1. Budget for an IT Strategy

2. Use of the Guide The introduction of an IT strategy into a business is a very important step and needs to be considered very carefully. Financing this step can be a daunting task to the inexperienced but it need not be so if you understand what is involved. This guide provides a comprehensive outline of the financial elements to be considered. The guide considers four main elements: Selection of Appropriate IT Systems Understanding the True Costs Procurement Methods Example Financial Calculations Use of the guide Aim This presentation is prepared to support and give a general overview of the ‘How to Budget for an IT Strategy’ Guide and should be read in conjunction with the publication.

3. Selection of Appropriate IT Systems Procurement of IT can be split into three categories: Procurement of IT can be split into three categories: Hardware: Hardware: Equipment, Computers and Peripherals: the procurement of hardware should be planned to support the requirements of your IT strategy. Infrastructure, Wiring: when considering financing the infrastructure needed for your IT system, it is important that the basic wiring should,if possible, remain stable. You need to consider how the wiring may best be used within your building. Software: Software: Your IT strategy should consider factors such as: compatibility of operating systems, implication of software upgrades on hardware requirements, how an upgrade is implemented and compatibility with clients’ software. Support: Support: The support of both hardware and software needs to be financed. Support agreements can vary to mirror your needs with differences in responses and fix times. A key consideration is the criticality of the technology to the business.

4. Understanding the true cost The first step in any financing arrangement is to understand the true costs of your IT requirements. The first step in any financing arrangement is to understand the true costs of your IT requirements. Depending upon the type of purchase, the cost can be made up of many elements. Depending upon the type of purchase, the cost can be made up of many elements. The true cost includes the following for which allowances will need to be made: The true cost includes the following for which allowances will need to be made: Purchase price Purchase price Maintenance contracts and/or renewable licenses. Maintenance contracts and/or renewable licenses. Implementation Implementation Support and management Support and management Training Training Upgrades and refit Upgrades and refit Back up and recovery Back up and recovery Protection (anti-virus) Protection (anti-virus)

5. Purchase price It is important to understand the terms and conditions of the sale, i.e. what warranty is included in the sale. It is important to understand the terms and conditions of the sale, i.e. what warranty is included in the sale. When purchasing software it is important to understand the licensing arrangements, i.e is the software ‘bundled’ with the hardware, can it be upgraded? When purchasing software it is important to understand the licensing arrangements, i.e is the software ‘bundled’ with the hardware, can it be upgraded?

6. Maintenance contracts (hardware) The cost of a maintenance contract is often not as clear as the purchase price. The period after the manufacturer’s warranty runs out must also be considered. The cost of a maintenance contract is often not as clear as the purchase price. The period after the manufacturer’s warranty runs out must also be considered. Also consider the third-party computer components that are not covered by the computer manufacturer but by the peripheral’s manufacturer. Also consider the third-party computer components that are not covered by the computer manufacturer but by the peripheral’s manufacturer. Compare the following when choosing the best method of financing your hardware maintenance: Compare the following when choosing the best method of financing your hardware maintenance: An external maintenance contract An external maintenance contract The cost of employing a person to maintain your equipment The cost of employing a person to maintain your equipment Extending the manufacturer’s warranty Extending the manufacturer’s warranty An appropriate mixture of the above An appropriate mixture of the above

7. Renewable licenses/maintenance agreements (software) Support and maintenance may not be included in the original price. Also, when purchasing software a current licence may be required. Support and maintenance may not be included in the original price. Also, when purchasing software a current licence may be required. Some software may come with an upgrade condition attached and when your IT strategy involves exchange of information with third parties you may well be forced into an upgrade to ensure compatibility. Some software may come with an upgrade condition attached and when your IT strategy involves exchange of information with third parties you may well be forced into an upgrade to ensure compatibility. Care should be taken when installing software onto multiple machines as you may be breaking the licensing agreements. Care should be taken when installing software onto multiple machines as you may be breaking the licensing agreements. You will need to consider each of the following when costing software licenses and agreements: You will need to consider each of the following when costing software licenses and agreements: Annual license or maintenance contracts Annual license or maintenance contracts Upgrades Upgrades Additional licenses Additional licenses

