IT Spending: Where's the Value?
- By Bennett Voyles
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
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.”
Activity-based costing has helped us make better IT
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
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.”
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
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
“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.
I beg well. I tell the story of our students and their
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.
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”
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.
Is your institution getting bang for its technology buck?
Ask yourself these questions and tally your ‘yes’
responses. With six or fewer checkmarks, you could be doing more.
Are we evaluating the effectiveness
or “promise” of our currently installed
Are we evaluating its effectiveness
with users as well as technologists?
Are we achieving optimal usage of our technology? (Or
is it underused?
Are we over-purchasing?)
Do we poll or survey users frequently
to see if the technology meets or
Do we have more than one way to
determine return on investment (ROI)?
Do we approximate ROI prior to purchase?
Do we determine total cost of
Do we approximate TCO prior
Do we determine “cost to perform activity”
with—and without—the technology?
Are there other ways we can attract
technology to the institution, without
Do we know what are the true costs to us—“hard”
and “soft”—of technology that d'es not meet its promise?
Are we assessing and evaluating process before we look
at technology solutions?
Are we internally “marketing” the real
value of processes that have been improved through technology?
Thinking Outside the Box
Finally, the most counterintuitive of the creative approaches to keeping technology
costs in line with value received may be to try to think less about technology
and more about the school and how it functions—or d'esn’t
function. IT analysts have long held that focusing exclusively on the technology
is a sure way to spend ineffectively, and many higher ed observers are now agreeing.
Ed Barboni, an information technology consultant for the Council of Independent
Colleges (www.cic.org), says
that the approach most colleges have been taking toward information technology
is similar to the unsuccessful technology-will-solve-all-our-problems approach
so many corporations took for the better part of two decades, when executives
focused simply on automating function without an eye to process change.
That approach had a serious drawback, according to Barboni: It turned out that
automating without re-thinking process didn’t save any money—in
fact, in many cases, trying to customize technology to suit existing processes
drove technology costs through the roof. Eventually, managers discovered that
they needed to first assess and then reengineer their processes in
order to see real improvement and cost savings from the technology. Once that
realization hit home, says Barboni, technology ROI was dramatically improved.
Yet this kind of process-first thinking is still limited in colleges and universities,
he explains, held back by turf wars and an inability to make collective decisions.
Certain schools have begun to simplify processes on the administrative side
of the institution, he adds, but on the academic side, he sees far less progress.
One standout is the Carnegie Mellon (PA) Open Learning Initiative
creates study materials based on research around how people actually learn.
Then there is the recent rollout of the Program in Course Redesign run by the
Rensselaer Polytechnic Institute (NY) Center for Academic Transformation
Funded by a grant from the Pew Charitable Trust, the Course Redesign Program
created 30 pilot projects over four years at schools across the country, to
show that technology, carefully applied, could improve learning and reduce costs
in areas as diverse as chemistry, Spanish, and art appreciation. The pilots,
focused on improving outcomes in mammoth introductory courses, introduced tools
such as online study guides that provide immediate feedback to students. As
a whole, the endeavors succeeded spectacularly: instructional costs were slashed
by nearly 40 percent overall and learning outcomes improved in 25 of 30 programs.
As a result of what they’ve learned about combining process change with
academic technology, says Carolyn Jarmon, associate director of Rensselaer’s
Center for Academic Transformation (www.center.rpi.edu),
RPI can now show schools what works and what d'esn’t.
Step Back, for Value
Moving forward, it is clear that colleges and universities are going to be held
more accountable for their IT spending snafus than they have been in the past,
as too many areas of the institution are being negatively impacted by poor IT
purchasing decisions. Contrary to past activity, the solution d'es not necessarily
lie in “bigger and better” replacement purchasing, but in a better-informed
sense of technology options and their value and suitability for the mission,
process, and culture of the institution. In other words: The time to step back
and evaluate the intrinsic value of your installed technology is now. What you
learn will color future technology purchasing decisions.