IT Spending: Where's the Value?

• By Bennett Voyles
• 09/29/04

There are many ways to help your institution get a solid return on its IT investment. The question is: Are you actively employing any of them?

In the 1990s, information technology was often sold as a way to dramatically cut costs, yet as time went on, the proposition turned out to be difficult to prove. Sometimes the technology didn’t function as promised. Other times, it did, but it required more care and feeding than anyone had initially imagined. Either way, the result was bigger payout for an uncertain—or at least not measurable—return.

Today, the situation is not all that different on college and university campuses. By and large, administrators still cringe when it comes time to write those huge technology checks. In fact, they may be wincing more today than ever before: In a 2004 Educause survey of 571 higher ed IT professionals, those surveyed rated IT funding as their number one concern, from a checklist of 30 top issues. The source of the crisis, say Educause analysts: “Quite simply, total costs for IT are increasing at a rate that exceeds the ability of colleges and universities to pay.” But in spite of that, campus executives are often curiously unconcerned about quantifying the value of all that investing.

Why the lack of interest? Some say it has to do with how decisions are made on campus. Doug Allen is currently CIO for a Midwestern financial services company, but until recently, he was the long-time CIO of Johnson County Community College in Missouri. “Decisions are made for a variety of reasons,” says Allen, “and value isn’t necessarily as important as ‘alignment with strategic initiatives’ or simply just keeping powerful people happy.”

But that could be changing. To try to get a grip on ever-expanding IT budgets, some administrators are now experimenting with various measures to find out if IT dollars are being spent wisely. Though no single technique or tool provides a definitive solution to the problem, the range of measures in play indicates that there are now indeed a growing number of ways to understand and manage spiraling tech spending—and plenty of campus administrators keenly interested in finding out if they are getting the proverbial bang for their buck.

In the early years of the big IT budgets, says David Smallen, VP of Technology at Hamilton College (NY), college and university administrators didn’t squawk at a sizable IT investment because they weren’t looking at technology as an ongoing expense. “They would say, ‘I don’t understand anything about it, but we need to buy some stuff. As soon as we buy that stuff we’ll be all set,’” he recalls. Eventually, however, administrators began to realize that IT spending was just like any other institutional spending: No campus is ever “all set.”

Start with Benchmarks

“What everyone now realizes is that this is like any other fundamental part of the institution,” Smallen says. “When you put up a building, you’ve got to plan for replacing the roof and updating or replacing the structure every 30 to 40 years. Technology is on a more rapid cycle, but the concepts remain the same.”

To begin to get some sense of what IT expenditures should look like, Smallen and Karen Leach, Hamilton’s CFO, decided some time ago that they needed a way to compare or “benchmark” IT expenses among colleges. Over 130 schools now participate in the COSTS (Capturing the Cost of Supporting Technology Services) Project (www.costsproject.org), launched seven years ago to ascertain what peer institutions were spending on IT, and how those expenditures compared. What Smallen and Leach have found is that there are numerous variables that affect the level of IT spending at any given institution. Not surprisingly, large research universities may spend more per student than smaller schools. Mission can also make a difference—an engineering school, for instance, may spend more on information technology than a liberal arts university. Yet Smallen says that he and Leach have found a few propositions that generally seem to hold true: First, most institutions currently spend between 4 to 6 percent of their total budget on information technology. Second, roughly half of that budget is spent not on software or hardware, but on salaries.

For their participation in the COSTS project, institutions receive highly detailed information regarding how they compare to their peers. Nitty-gritty details include how staff are spending their time: In the 2002/2003 survey, for example, it was revealed that 15 to 30 percent of IT staff time is spent supporting infrastructure, 20 to 30 percent is spent on enterprise system support, and only 10 percent on the faculty and student help desk. Such data might not provide all of the answers to curtailing spiraling technology spending, but Smallen says that the information can be helpful in shaping the campus discussions that will lead to better-informed spending. “It’s not as though you look at the data and the answer pops out,” he says; “more likely, it raises the questions you should be asking.”

Activity-based Costing

At Indiana University, IT budget planners were not as concerned with what their peer schools were doing, as they were with finding out how large-dollar IT investments actually pay off on the IU campuses, usage-wise. For years now, Indiana’s IT administrators have employed “activity-based costing”—an accounting approach that, even in corporate America, is still in the test-pilot stage. Unlike traditional accounting methods that measure expenditures versus earnings, activity-based costing attempts to understand how much an activity actually costs.

Brad Wheeler, associate VP and dean of Information Technology at IU, says performing activity-based costing is quite low-tech and only involves a series of Excel spreadsheets. Instead of relying on automation or detailed logs, managers are simply asked to estimate how much time their staff spends on a given activity, in order to generate a cost estimate of its expense. Once managers detemine what staff and resources are used for a given activity, they then divide that by unit cost, estimate in percentage terms which groups or departments on campus use that service, and then allocate costs accordingly. Total cost of IU’s activity-based costing method is the equivalent of one full-time employee a year, according to Wheeler—not bad when you consider that the university’s IT group spans eight campuses and operates on a $100 million budget.

