Just as state-of-the-art technology can drive a company's earnings, mismanagement of those assets can erode its profits.
Managing IT assets effectively improves the bottom line, minimizes risk exposure, and increases the return on a company's technology investment. It leads to informed decision-making regarding such issues as IT service management, problem management, and change management.
Conversely, the failure to manage IT assets effectively can result in legal liabilities, financial reporting errors and lost or underused assets, as well as over-purchasing/overpaying.
"The need to effectively manage IT assets is not only driven by the pressure to reduce costs but also by compliance issues, such as Sarbanes-Oxley," says Rick Toth, a National Director leading the IT Asset Management practice at Protiviti.
An IT asset management program controls a company's IT hardware and software assets throughout their lifecycle: from planning to procurement to retirement. It tracks – in real time – the financial, contractual, ownership and physical attributes during an asset's lifetime.
"Companies often mistake employing a tool to track assets as a life cycle IT asset management program," says Toth. "The tools are key enablers. It's the processes, policies and procedures that ensure information is kept accurate and can be used effectively." "You can't get the savings out of the tools without the process," says Tyler Chase, a Senior Manager at Protiviti.
"IT asset management isn't just a technical implementation. It's how to improve the business of IT, financial stewardship for the IT group. It provides the foundation for management to understand the cost and use through the lifecycle of physical assets and integrate that data with procurement, contract management and IT service management, to more effectively run IT" says Toth.
The business case
In the first year, "companies can typically save up to 30 percent in management costs per asset," reports Gartner Inc. "The savings decline to 10 to 15 percent over the next four years, but there's no question that IT asset management can reduce IT costs." Jason Baldree, Senior Manager at Protiviti, estimates that 70 to 80 percent of the business cases that the firm develops find the money for clients to recover the costs of implementing an IT asset management program within the first year.
META Group Inc. says 65 percent of companies fall at the lower level of the IT asset management maturity scale. Under Protiviti's IT Asset Management Maturity Model, approximately 45 percent of companies they have worked with fell into level two out of four.
In maturity level two of the Protiviti model, companies tend to do a good job discovering assets. However, IT inventory is usually managed and allocated manually, and there are no clear asset management strategies or formal processes in place to ensure accuracy of the data.
Hallmarks of best-in-class IT asset management programs include:
1. A central repository that contains detailed financial, contractual and physical information on assets, coupled with discovery/inventory tools that cover all the disparate platforms within the environment (hardware, network, software).
2. Processes, procedures, and policies around this information to keep it current, with people assigned responsibility/accountability for this task.
3. A well-structured and measured organization enabled to support the ongoing operational management processes and activities of the organization.
Perhaps most importantly, these programs have the buy-in and support of upper management.
What can companies expect to gain?
Improved bottom line: Properly managed assets can significantly cut costs, impacting the bottom line. "There's a direct correlation between IT spend and corporate assets and liabilities," says Michael Schultz, a managing director at Protiviti.
With an effective asset management program, companies can reduce their total cost of ownership by 10 to 15 percent on average. Gartner suggests that not keeping proper track of distributed hardware assets can increase costs by 7 to 10 percent a year.
Gartner statistics on benefits of asset management
- More highly leveraged buys: Reduce asset acquisition costs by 8-5 percent
- Better matching of software licenses to organization needs: Reduce software costs by 6-10 percent
- Enhanced service and warranty coverage: Reduce warranty costs by 3-15 percent
- Increased component standardization: Rescue mean-time-to-repair and improve uptime by 3-7 percent
- Reduced IT component complexity: Improve help desk first call resolution rate by 5-12 percent
- Better contractor/vendor selection process: Improve contractor performance by 20 percent
- Better negotiation of terms and conditions safeguarding performance: Reduce risk of noncompliance by 50 percent
- Improved asset tracking, proven usage compliance and ease of audit: Reduce noncompliance risks by 80-90 percent
Source: Jack Heine, Gartner Gartner Fall Symposium, 2002 |
Knowing the terms and conditions of contracts and making sure vendors apply them represents a significant opportunity to recover costs. Toth estimates that 50 percent of invoices contain errors. And an error can be significant. Baldree shares an example where Protiviti found a $1.5 million error for a client. While sizable, this is not uncommon, he says.
Minimized risk exposure:
According to the Business Software Alliance, 36 percent of software is not licensed properly. "When companies conduct an audit to see if they're in compliance with contracts, they often find they're not," says Schultz.
Maintaining a complete inventory reduces the risk of violating software license and usage terms that expose a company to potential fines and litigation. Fines can range from the thousands into the millions, and in some cases, negative publicity can follow when a company is found to be out of compliance.
In addition, "knowing the IT assets a company has in inventory and how applications relate to infrastructure allows them to identify the dependencies and impacts of change-management initiatives," says Baldree. This knowledge allows companies to better anticipate and prepare for security vulnerabilities, patch management and to help ensure 'true' business continuity.
Optimized IT assets:
Overbuying, excessive harvesting and limited cascading of software and redeployment of hardware assets severely undermines the value of IT. By ensuring IT assets are leveraged properly, companies can create high performing IT environments while reducing their total cost of ownership.
Many companies neglect to recover the value of assets at the end of their lifecycle by failing to redeploy reusable software and hardware, paying for storage space they don't need, equipment they no longer use or paying for insurance or taxes no longer needed.
"Often, companies discover they've over-purchased their software licenses," says Schultz. "Knowing how asset requests are made, how they're purchased and how they're deployed and used allows companies to better leverage their IT spend," says Baldree.
Getting started
Baldree recommends a phased approach. For example, start with the procurement process. He recommends that companies begin by understanding their needs and the options and value to the path that might make sense for them. He cautions companies not to rush out an RFP to get an IT asset management enablement tool. Instead, he suggests starting with developing a business case for IT asset management. Toth recommends a phased approach. For example, start with the procurement process and gain control in the front end of IT asset spending. Also, setting performance measures and tracking results of a company's efforts can help fund year-two initiatives.
Once asset tracking is in place (using discovery tools, but manually managing inventory) an IT Asset Management strategy or formal process can be developed. At this point:
- IT asset management responsibilities exist;
- Repository and discovery tools are utilized;
- Processes are defined; and
- Data is being utilized for decision making.
In the final phase IT asset management is automated, integrated, and process driven:
- Business processes are automated;
- IT asset management is tightly integrated to IT service management;
- Metrics are defined, and utilized for measurement.
Only at this point will be full benefits of IT asset management be attained.