Protecting Your Software Development, ICT Support and Infrastructure.

CONTACT US:
Tel: 0203 928 8622

I.T. Managed Services -

We specialise in continuity provision of IT Managed Services beyond legacy and current managed service agreements, lease rental or purchase IT asset contracts and ad - hoc arrangements for equipment and technical labour purchase.

In other words, protecting your software development, ICT support and infrastructure, 1st, 2nd and 3rd line support, data centre usage bringing together the various elements irrespective of their previous funding into one , long term , streamlined managed service agreement.
Our plans typically align themselves to last between 1 and 12 years, generally co terminating with your premises lease commencing with a technical audit of all aspects of your infrastructure, how it is funded and indeed liasing with software providers and funders with any interest in the companies IT assets under one umbrella with the technical know how to maintain existing service levels.

Or plans are tax effective and typically provide a minimum of 20% cost reduction in IT Managed Service provision.

Should additional funding be required to buy back assets or maintain a technology refreshment schedule, this can be typically provided by our sister Company, Fulcrum Finance Ltd.

3% - 5% of Revenue R.O.I.

IT spending is an investment, but it is very difficult to quantify the ROI.
A quick search of "IT spends by revenue by industry" gets some interesting data. The Fortune 500 average is slightly above 4%. Most industry IT spending is less than 3% of revenue. 

The median is 3% to 5%. So ideally, what should be the percentage of IT spending of an organisation relative to its revenue? Seriously, the answer to this question depends on the industry, the company, the company's financial state, the company's competition, the company's IT historic investment (or lack of it), and most importantly, the company's strategic plan and the fit of the IT plan to support the company's plan. 

Also, IT spending benchmark is more complex than such data point. It far too often becomes policy which is either too constraining, too generous or has had prolonged periods of under investment.

The Reasoning behind IT Spending Benchmarking -

CIO must do some benchmarking not only to justify the £££££ amounts spent but also to make sure that the company is spending a reasonable portion of its revenue on IT relative to other companies in the sector to be able to keep it in business in the long run.
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Adjustments should be made to these IT spending numbers by shifting the spending figures on a yearly basis after closely evaluating the key IT performance metrics in a micro and macro environment to achieve cost optimisation for the business. The bottom line is that the CIO should be able to show that with the investment in IT that he is proposing, the company will achieve a lower overall expense in the future. IT spending per worker seems to be more consistent but still widely variable. What is always true is that there will be IT spend that can be cut or avoided but at what cost increase in either future years or recovering from a data disaster.

Benchmarking is a way of learning from other organisations. Comparing to external benchmarks is a healthy exercise and positions the CIO as a critical thinker who assesses the company from both an internal and external perspective. Tangible benefits can also be realised. But it is not to construct measures to beat the internal organisation into submission. Sadly such crude measures have led organisations to make decisions that are based on short-term cost savings that lead to higher costs downstream or even worse, loss of competitive position. 

Most CEO & CFO are interested in benchmark data to validate and support their decisions. So even if your CEO loves what you are doing for them with your IT spend, there is still value in analysing the IT spend benchmarks. It can be a valuable tool for discussing the value of IT with senior management. If your spend is higher than the benchmark, you should be able to articulate why. 

It’s about spending the money right, and getting the right results. You should not spend to meet a budget, nor should you avoid spending to stay within a budget. You should spend to make a return. Assuming a proper business case is involved with each IT project, the answer to the question of "how much" becomes "however much makes business sense". If done properly, IT investments save the business money through improved efficiencies and better service. 

  • Ensures you are looking at your #s in a manner consistent with others.
  • Helps positions IT as transparent.
  • Provokes thought and challenges the status quo.
  • Validates your spending levels or forces you to explain why it differs from the norm.

  • Operational Budget as a Percentage of Revenue.
  • Operational Budget to Staff.
  • Operational Budget to IT Staff.
  • Track IT spending as a % of revenue on a cash basis: that's OPEX less depreciation + capital outlay.

Generic Benchmarking -

Don’t get too misled by a Benchmark that is too Generic.

How to use revenue benchmark objectively?

It’s not necessary to ignore the % revenue benchmark, just don't spend a lot of time using them as an investment data point, otherwise, you might follow those %s right into the ground. Since there is no consistency in accounting practices, "IT Expenditures" can vary from organisation to organisation, management has a responsibility to employ funds in such a way as to achieve the best possible return on investment. If that is achieved by spending on IT, then do it.

What about IT capital projects?

