Economic downturn or not, cashflow is essential to keeping a business running now and into the future. Anything that can be done to stabilise costs will also help to keep cashflow healthy and make forecasting more accurate and efficient. As the market picks up, businesses will also need to make up for the lack of IT expenditure over recent years in order to cope with increasing customer demands. This lack of investment is a ticking timebomb.
IT also has a reputation for creating uncertainty, which in turns makes cashflow forecasting more difficult. Although some costs, such as licensing upgrades, can be budgeted for accurately in advance, system failures are very difficult to predict, or to reserve cash for. So how can you stabilise IT costs? And what benefits can you hope to reap?
Fix Costs Up Front
The more outgoings that can be identified and set in advance, the easier cashflow forecasting becomes. One of the best ways to define these costs is to investigate the available IT outsourcing options which operate on a subscription basis. There are two key areas of interest:
- IT management, support and maintenance outsourcing
- Hosted technology and Software-as-a-Service (SaaS) subscriptions.
Outsourcing IT services effectively gives access to experts employed by an external service provider. The key factors of interest are:
- Available support options can cover specific aspects of your IT infrastructure, such as networking and servers, or comprehensive coverage for absolutely everything. Your business can pick and choose according to needs and budget
- Services are offered under a recurring fee (usually payable monthly or annually) helping to fix budgets in advance
- Some providers even operate “fixed or it’s free” type schemes that can help further reduce IT spend.
Hosted technology offers significant benefits to businesses of any size. Key points are:
- Software is hosted online by the provider, commonly called Software-as-a-Service (SaaS)
- Your company pays a flat subscription fee, usually charged on a per seat basis. You can immediately set part of your IT budget in advance
- The SaaS provider is also responsible for managing the underlying infrastructure, reducing your in-house running costs.
SaaS solutions come in many variations, including productivity solutions like Microsoft Office 365, customer relationship management platforms like Salesforce CRM or even a hosted version of your own software. Fixed IT costs make for more accurate cashflow forecasts and help to stabilise expenditure by removing the business from the buy, maintain, replace utility cycle.
IT organisations are beginning to embrace cloud-based applications as well as expand outsourcing of data centre operations. Other factors are also supporting decisions to outsource IT functions, including the ever-present desire to reduce costs.
Convert Capital Expenditure Into Operational Expenditure
Every asset held by a company depreciates in value over time. Worse still, IT hardware requires relatively frequent refresh to maintain performance or to keep up with business demands.
SaaS places the responsibility for server hardware refresh onto the service provider. If hardware becomes too old, or fails to perform efficiently, the hosted technology provider bears the cost of replacement. This lack of assets helps to permanently reduce capital expenditure.
Companies can lower the cost of their customer service infrastructure by up to 43% over a 5-year period by choosing cloud-based customer care tools rather than on-premise options.
Manage Upgrade Cycles
Just as hardware needs routine upgrades to remain efficient, software also has a finite lifespan. Unfortunately software upgrades are often irregularly spaced with variable pricing that makes it even harder to plan modernisation budgets.
SaaS again provides a way out of the upgrade cycle. The subscription fee covers not only use of the software, but also access to upgrades as and when they become available. All upgrades are planned and implemented by the SaaS provider, reducing your roll-out costs to nothing, and without affecting your forecasted cashflow.
Cut Employment Costs
Outsourcing management and maintenance provisions can help slash several of the staffing costs associated with IT:
- Running an efficient in-house IT department relies on highly skilled staff; your business may need to pay the training costs to ensure staff have the skills required
- Each system upgrade requires re-skilling, with the costs again borne by your business.
Training costs can usually be factored into the budget planning for an upgrade project. But if training costs can be avoided altogether, IT spend is not only reduced, but there is one less factor to consider when forecasting expenditure.
IT support teams should ideally consist of a diverse set of highly-skilled individuals with the necessary expertise built up over a period of time, including technical skills and knowledge, gained through exposure to a variety of clients.
Depending on how much of your infrastructure is outsourced, you may find that some of your internal IT team becomes surplus to requirements, specifically:
- Overtime payments will be a thing of the past
- Without a need to retain regularly, staff will have less grounds for requesting a pay rise, creating a wage cap, and reducing IT-related costs
- Where there are too many skilled staff, your business can reduce the size of the IT team and associated wage bill.
An outsourced IT service provider manages a team of fully-skilled, expert engineers, effectively placing them at your disposal, all as part of your subscription fee. Your business immediately benefits from a reduced wage and tax bill, without any loss of efficiency, skills or knowledge.
As the current tight economic conditions are felt across the globe, tight IT budgets are pushing demand for cloud computing services. The attraction, especially for the smaller business, lies in organisations no longer needing to find funds for infrastructure, deployment or training.