Are IT Failures Driving High IT Costs?

Information Technology (IT) is pretty much everywhere these days. From televisions, to computers, smartphones, game consoles, traffic cameras, satellite systems, and more, you can find an example of a modern IT system virtually wherever you go. Businesses rely on complex IT infrastructure for many of their core processes—which means dealing with IT costs.

The cost of IT can be high. However, it’s often a necessary expense for any organization that wants to remain competitive in its industry. Falling behind on IT can mean surrendering a critical advantage to a competitor—one that can enable them to win over more customers.

Aside from consistent IT maintenance, software licensing fees, and other everyday expenses, what drives high IT costs? One thing that can make your IT spend soar is a sudden and unexpected IT failure.

In this post, we’ll discuss the IT failures impacting your IT spend, other factors that can drive IT costs, and some ways to minimize your IT costs.

How Does an IT Failure Affect Your IT Costs?

Atlassian estimated that IT downtime can cost an SMB about $137-$427 per minute while the national average for all industries and business sizes can be up to $9,000/minute. That sounds like an enormous amount of money—and it is. At that rate, one hour of downtime would cost over half a million dollars ($540,000).

But, how is it that the costs for an IT failure could be so extreme?

There are a few factors that can affect how much an IT failure could cost you:

• The Nature of the Asset That Failed. Some assets are more likely to cost you money than others. An individual computer terminal will rarely result in major losses. Yes, it would affect the productivity of whichever employee was using it, but that would be a minimal impact compared to say, a server hosting a mission-critical software tool failing (which could affect your entire workforce).
• The Total Amount of Downtime Caused by the Failure. The longer a critical IT asset remains down, the more expensive it will be for the organization. For example, if a payment processing system were to fail, that would prevent the organization from completing transactions. The longer the system is down, the more likely it is that customers will abandon their transactions and choose another company to fulfill their needs.
• Parts and Labor for Repairs. When a critical IT asset goes down, it’s important to bring it back up as soon as possible. However, this often requires the services of a dedicated IT expert to assess the cause of the failure, identify the resources needed to make repairs, and to actually enact the appropriate fixes. This can mean a lot of time and labor spent on diagnosis. Additionally, the cost of the parts to fix a potential hardware issue can be high depending on the asset in question.
• The Size of the Organization. It’s a simple fact that larger organizations stand to lose more to an IT failure than smaller ones do—though they may also have more resources in place to handle the failure and a greater capacity to accept losses. For example, say a payment system goes down for two companies. As a larger business, Company A handles about 10,000 transactions per hour valuing nearly $1 million USD in total. Meanwhile, Company B is a smaller business that only handles about 200 transactions per hour at a gross value of $20,000. If both payment systems were down for the same amount of time, Company A would likely suffer far greater loss than Company B.

These are just a few of the factors that can affect the cost of an IT failure for an organization. However, IT failures aren’t the only drivers of high IT costs for an organization. Even companies that have excellent IT infrastructure and maintenance that prevents failure can find themselves facing excessive expenses for IT.

Curvature estimated that the cost of IT failures and downtime to American businesses was about $700 billion USD.

Other Potential Reasons for High IT Costs

Aside from service disruptions caused by IT failures, there are a number of different issues that can drive up an organization’s IT spend, including:

Overly Complicated IT Infrastructures

There is such a thing as having too much technology or variety in your tech stack. Whether it’s caused by an ad hoc tech acquisition plan, mergers between companies using different IT solutions, or a refusal to remove older legacy systems as new systems are added, an over-complicated IT infrastructure can make an organization’s IT both more expensive to maintain and more prone to failure.

Having too many different systems (and especially legacy systems that are no longer in wide circulation or were custom one-offs made specifically for the organization) can increase costs by making the supply chain for your IT maintenance more complicated and difficult to manage. Additionally, tracking down or training IT personnel who are qualified to manage systems can become more expensive since they need a wider variety of skills or skills that are less common (and are thus more valuable/expensive).

Vendor Lock for IT Hardware

Vendor lock is when an organization has to go through a particular vendor for specific equipment and services required to keep their IT solutions running at peak efficiency.

Why is this a problem that can increase IT costs? Because, it gives the vendor a virtual monopoly on providing services and resources to the company. So, they can increase how much they charge without much fear of losing the service contract.

Additionally, if that vendor experiences a supply chain or labor issue, there won’t be an alternative source of parts and labor for services to help keep that IT asset running at peak efficiency or enable repairs in case of a failure.

If an organization is experiencing vendor lock, they may see their IT costs rise dramatically over time for all of the IT assets that they get through that vendor.

Software Licensing Fees

Another major driver for high IT costs would be the licensing fees for the various software programs and platforms the company uses for its day-to-day operations. Software licensing can be a variable cost for companies if they use subscription-based solutions.

For example, say XYZ Company has 10,000 software licenses for a SaaS-based productivity solution that they use for all of their employees. During one year, they add another 1,000 employees to their workforce—necessitating the addition of another 1,000 “seats” or software licenses for their SaaS-based solution. This would increase XYZ Company’s software costs.

