Matti Kinnunen
Oct 6, 2010
Posted in category: 2010 Member Articles

Maintenance must become cheaper over time

Let us consider a company, which has two ICT system development projects every year: a big one and a small one.

The big project costs 100 units to complete and completion takes one year. Maintenance of each of the resulting systems costs 30 units every year for 10 years.

The small project costs 50 units to complete and completion takes one year. Maintenance of each of the resulting systems costs 20 units every year for 5 years.

Let us further assume that the company has been running for 10 years. The total ICT cost during the 10th year is 520 units, of which development is 150, or 29%. In other words, management of systems, also known as services management, requires 71% of the ICT budget.

Now, let us make the model a bit more complicated. Let us assume that maintenance of a system becomes cheaper and easier by the year. The assumption is quite reasonable, because ICT technology gets better and cheaper according to Moore’s law.

Let us calculate, what different rates of maintenance cost reductions would mean.

It turns out that, if  costs decreased by 10% annually, the total cost during the 10th year would be 415 units, of which development (150 units) would be 36%

It turns out that, if costs decreased by 30% annually, the total cost during the 10th year would be 301 units, of which development (150 units) would be 50%

It turns out that, if costs decreased by 30% annually, the total cost during the 10th year would be 248 units, of which development (150 units) would be 60%

As we can see, it is possible to both save money and use larger share of the available money on system development projects.

All it takes is mandating annual maintenance cost cuts. In short: the best time to save money is during contract negotiations.

 

Contact us Download BT Standard as PDF

 

Looking for answers to your questions about the BT Standard? Get in touch!