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IT managers tend to forget about construction and operating costs when they pitch projects, an expert says.
David M. Katz, CFO.com | US
September 27, 2010
To avoid big overspending by chief information officers, CFOs should order forensic-accounting audits of large information-technology projects, an advocate for data-center efficiency says.
Often unaware of finance and accounting considerations, CIOs frequently fail to include the majority of the true costs of tech projects when they make their pitches for them, according to Kenneth Brill, founder and executive director of the Uptime Institute, an educational consortium of companies interested in improving IT efficiency. Lacking CFOs who put their feet to the fire, top information managers frequently "make bad decisions" about cost and efficiency, he says.
Typically, corporate decisions about whether or not to approve projects involving technology infrastructure or applications don't take into account the true costs of ownership, according to a recent study by Uptime and McKinsey & Co. Such things as whether a company already has some of the applications it's planning to buy or idle capacity that could enable it to buy less are rarely considered.
In one case, says Brill, a company decided to invest $22 million in a project to install new data servers. Based on that figure, which was supplied by the IT department, senior management thought the project would yield a "very positive" return on investment, he says.
But the tech staffers were unaware that $54 million would be required to install the power and cooling capacity to run the servers and that an estimated $32 million would be needed to operate the servers over their lifetime. As a result, says Brill, they failed to include those extra costs in their pitch. (Also, the overlooked $86 million was accounted for as a cost to the organization's real estate department. That helped make the total cost of the project less than transparent, says Brill.)
Another problem requiring CFO intervention in IT investments is that a project costing $10 million to $100 million may last as long as three years — the typical job tenure of CIOs. "They're not in the job long enough to do it," says Brill.
At the same time, because CFOs often have a poor understanding of how IT works, "they tend to stay away from it," he adds. But because energy costs are rising in relation to technological innovation, finance chiefs may be forced to look more closely as IT costs claim larger chunks of corporate profit.
A big problem stems from a breakdown in the benefits of Moore's Law, which says that the number of transistors that can be placed cheaply on a computer chip will double every two years. Energy efficiency, by contrast, is rising by only a factor of 1.5, says Brill. To fill the gap, data-intensive companies will have to buy scads more electricity to power their data centers. Indeed, data-center consumption has jumped from 1% of total U.S. electricity use in 2000 to 3% this year, Uptime estimates.
To alleviate the problem, Brill says finance chiefs should urge tech bosses to turn off dormant computers, decrease the number of computers being used, and insist that IT vendors include energy-efficient advantages in their bids. Ultimately, he thinks the solution boils down to an acronym, NNDC: No New Data Centers.