In another year, they cut 10% of their workforce. Because of this, they no longer need so many software licenses, which helps them save a bit of money on this particular IT expense.

Other software solutions might be a one-time fee for installation on a specific device—but once registered to that device, the software cannot be transferred to a new one and the software won’t be kept up to date with any new versions that are eventually released. These solutions often have a higher upfront cost but lower month-to-month costs—though the need to upgrade hardware and/or update to a new version of the software means that there will always be at least some ongoing expense for new software licenses.

IT Asset Disposition/Hardware Lifecycle Management

Even the best IT devices will eventually need to be replaced. Whether an IT asset simply suffers too much wear and tear to keep operating at an acceptable level of efficiency or it becomes too obsolete to work with the latest programs, every asset will need to be replaced eventually.

However, replacing an IT asset isn’t as simple as just buying a new version of the same device. Organizations have to consider how they’ll migrate all of the necessary software and data to the new device, protect the confidentiality of information on the old device, and how they will physically dispose of the old device—such as whether they send it to a scrap/recycling plant or resell/donate it to a third party.

Reselling old devices is a valuable way to reclaim some value from obsolescent IT assets, but it does introduce a few challenges—such as getting the timing right so that the organization can claim the highest possible value from the sale, ensuring that no retrievable data remains on the device’s storage media without destroying it, and marketing their old devices effectively or finding reliable partners to ensure that as many old devices are successfully sold as possible.

Cybercrime

While IT has created numerous benefits and efficiencies for modern businesses, it has also introduced new ways for criminals to target companies, too. From DDoS attacks to phishing scams, ransomware, data mining, and more, there is no end to the cyber threats that businesses face.

Cybercrime can drive up costs by causing IT failures, damaging the company’s reputation, or by actually defrauding the organization of money. For example, a DDoS attack could bring down mission-critical IT systems for days on end or a phishing scam could trick someone in the organization into paying a fake invoice, or someone could steal sensitive credit card information to commit fraud—leading to public backlash against the organization for not protecting the data adequately.

Some cybercriminals may even steal a company’s intellectual property and resell it to competitors. While this might not directly affect IT costs, it can affect the business by allowing competitors to recreate proprietary products and services. Investing in basic cybersecurity measures is a must for reducing the risk that cybercrime poses.

Tips to Reduce IT Costs

How can organizations reduce their IT costs? Following a few basic IT management tips can help organizations streamline their IT and save a bit of money:

1. Eliminate Unnecessary Hardware and Software

Over time, it’s all too easy for an organization to wind up adding more hardware assets and software licenses than necessary. Conducting a thorough audit of your existing resources to identify unnecessary hardware and software can be an excellent way to help control IT costs.

For example, by removing obsolete hardware that isn’t currently in use, you can simplify your IT maintenance strategy, remove potential security vulnerabilities (from old, unpatched systems), and even recoup some capital by reselling the hardware. How does this help? Simplifying maintenance helps to streamline maintenance costs and eliminating vulnerabilities helps to prevent expensive IT failures from cybercriminal activity.

Additionally, by identifying unneeded software subscriptions, you can reduce software costs. There’s no reason to pay for monthly software subscription seats that you aren’t using or don’t plan to use soon!

2. Consider Outsourcing IT Management

Hiring an internal IT management team is a costly proposition. The base salary before benefits for an individual IT engineer is about $73,243 on average (Source: Indeed), but can easily exceed $100,000 for engineers who have specialized knowledge or experience with certain IT solutions.

Considering that it is often necessary to hire multiple IT specialists to cover all of an organization’s needs, the cost of labor for IT management can quickly grow beyond what all but the largest companies can comfortably afford.

This is where outsourcing IT management can help. Outsourced IT management services can provide a full team of experienced software engineers and other specialists for a fraction of the cost of hiring a similarly-sized and experienced team internally.

Aside from helping to reduce overall costs, leveraging an outsourced IT team can eliminate the burden of having to recruit and train IT personnel since the managed service provider (MSP) will handle these tasks.

3. Be Proactive about IT Maintenance

Because IT failures can have such a large impact on your costs, preventing them is extremely important. Preventative maintenance—the practice of making minor fixes to a system before major ones are needed—can be a great way to both minimize maintenance costs and avoid IT failures.

In many cases, preemptively conducting minor maintenance is less expensive and disruptive than waiting for an IT asset to completely fail before attempting to make repairs. For example, by taking a server down as soon as it starts to show signs of performance issues and replacing RAM cards, the hard drive, or whichever other component is the performance issue (or identifying a software bug), you can avoid a more catastrophic failure that requires replacing the entire server or takes much longer to repair.

Start Saving Time and Money with IT Proactive

If you’re looking for ways to improve your IT management to increase efficiency while reducing costs, reach out to IT Proactive! We specialize in providing fully-managed IT services that help companies make the most out of their IT resources while saving them time and money.