But d'es activity-based costing work? There are no hard numbers available, but Wheeler says that the system (in force since the late ’90s) has helped administrators make far better IT investment decisions than they could have otherwise. The challenge of activity-based costing, says Wheeler, is more political than logistical. “It’s just a matter of the will to do it, and then doing it,” he says. But don’t perform this kind of costing exercise just once, he cautions; its real value lies in comparative analysis. “For us, the key is year-over-year tracking. If you’re going to do it, you’ve got to do it consistently,” he says.

IU now makes all of its activity-based costing records available to the public at (http://www.indiana.edu/~uits/business/report_on_cost_and_quality_of_services.html ). “The site gets a lot of hits from folks in other places who are pondering their own IT decisions,” Wheeler says.

Looking at TCO

Then there are the proponents of employing “total cost of ownership” (TCO) calculations to discover what technology actually costs an institution. With TCO accounting, cost of purchase, upgrades, maintenance and support, and other variables are figured into the mix to yield a clearer picture of true value and return on investment after the TCO has been subtracted from the benefits generated. Total cost of ownership is a concept that was developed by Gartner (www.gartner.com) IT analysts in 1987 to help corporate America get a better picture of real hardware and software ownership costs. Now in common use in business worldwide, its application is so ubiquitous that tech companies routinely offer calculators on their Web sites to help prospective purchasers estimate TCO prior to purchase. Indeed, many technology vendors encourage TCO examination; they believe that in many cases it helps to close a sale. It is not uncommon during such exercises to discover that a sizable technology expenditure is suddenly revealed as more logical and contained than a smaller one likely to spin out of control with open-ended support, maintenance, and upgrade fees.

Still, there are critics of the TCO methodology, many of whom hail from the world of higher education where tallying any hidden (or even not-so-hidden) expense can be a challenge.

William Riffee, dean of the College of Pharmacy and associate provost for Distance, Continuing, and Executive Education at the University of Florida at Gainesville, admits that he has little faith in such exercises. He adds that he wishes there were an Excel spreadsheet or a program that could reveal how much something actually costs to own and operate. But, he says, in academia, there isn’t. “We have enough trouble figuring out whether we’ve paid people this week,” says Riffee.

Uncover Value

Pradeep “Peter” Saxena, CIO of Roberts Wesleyan College (NY), takes a somewhat different approach to estimating the value of IT. Rather than leaving the job to the accountants, he takes a Socratic tack with staff and faculty, to show them the value they’re realizing from the institution’s IT investments. The idea, he says, is to overcome one of the central problems (and, paradoxically, the goal) of information technology: namely, that when it works, it’s invisible. “People don’t remember the 999 times it worked,” he says. “But they certainly remember the time it didn’t.”

To encourage faculty and staff to think about the value that the institution’s IT investments have created, he asks groups to jot down what they do during the day, then list all the information systems and services they use to execute those tasks. In addition, Saxena includes faculty on committees that are making purchasing decisions. He says that this can be useful not just for ensuring that a new package meets faculty needs, but to help build support for whatever IT investment is made. Creating such consensus d'esn’t always translate into dollar value, he says, but it d'es ensure that there’s broad-based support for the IT spending priorities the institution has chosen.

Survey for Value

What makes collegiate accounting more complex than that of private industry is the fact that it’s sometimes hard to isolate a single bottom line—there are so many bottom lines. As a result, some administrators are now striving to quantify how their technology investments affect the students.

Kathie Sigler, provost of Miami Dade College (FL), likes to use a poll to show how her college’s IT investments have helped the largely low-income and minority student body overcome the “digital divide” many social critics see between the country’s haves and have-nots. To prove that the college’s IT spending has made a difference to her students, Sigler polls them on their use of computers, and their attitude toward them. Sigler’s polls show that computer ownership among the school’s 165,000 students has skyrocketed, over the past five years. In 1999, 61 percent of all students had a computer. This year, that figure rose to 91 percent, and among black students, the numbers jumped from 47 to 83 percent. Just as importantly, says Sigler, her polls show that at Miami Dade—an institution where many students face challenges bringing their capabilities up to those of four-year college students—91 percent of students now describe themselves as “comfortable” using computers.

Lower the Cost

Another way in which Miami Dade’s Sigler improves her school’s value for IT dollars spent is by finding ways to get around paying for some of it. Sigler (a regular at Comdex) routinely asks the country’s biggest technology companies to donate products or to use her students to test them. Even Bill Gates has heard Sigler’s pitch a few times.

“I beg well,” she says, and “I tell the story of our students: what their need is, why they’re very deserving; how we need to help them. I can make people feel really guilty about that.” Guilt, as it turns out, is an approach that’s keeping her school on the cutting edge.