In some companies, those are treated as capital expenditures and not as part of the normal IT expenses, though IT has a heavy hand in the process, business would capitalise that expense instead of accounting for it in the normal IT chart of accounts. It’s a commingling of OPEX and CAPEX in relation to IT spend compared to revenue. OPEX, with the exception of M&A or massive expansion, could be rationalized as a percentage of revenue year over year, and should be as a metric. However, CAPEX defies this principle. Capital expenditures are always driven by ROI. Any CAPEX ROI should fall within the first three years or a compelling argument must be made relating to the typical five-year lifecycle.

It’s “just a number”

This kind of metric is useful for budgeting with new businesses that don't have run rate metrics or mature processes. But it should be remembered that it's "just a number". Actual expenditure should always involve a business case. No matter what the percentage is to Revenue, what should be included in the Expense line for total IT spending. As you can see, the metric differs greatly when you compare apples to oranges. 

What proportion of IT spending is used to run, grow or transform your business? 

Also, consider more systematically beyond a generic data point. The amount can further be divided into strategic (future business critical), tactical (efficiency and effectiveness improvement), and operational (work and service capacity) investments and expenditures:  what proportion of IT spending is used to run, grow or transform your business? Doing it can help you weed or prioritize with better results, such as assign an attribute to each project indicating if it's strategic in nature (change in business model), revenue oriented, efficiency / cost oriented, or regulatory / compliance.

How about Shadow IT Spending

Depending on the industry, IT spending usually runs 3% to 5% of revenue. However, these numbers typically include all IT spending, not just what the IT department may spend. You need to be careful and look not just at the formal IT department budget but also where is shadow IT spending occurring. Is HR system support handled in IT or in the HR department? Is the Sales department buying its own PDAs, iPads, laptops, etc?

Therefore, IT spend as a % of revenue depends on many factors... 

The answer is entirely situational and depends on too many factors. The real danger is that it detracts from optimising the investments. The only sensible thing to say is that the information leader should continue to improve the efficiency of OPEX through driving down cost and improving quality and ensure that CAPEX is supported by the organization and directed to yielding business benefits!

How Much Should I Spend?
"or how Much Can We Make by Spending X on This? "

Crude measures such percentage IT spend against revenue is liked by CEOs & CFOs and Business Strategists because they give some semblance of measurement and objectivity. Sadly, these ratios are not precise and the way the figures are constructed based on accounting rules and allocations, make these crude measures dangerous and can often lead to ridiculous and even dangerous decisions being made.
Look at the ROI
Every budget is IT budget now. When business and IT functions are not integrated and thus seen as a cost to the company then this question (IT % of revenue) is always going to occur. If, however, IT and Business are operating in collaboration such that the business knows how much it costs to build and maintain and that they will get the internal charge each month that appears on their budget codes (TCO costs)
Better service for less cost is the continuous improvement agenda here for most organisations.
This has to be about focusing on benefits generation, return on investment and contribution to innovation, even when the projects themselves are primarily justified by cost savings rather than revenue enhancement or innovation. 
One important consideration is technology spend versus IT spend,
This has to be about focusing on benefits generation, return on investment and contribution to innovation, even when the projects themselves are primarily justified by cost savings rather than revenue enhancement or innovation. 
IT expenditure depends on Business Strategies, Visions, and industries.
Every budget is IT budget now. When business and IT functions are not integrated and thus seen as a cost to the company then this question (IT % of revenue) is always going to occur. If, however, IT and Business are operating in collaboration such that the business knows how much it costs to build and maintain and that they will get the internal charge each month that appears on their budget codes (TCO costs)
C-Suite Dialogue
If a CIO is asked the question, rather than answer it mechanically, he/she should take it as an invitation to a dialogue with other C-suite members to explain why the question is nonsensical. Through theses dialogues, perhaps the colleagues will come to understand the contribution that the IT function make and help the Board collectively to make the right decision for the organisation.
Board Room Agenda
If the Board wants to know percentage IT spend/revenue as part of a set of measures to ensure IT service provision is cost-effective and service-improving but looks for investment projects to be justified and governed on the basis of benefit delivery, return on investment and/or contribution to innovation, then the CIO is in a very good shape.
IT budgeting should also follow the general business governance principles
Listen to people involved : If every budget is IT budget, then find right people cross-function with deep communication
-identify suspected key indicators: Always be critical and creative at the same time, to find space can be improved.
-measure: follow the SMART measure rule, attempt improvement, track, analyze, learn, and repeat. 
Don’t Underestimate the hidden costs of changing provider
Continuity of change control within major projects is imperative and there is nothing like a retendering of IT services to cause hidden costs which follow system degradation due to a new provider taking over at the wrong time, or without due notice. Your legacy provider will hopefully have given many years of good service and if professional will treat re tendering as par for the course as long as they are included and that the retendering timetable acknowledges existing contractual arrangement notice periods not just between the Company and the Managed Service provider but also for external services that may have been invoked to support the service levels. There should also be a separate dialogue which understands the effort and attention required to off board the Client.
Who or what owns the IT Assets ?
Complete an audit of software licences and finance agreements to ensure you know where the title of all IT assets are held.
Therefore, IT spend benchmark has a couple of dimensions.  If IT is successful at deploying solutions that provide 'true' value to the business, then they may be more apt to spend, the role of technology in the company’s value creation stream plays a major role. This is largely dependent on the nature of the business, the strategic focus, the role IT plays, the accounting rules, and the vision, the mindset, and charm of the CIO! among others. CIO should be as focused on business strategies that create an advantage. In addition, a common yet important practice is to also compare to organizations slightly higher in growth, in order to gauge what decisions you should make, and can justify in the future. 

