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A Holistic Approach to Understanding IT Costs

Software & IT

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When we talk to Information Technology (IT) leaders about better defining, selecting and managing their IT projects, they are quick to inform us that the projects represent less than a third of their budgets. Most of the IT budget goes toward paying existing people and support existing datacenters. What they really need is the means to perform an activity based analysis of the Total Cost of Ownership (TCO) for their IT operations. With this, organizations will have the right information to determine cost savings and additional costs associated with new projects and emerging technologies.

According to the Information Technology Association of America IT is the “study, design, development, implementation, support and management of computer- based information systems, particularly software applications and computer hardware”. As an industry, we have many methodologies to help us understand the costs of development software applications. And we know how to determine what computer hardware costs. We have less concrete notions of how to assess and plan for the costs of other activities that go on in our IT groups.

Emerging paradigms, such as Service Oriented Architecture, make it possible for business priorities to drive Information technology decisions. This possibility requires that businesses have a better understanding of the cost impacts of decisions they make. High performing IT organizations take a “holistic approach” to understanding and modeling their IT costs. They optimize their portfolios based on ROI where “I” is the TCO, including hardware, software implementation, software maintenance and operations costs.

This paper presents a methodology for assessing the costs of all of the activities required to run an IT organization. It presents a technique for analyzing not only the costs of an initiative, but also the cost saving potential of that initiative. Starting with a review of where IT dollars are currently being spent, it then presents a methodology for modeling the current state of an IT operation. Following this, a methodology is discussed that will show how costs change throughout the operation with the introduction of a new project or emerging technology. An example business case will be analyzed to demonstrate this methodology.


Arlene Minkiewicz
Ms. Minkiewicz leads the Cost Research Department as Chief Scientist at PRICE Systems. In this role, she is responsible for the research and analysis necessary to keep the suite of PRICE Estimating products responsive to cu rrent cost trends. She works with industry leaders to collect and maintain cost research data and offers analyses of this data to the cost estimating community through the PRICE products.
Arlene’s most recent accomplishments include the development of a catalog of cost estimating relationships for systems and system of systems projects that will be delivered to the cost estimating community as part of the TruePlanning suite. Her most recent research on software sizing has been slated for publication in the March 2009 issue of Crosstalk.
Arlene frequently publishes articles on estimation and measurement in publications such as Software Development Magazine and Crosstalk. She speaks frequently on these topics at conference such as STC, ISPA, SCEA, IEEE Aerospace Conference, SEPG, and many others. Her ‘The Real Costs of COTS-Based Software Systems’ paper was recognized in 2004 by ISPA and SCEA as Best Paper in the Software Track. Her paper “A Case Study and Assessment of a COTS Upgrade for a Satellite Ground System”, co-authored with Marilee Wheaton of the Aerospace Corporation, received Best Paper in Software Track in 2006 by SCEA and her paper “The Evolution of Hardware Estimating” received Best Paper in the Hardware and EVM Track at the 2007 ISPA/SCEA joint conference.