8. Implementation costs The cost of implementing IT solutions is often underestimated. The cost of implementing IT solutions is often underestimated. Full details of implementing an IT strategy are given in Construct IT’s, “How to Implement an IT Strategy”. Full details of implementing an IT strategy are given in Construct IT’s, “How to Implement an IT Strategy”. Some points to consider are: Some points to consider are: Project management and supplier co-ordination (if required) Project management and supplier co-ordination (if required) Data conversion (if required) Data conversion (if required) Resources required to implement the new system Resources required to implement the new system Reduced productivity due to downtime Reduced productivity due to downtime Training costs Training costs

9. Internal support and management You may need to consider Internal support, which can include: You may need to consider Internal support, which can include: Back up of data, changing back-up tapes and ensuring that they are kept safe Back up of data, changing back-up tapes and ensuring that they are kept safe Day to day maintenance such as unjamming printers Day to day maintenance such as unjamming printers Getting to system working after a failure Getting to system working after a failure Reviewing new software and upgrades Reviewing new software and upgrades Installing new software and upgrades Installing new software and upgrades Giving new users access to a particular system Giving new users access to a particular system Explaining to users how to use an application Explaining to users how to use an application

10. Training Training is a very important element in a successful implementation and sufficient allowance should be made in your calculation for this element. Training is a very important element in a successful implementation and sufficient allowance should be made in your calculation for this element. Training falls into three categories: Training falls into three categories: 1. Awareness; understanding what the system can do 2. Application training; using the application to carry out processes 3. Retraining and advanced training; learning to use the products better There are a variety of ways of providing training that can be considered: There are a variety of ways of providing training that can be considered: External Trainers External Trainers Train the trainer, then use internal resources to train your own staff Train the trainer, then use internal resources to train your own staff The use of a super trainer who will train the other users The use of a super trainer who will train the other users

11. Disaster recovery and back up It is vitally important to understand the need to make back ups of the data being used. It is vitally important to understand the need to make back ups of the data being used. This may be carried out at little cost by your own staff. This may be carried out at little cost by your own staff. A major financial implication to consider is employing the services of a third party to provide a back system. A major financial implication to consider is employing the services of a third party to provide a back system. What do we mean by back up: What do we mean by back up: The process of making a copy of all your data on a regular basis (preferably daily) and storing it off site or in a fireproof safe. The process of making a copy of all your data on a regular basis (preferably daily) and storing it off site or in a fireproof safe. In the event of a major system failure, this data can be reloaded, i.e. returning you to the position you were in at the last back-up. In the event of a major system failure, this data can be reloaded, i.e. returning you to the position you were in at the last back-up. What do we mean by disaster recovery: What do we mean by disaster recovery: This is where a system/computer fails and is out of action for some time. This is where a system/computer fails and is out of action for some time. With a disaster recovery plan in place the data can be loaded onto a similar machine. With a disaster recovery plan in place the data can be loaded onto a similar machine. Once this computer is in place then you can begin working as normal again. Once this computer is in place then you can begin working as normal again. Once the original computer has been fixed you can then transfer this data from the replacement machine back to the original machine. Once the original computer has been fixed you can then transfer this data from the replacement machine back to the original machine.

12. Protection (anti-virus and security) Another cost which should be taken into consideration is the provision of effective software protection through anti- virus and security software. Another cost which should be taken into consideration is the provision of effective software protection through anti- virus and security software. The ongoing purchase of this software is essential in the modern office. The ongoing purchase of this software is essential in the modern office.

13. Procurement methods The guide investigates some alternative methods of paying for the IT strategy: The guide investigates some alternative methods of paying for the IT strategy: An alternative to purchasing often considered is that of hiring or leasing. An alternative to purchasing often considered is that of hiring or leasing. Less common alternatives such as ‘risk and reward’ and the use of an Application Service Provider (ASP) are well worth consideration. Less common alternatives such as ‘risk and reward’ and the use of an Application Service Provider (ASP) are well worth consideration. Each alternative should be considered and discussed with your supplier when procuring an IT system. Each alternative should be considered and discussed with your supplier when procuring an IT system.