How Much Should I Spend?
"or how Much Can We Make by Spending X on This? "

Crude measures such percentage IT spend against revenue is liked by CEOs & CFOs and Business Strategists because they give some semblance of measurement and objectivity. Sadly, these ratios are not precise and the way the figures are constructed based on accounting rules and allocations, make these crude measures dangerous and can often lead to ridiculous and even dangerous decisions being made.
Look at the ROI
Every budget is IT budget now. When business and IT functions are not integrated and thus seen as a cost to the company then this question (IT % of revenue) is always going to occur. If, however, IT and Business are operating in collaboration such that the business knows how much it costs to build and maintain and that they will get the internal charge each month that appears on their budget codes (TCO costs)
Better service for less cost is the continuous improvement agenda here for most organisations.
This has to be about focusing on benefits generation, return on investment and contribution to innovation, even when the projects themselves are primarily justified by cost savings rather than revenue enhancement or innovation. 
One important consideration is technology spend versus IT spend,
This has to be about focusing on benefits generation, return on investment and contribution to innovation, even when the projects themselves are primarily justified by cost savings rather than revenue enhancement or innovation. 
IT expenditure depends on Business Strategies, Visions, and industries.
Every budget is IT budget now. When business and IT functions are not integrated and thus seen as a cost to the company then this question (IT % of revenue) is always going to occur. If, however, IT and Business are operating in collaboration such that the business knows how much it costs to build and maintain and that they will get the internal charge each month that appears on their budget codes (TCO costs)
C-Suite Dialogue
If a CIO is asked the question, rather than answer it mechanically, he/she should take it as an invitation to a dialogue with other C-suite members to explain why the question is nonsensical. Through theses dialogues, perhaps the colleagues will come to understand the contribution that the IT function make and help the Board collectively to make the right decision for the organisation.
Board Room Agenda
If the Board wants to know percentage IT spend/revenue as part of a set of measures to ensure IT service provision is cost-effective and service-improving but looks for investment projects to be justified and governed on the basis of benefit delivery, return on investment and/or contribution to innovation, then the CIO is in a very good shape.
IT budgeting should also follow the general business governance principles
Listen to people involved : If every budget is IT budget, then find right people cross-function with deep communication
-identify suspected key indicators: Always be critical and creative at the same time, to find space can be improved.
-measure: follow the SMART measure rule, attempt improvement, track, analyze, learn, and repeat. 
Don’t Underestimate the hidden costs of changing provider
Continuity of change control within major projects is imperative and there is nothing like a retendering of IT services to cause hidden costs which follow system degradation due to a new provider taking over at the wrong time, or without due notice. Your legacy provider will hopefully have given many years of good service and if professional will treat re tendering as par for the course as long as they are included and that the retendering timetable acknowledges existing contractual arrangement notice periods not just between the Company and the Managed Service provider but also for external services that may have been invoked to support the service levels. There should also be a separate dialogue which understands the effort and attention required to off board the Client.
Who or what owns the IT Assets ?
Complete an audit of software licences and finance agreements to ensure you know where the title of all IT assets are held.
Therefore, IT spend benchmark has a couple of dimensions.  If IT is successful at deploying solutions that provide 'true' value to the business, then they may be more apt to spend, the role of technology in the company’s value creation stream plays a major role. This is largely dependent on the nature of the business, the strategic focus, the role IT plays, the accounting rules, and the vision, the mindset, and charm of the CIO! among others. CIO should be as focused on business strategies that create an advantage. In addition, a common yet important practice is to also compare to organizations slightly higher in growth, in order to gauge what decisions you should make, and can justify in the future. 

