems fail in comparison. Satisfying these growing quality expectations is expensive.

New Teaching and Learning Technology

We are seeing new innovations in teaching and learning technology generate increasingly large video and image databases. For example, flipped classrooms require new technology to record and store vast volumes of video data. In-class student response systems demand instantaneous responses, requiring greater wireless capacity. Students come to our universities expecting the best classroom experience possible. The cost to renovate and upgrade our classrooms to new and rapidly changing technology accelerates the growth of IT and its commensurate expenses.

Exponential Research Data Volume Growth

Research data demands are driven by several changes in the nature of research computing. For example, research using vast arrays of sensor networks leads to huge growth in pure data volume. Not only do we have to store the data, but we have to transmit it over our networks and back it up in our archive systems. This massive growth in data demand is outpacing Moore’s Law and driving up costs.

The full force of these drivers is affected by factors outside the university. The best we can do in these areas is to strive to manage their impact on our bottom line and on our clients’ expectations.

Controllable Drivers of Cost Growth

There are several cost drivers within our control. The way universities manage IT is the real culprit. The controllable drivers of IT cost growth are insidiously hidden behind seemingly unassailable campus myths. Some key areas of cost drivers that are in our control include:

Distributed IT

The growth of independent, isolated, and silo IT departments that are separate from central IT lead to duplication of efforts, ineffective standards, conflicting technologies, and highly risky security incidents. At many universities, IT expenditures for non-central IT are often higher than central IT. These non-central IT expenditures have none of the rigour and control typically applied to central IT funding. 

Redundant Systems

Distributed IT responsibilities leads to the implementation of independent IT systems without a coordinated plan, creating overlapping and redundant systems. Disproportionate cost increases are needed to fund the inefficiencies.  

Data Integration

Data created by distributed IT departments and disparate systems cannot be integrated effectively. With multiple sources of data, there is duplication and redundancy in each of these systems. Resolution of data conflicts among multiple systems or multiple IT departments is expensive.

Independent IT support, overlapping systems, and duplicated data issues arise from a genuine need to be responsive to unique and highly specialized local needs. But without disciplined management, the costs and risks are excessive. Controlling these cost drivers is a non-trivial management responsibility that lies within IT, academic, and administrative leaders. Lack of control is acceptable only if the associated risks and costs are formally understood and accepted.

IT Is an Investment

Traditional IT departments spend almost 75% of their budgets on operational support work such as help desk, data centre management, and maintaining applications software.  Only 25% of the budget is left for system enhancements and new projects which leaves little room for innovation and creativity in the application of IT and a grim future for IT at our universities.

As a result of budget challenges, universities need to shift their perspective on IT funding. Instead of viewing it as a necessary evil to keep everything up and running, expectations of IT need to change. We need to view IT as an investment in the future. IT is an institutional investment opportunity to improve productivity, capacity, quality, and performance of all aspects of the academy. Chief Information Officers (CIOs) must be challenged to move from the traditional 75% maintenance and 25% projects model to a new order. Universities need to invest in growth by setting an expectation that IT will spend 25% on maintenance and 75% on investments.

An investment focus requires the university to create prioritization criteria for IT investments, then ensure all institutional IT spending is assessed against the criteria. The IT organization becomes a creative partner with every university department in applying the prioritization mechanism to identify and implement revenue opportunities, quality improvements, cost efficiencies, and risk mitigations.

The diagram below illustrates the shifting emphasis:

Finding the Real Costs

Measuring the real and full IT cost in a higher education environment is complex because IT funding comes from a variety of sources. With a multiplicity of sources comes challenges in measuring the real spend. Where do all the hidden costs lie? Challenge the budget status quo: if all IT funds are not managed by the central IT department, understand why. 

Getting an accurate picture of who does IT work can be hidden behind the heroic generalist. With distributed IT staff we see generalists who do everything from HR work, to financial transactions, to IT support. Counting those resource costs as part of the overall IT spend is difficult. Particularly when centralizing management of work.

Other costs are masked by unnecessary duplication. Many technologies are actively converging and some university organizations have not adapted. For example, audio-visual technology and IT are converging into a unified technological ecosystem, yet in many institutions they remain managed by distinct and disparate departments.

Shifting to Investments

Moving to an investment model means changing the university’s IT portfolio. What do we stop doing? Consider spending less time doing IT commodity work like administering email systems and moving the resources up the food chain. Can we centralize all email on campus to a single email system with one set of administrators? Can we outsource this work to a provincial shared service provider or outsource it to the cloud? After all, teaching, learning, and research are not dependent on our email administrative skills. 

Those administrative resources are best re-purposed to leverage technology in areas such as pedagogy or high performance research computing. Examine every commodity IT activity as an opportunity to move to a new service provision model. But they must be products and services we understand well – never outsource something you cannot manage. 

When IT is no longer viewed as a cost, but as an investment, each project is an individual value proposition with a positive return on investment (ROI). IT projects are no longer bottom line expenses – they are opportunities to create products or services where the benefits exceed the risks and expenses.

Maximizing the Value of Your IT Spending

Moving to an investment-driven IT organization means thinking differently about the complete cost structure. There are several emerging best practices in managing IT expenses. 

The most effective best practice in IT cost containment is moving to a common infrastructure. A common information systems platform for the entire institution means making the diplomatically difficult decision to centralize the management and control of all information systems. One IT department equals one procurement process for all of IT and a single source of the truth for all data. 

Another best practice is developing shared provincial services for higher education IT. Much like provincial regional networking organizations like ORION or Cybera provide low cost shared bandwidth across the province, shared services in areas such as Disaster Recovery Planning (DRP), data centre management, and IT procurement can lower costs for all higher education institutions. BCNET is the Canadian leader in this approach. CANARIE is also pioneering services above the network that can be shared nationally.

The cost-saving best practice receiving the most attention in the press is cloud computing. Essentially an outsourcing economic model, cloud computing delivers significant costs savings in some commodity IT services. Any cloud decision requires a careful business case that assesses the quantitative and qualitative benefits against the long-term risks and hidden costs. When properly assessed and closely managed, cloud computing lowers IT operating costs.

IT contracts tend to be written once and then ignored. But there can be gold lurking in the contract details. What software was purchased years ago in a bundle that is no longer being used? ERP contracts are rife with these gems. Has staff, student, or faculty headcount declined? Many licensing contract fees vary by the number of enterprise users, and vendors do not always feel obliged to notify customers when billing could decrease.

What can the university stop doing? Develop metrics such as tracking usage rates of technology over time. Then calculate the ratio of the number of users of each technology to the operating cost of that technology. Use these numbers to justify shutting down or outsourcing technologies that are not providing an appropriate ROI.

Apply these best practices across the full portfolio of IT products and services and use the savings to re-invest in the projects the institution needs to move its strategic vision forward. The table below highlights these top five best practices:

Summary

Why does IT costs so much? First, the outside world continues to demand more IT services from universities. Second, universities are diplomatically delicate in their treatment of controllable IT costs. What we do about these cost drivers depends on how we manage expectations from the outside and how we apply leadership, strategy, and discipline to information systems management within the institution.

The new world of IT is inexorably growing in depth and breadth across all campuses. Our dependency on IT grows more every day, leading to an inevitable growth in cost. The role of IT has increased over the years, leading to a commensurate increase in expense.

Managing costs in an environment where external drivers dominate the landscape is difficult. There are internal factors the university can control, but the most effective strategy is to set new expectations.  The CIO must focus on a vision for the future and shift the budget model to support the new world of ubiquitous IT.