Consider this: an application cost assessment may be quite accurate when originally generated, but become obsolete when video is added to the application. And their use has to be consistent and ongoing, because application functionality and loads vary over time. These tools are important capabilities for an IT COGS world. Soon they will provide recommendations about what providers would be the best choice for a given application configuration and load. Today, there are businesses that track cloud usage and costs and provide recommendations to improve resource utilization. But it’s important to analyze what’s being used to discover ways to save money when IT is a COGS good, every cost saving improves profitability, which in most companies is the entire point of the organization. The first two steps outlined above provide the basics: how much stuff costs. It’s imperative that resource users know exactly how much they’re using and how much it costs. And explaining that your organization isn’t very good at it because it wasn’t that important in the past won’t cut it. Being able assign granular costs according to user groups, applications, and even individuals is critical to the future role of IT. The COGS world needs chargeback taken to the next level. In other words, not at all related to actual resource use. For the rest, I assume they did a period gross cost assignment based on some convenient metric like portion of department headcount compared to overall company headcount. I asked how many did chargeback based on resource use. Accurately assign costsĪ few years ago I was speaking to a large group of senior financial services IT executives. Otherwise the COGS exercise will remain nothing more than a leap of faith. It’s critical that IT organizations implement sophisticated financial tracking. This isn’t basic accounting with four-year depreciation and headcount assignment this is highly dynamic payments that vary monthly. Both are typically assigned to IT in its traditional SGA placement, and primarily affects whether a given period’s cost is paid from yearly budget or depreciated from a balance sheet asset.Ĭloud computing further complicates this because of the monthly billing based on resource usage. Note that this is different than the endless and tiresome discussion about whether cloud computing costs are capex or opex. Calculating the profitability of a modern product or service while placing its IT costs inside of SGA would be like Ford calculating the profitability of an auto without assigning manufacturing cost to the overall cost of the product. From an accounting perspective, it’s important that product/service costs are assigned appropriately. That means IT costs are part of the overall cost of a product or service. In fact, in a cloud world IT is changing to a COGS (Cost of Goods Sold) role, and it’s vital to understand why, and how IT organizations – and businesses – should respond.įirst, and most obviously, IT functionality is now a core part of most products and services. Here’s the thing, though: given the changing role of IT, relegation to the arid SGA climate is no longer necessary truthfully, continuing to view IT as an SGA cost center runs the risk of failing to support that changing role. Simply put, how should the work that IT does in this new “be the business” world be accounted for? It goes by the name of accounting, or, if you want to gussy it up a bit, IT finance. It’s one that typically considered as quite boring. There’s one other aspect of this role shift that needs to be addressed. This transition in IT’s role can be summarized in this phrase: IT is changing from “support the business” to “be the business.” Obviously, this imposes tremendous change upon IT – from the kind of applications IT builds to the way they’re built, the people and skills used to build and operate them, and even the kinds of business partnerships and customer relations the company at large will carry on.
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