How to Make IT More Cost Effective

By , CIO.com |  On-demand Software

Many employees don't understand all the business events that drive internal IT consumption and determine the cost of providing technology. But if you don't know what moves the needle on IT, you can't make defensible decisions about how to improve those numbers.

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"Part of our survival as IT professionals is to really understand what we do efficiently. The stuff we don't-let it go to outsourcers or the cloud or wherever else that makes good sense," says Jeff Shipley, director of IT infrastructure and operations at Blue Cross Blue Shield of Kansas City.

Some drivers are obvious. Retailers, for example see the seasonality of holiday shopping produce spikes in IT usage in their stores and data centers.
In health care operations like Shipley's, membership renewal rates and customer satisfaction are the challenges all year long, he says.

That's in good times. Now with the chaotic economy throwing people out of work and off medical benefits, plus the dramatic changes expected in the healthcare industry under the Obama administration, those concerns are bearing down on IT, Shipley says. "If you don't bring some visibility to where those dollars are going, you're going to have some real issues."

To get a handle on what IT truly costs at Blue Cross Blue Shield, Shipley is applying both software and people power. Last year, the healthcare provider hired a financial analyst dedicated to IT and started using software and services from Apptio in Bellevue, Wash., to help determine costs.

In a software-as-a-service agreement, Blue Cross sends Apptio IT spend information-hardware, software licenses and overhead charges, as well as labor charges. Apptio runs the information through its analysis tools to produce charts showing estimated IT costs by application and over time.  

Blue Cross is early in its implementation, however this data has already been used to categorize and present a breakdown of what is driving IT infrastructure costs by business unit. This lets managers make better IT investments, Shipley says. The reports are clickable, so he can drill down to see what's behind each number, from server costs and memory requirements to other measures.

For about $2,000 per month, Blue Cross gets access to the massaged data and Apptio tools to do its own further analysis. Apptio also provides aggregated data about various industries, which Shipley uses to benchmark his operations.

"Until we understand what we do efficiently, we're under the threat of being outsourced at all times," he says.

On the people side, Shipley hired a financial analyst fresh out of college to help make sense of all this new analysis. Blue Cross wanted someone with no significant healthcare or IT experience because an objective, fresh measure of IT costs "is an area of untapped potential," he notes. "Innovation is a must. We felt that a young, unadulterated financial mind is not burdened by the baggage of the way we used to do things."

The first order of business will be to build a dashboard in the next few months to let non-IT executives learn more details about the company's technology spending and the impact of various business initiatives.

Placing a financial expert in IT improves IT's credibility, says David Ackerman, IT advisory practice leader at the Hackett Group. "There's no doubt that helps."

Shipley had to leap through a few hoops to get financial expertise into this staff. He couldn't add a full-time position to his staff, so he rearranged some people and shifted resources. "We took on a little extra burden on the technical side to do this," he says. "I feel like it's that important."

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