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IT – A Basic Value Proposition

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IT – A Basic Value Proposition

Information technology (IT) is only ever a cost when it’s poorly implemented!

I need to get you on board with this notion from the start. This is likely the single most important concept for all business leaders, regardless of the size of their organisation. Without you understanding this, much of my writing will just sound like an IT guy advocating for more IT use.

Ok, I’ll come clean. That’s precisely what I’m doing, but I do it for a good reason.

IT is an asset.

For many, the perception of IT is that it is simply a necessary evil and a cost of doing business. It’s a bottomless pit that consumes a huge amount of resources every year and delivers a minimal return on investment. But this perceived reality couldn’t be further from the truth.

Today, even if you had the worst IT I’d ever seen, it still wouldn’t be a cost, and the return on investment (ROI) would still be excellent.

The reason for this is that your IT is an asset of your business and not a cost.

Why, may not be immediately obvious, but it is an undeniable truth.

An asset is anything that adds value, something we all understand when we think of a forklift moving pallets or an excavator digging holes. These both add great value because it would take many men to do the same job. And computers are no different.

They add considerable value by allowing your business to get a job done using fewer people. This is why we no longer use enormous ledgers. It turns out that a spreadsheet is so much more efficient at adding up than an old-fashioned Burroughs Class 3 Adding Machine. There are far fewer digit transposition issues, and should there be any mistakes, they’re much easier to find and fix.

So, whenever you buy a PC, you’re buying an asset that will save you and your business money. Whenever you buy software to manage data, you’re buying an asset that will save you and your business money. Whenever you buy a network router … Ah, you get the point.

People are expensive.

The average wage in Australia is around A$80,000 per annum. By the time we annualise this correctly and take superannuation, recruitment costs, sick leave, public holidays, workers’ compensation and payroll tax into consideration, that number can be as much as 40% higher, which would put it over A$110,000.

For simple maths, I’m going to use the nice round number of A$100,000 as the cost of employing a sin­gle person for a year in your business. Most companies have a core system of some sort that may have cost many thousands or even millions of dollars to implement.

Let’s say, for the sake of this example, that your system cost you A$1,000,000 to buy outright and that you have twenty-five employees using it for a projected lifespan of ten years. This system equates to a measly A$4,000/year/employee to own, which is a very small number compared to the cost of the people using it.

Not convinced? Let’s look at it another way around.

The A$1,000,000 investment in the system over ten years is A$100,000 per year, which is precisely the same amount as you’d spend employing an additional person for a year.

Could that one extra person provide the same functionality and perfor­mance as the software solution? Could another ten or twenty?

The reality is that your wage bill will far out­weigh the cost of the tools you provide; people are undoubtedly expensive and IT solutions are com­paratively cheap.

Value for money.

If you implement the best IT and technology solutions possible, you get the biggest bang for your buck. But if you cut corners in a misguided attempt to save money, your efficiency and productivity will be less than optimal, and you’ll end up costing yourself more than you should.

So, as I said, IT is an asset it is only ever a cost when it’s poorly implemented!

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