How Much Should I Spend?
or how Much Can We Make by Spending X on This? 

Crude measures such percentage IT spend against revenue is liked by CEOs & CFOs and Business Strategists because they give some semblance of measurement and objectivity. Sadly, these ratios are not precise and the way the figures are constructed based on accounting rules and allocations, make these crude measures dangerous and can often lead to ridiculous and even dangerous decisions being made.
Look at the ROI
Every budget is IT budget now. When business and IT functions are not integrated and thus seen as a cost to the company then this question (IT % of revenue) is always going to occur. If, however, IT and Business are operating in collaboration such that the business knows how much it costs to build and maintain and that they will get the internal charge each month that appears on their budget codes (TCO costs)
Better service for less cost is the continuous improvement agenda here for most organisations.
This has to be about focusing on benefits generation, return on investment and contribution to innovation, even when the projects themselves are primarily justified by cost savings rather than revenue enhancement or innovation. 
One important consideration is technology spend versus IT spend,
with IT spend a subset of technology spend. You really want the technology to spend across the enterprise. Usually, the IT spend does not include head room for innovation and growth, but the technology spend figure should account for these.
IT expenditure depends on Business Strategies, Visions, and industries.
The maturity of the organization and its' relationship with IT can be another factor. Whether in "Growth" or "Cost-cutting" Strategies, IT expenses (OPX+CPX) fluctuate between 0.5 to 15%. The same applies to how the business views IT: as "Utility" or "Competitive Advantage". The worst case for any CIO is to exist in "Cost-Cutting" or "Utility" environments, It's a constant struggle with the business to justify any expenditure.
C-Suite Dialogue
If a CIO is asked the question, rather than answer it mechanically, he/she should take it as an invitation to a dialogue with other C-suite members to explain why the question is nonsensical. Through theses dialogues, perhaps the colleagues will come to understand the contribution that the IT function make and help the Board collectively to make the right decision for the organisation.
Board Room Agenda
If the Board wants to know percentage IT spend/revenue as part of a set of measures to ensure IT service provision is cost-effective and service-improving but looks for investment projects to be justified and governed on the basis of benefit delivery, return on investment and/or contribution to innovation, then the CIO is in a very good shape.
IT budgeting should also follow the general business governance principles
Listen to people involved : If every budget is IT budget, then find right people cross-function with deep communication
-identify suspected key indicators: Always be critical and creative at the same time, to find space can be improved.
-measure: follow the SMART measure rule, attempt improvement, track, analyze, learn, and repeat. 
Don’t Underestimate the hidden costs of changing provider
Continuity of change control within major projects is imperative and there is nothing like a retendering of IT services to cause hidden costs which follow system degradation due to a new provider taking over at the wrong time, or without due notice. Your legacy provider will hopefully have given many years of good service and if professional will treat re tendering as par for the course as long as they are included and that the retendering timetable acknowledges existing contractual arrangement notice periods not just between the Company and the Managed Service provider but also for external services that may have been invoked to support the service levels. There should also be a separate dialogue which understands the effort and attention required to off board the Client.
Who or what owns the IT Assets ?
Complete an audit of software licences and finance agreements to ensure you know where the title of all IT assets are held.
Therefore, IT spend benchmark has a couple of dimensions.  If IT is successful at deploying solutions that provide 'true' value to the business, then they may be more apt to spend, the role of technology in the company’s value creation stream plays a major role. This is largely dependent on the nature of the business, the strategic focus, the role IT plays, the accounting rules, and the vision, the mindset, and charm of the CIO! among others. CIO should be as focused on business strategies that create an advantage. In addition, a common yet important practice is to also compare to organizations slightly higher in growth, in order to gauge what decisions you should make, and can justify in the future. 

Contact Us

Have a question? We’re here to help. Send us a message or call and we’ll be in touch. 
Tel: 0203 928 8622

ESL Managed Services Ltd
3 More London Riverside
London
SE1 2RE

120 Delta Park Industrial Estate, #3,

Millmarsh Lane, 

Enfield, 

EN3 7QJ 
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