14. Hiring, rental or leasing With the rapid pace of development of new technology you may consider that hiring or leasing of equipment is the best option. With the rapid pace of development of new technology you may consider that hiring or leasing of equipment is the best option. The benefit of a rental arrangement is that it does not tie up your financial reserves. The benefit of a rental arrangement is that it does not tie up your financial reserves. The exact comparison is difficult to make as you may wish to consider the opportunity cost of employing your capital elsewhere. The exact comparison is difficult to make as you may wish to consider the opportunity cost of employing your capital elsewhere. All elements of an IT solution can be financed in this way including hardware, software licences, services. All elements of an IT solution can be financed in this way including hardware, software licences, services. Most suppliers will be able to provide a tailored package to suit your individual needs. Variations you may need to consider are: Most suppliers will be able to provide a tailored package to suit your individual needs. Variations you may need to consider are: Length of agreement Length of agreement Profiling payments to match budgets Profiling payments to match budgets Structuring agreements Structuring agreements Technology refresh Technology refresh

15. Risk and Reward As the use of IT continues to impact on business functions that affect company performance, the tangible benefits of using of using IT increase. As the use of IT continues to impact on business functions that affect company performance, the tangible benefits of using of using IT increase. If the benefit of IT investment materialises then these benefits should off set the costs of the investments. If the benefit of IT investment materialises then these benefits should off set the costs of the investments. If there is a tangible benefit from the introduction of IT to your company then some suppliers may agree to a risk reward contract. If there is a tangible benefit from the introduction of IT to your company then some suppliers may agree to a risk reward contract. These are usually tailored to the individual companies and are dependant upon when the benefits of the introduction of IT to your company are felt. These are usually tailored to the individual companies and are dependant upon when the benefits of the introduction of IT to your company are felt. As payments are based on direct savings this leaves you with a more profitable organisation and a new information system. As payments are based on direct savings this leaves you with a more profitable organisation and a new information system. However, just as reward is shared so is risk The IT supplier is likely to want to pay an increased role in the decision making processes to avoid this risk. However, just as reward is shared so is risk The IT supplier is likely to want to pay an increased role in the decision making processes to avoid this risk.

16. Application Service Provision (ASP) An ASP will provide and maintain all types of software application. An ASP will provide and maintain all types of software application. This service is provided by your company installing a sever on your own network. This service is provided by your company installing a sever on your own network. This service is accessed by an Internet link on the application service provider’s network and it is fully backed up by duplicate centres on the network. This service is accessed by an Internet link on the application service provider’s network and it is fully backed up by duplicate centres on the network. The ASP is responsible for ensuring the software is kept up to date and running all of the regular maintenance functions require to keep the application working correctly and efficiently. The ASP is responsible for ensuring the software is kept up to date and running all of the regular maintenance functions require to keep the application working correctly and efficiently. The user buys the service on an all-in-cost per person accessing the service. The user buys the service on an all-in-cost per person accessing the service.

17. Summary This guide examines all the financial aspects to be considered when selecting and introducing an IT system. This guide examines all the financial aspects to be considered when selecting and introducing an IT system. The key lessons are: The key lessons are: The supply of IT is a competitive market. Always compare costs and shop around when selecting a system. The supply of IT is a competitive market. Always compare costs and shop around when selecting a system. The true cost of an IT system includes far more than the simple purchase price. When comparing costs try to consider all the factors detailed in this guide. The true cost of an IT system includes far more than the simple purchase price. When comparing costs try to consider all the factors detailed in this guide. Discuss with your suppliers the different procurement methods available to find the arrangement most suitable for your organisation. Discuss with your suppliers the different procurement methods available to find the arrangement most suitable for your organisation. Finally, in a guide that concentrates on the costs of IT, it should not be forgotten that the introduction of IT system will give tangible business benefits: Finally, in a guide that concentrates on the costs of IT, it should not be forgotten that the introduction of IT system will give tangible business benefits:

18. IT Gives Business Benefits When calculating the costs of an IT system, it is also important to try to calculate a return on investment. The Construct IT publication, ‘Measuring the Benefits of IT Innovation’, is useful for this. An example return on investment calculation is shown for the local area network installation. Thus a total investment of £92,500 has resulted in a saving of £152,000Summary Finally, in a guide that concentrates on the costs of IT, it should not be forgotten that the introduction of IT system will give tangible business benefits : Finally, in a guide that concentrates on the costs of IT, it should not be forgotten that the introduction of IT system will give tangible business benefits : ItemSavingReturn Labour£40,000Savings from reducing secretarial help Materials£10,000Reduced cost of paper and photocopies Efficiency£52,000 Eliminate time wasting by inefficient document sharing (4 hours per month @£15.hr per employee) Increased Output £50,000 Increased profits based on using time saved for additional projects Total Savings£152,000