Spending on technology can either be a sound investment or a costly expense for SMBs. So, what are the issues to take into account to determine whether an IT expense is an investment or a cost for your company?
Take a look at some of the questions we believe you should ask yourself before taking the plunge on a new service, tool, or solution for your Connecticut SMB.
How Does IT Impact Company Goals?
In our experience, the first question to ask yourself should be: how is IT impacting business goals, whether that’s directly or indirectly? The first step we recommend to answer this question is mapping your IT project outcomes with your company’s strategic goals.
When an IT project has a direct or indirect link to a strategic goal, we can say that project is an investment rather than a cost. For example, during the 2020 lockdowns, many companies in Connecticut and across the nation quickly adjusted their IT budgets to incorporate remote work into their daily operations. Most remote-work IT solutions companies implemented directly related to keeping the company operational and communicating with customers. In this case, though it may have come at a high cost, adjusting to remote work became an important investment for companies, allowing them to continue operating despite nationwide lockdowns.
When building your overall company budget, we recommend you review how your IT budget promotes company goals and ensures every business unit receives the appropriate support to foster growth and reduce company leverage.
What Are the Costs and Benefits of Implementing IT?
You’re likely familiar with a cost-benefit analysis (CBA), which compares the costs and benefits of a particular investment. In our experience, a CBA is a great tool to use when determining if IT may be an investment or just another costly expense at your SMB. As the financial leader and expert at your company, you are trained to review monetary risks and reduce costs. You can probably easily determine all costs related to implementing a particular IT project.
But, what about understanding the benefits of IT for the company? Technology has the capability of creating business growth, introducing new, profitable lines of business, and even cost-reduction.
What Are the Tangible Benefits of Implementing the Solution?
It’s possible, you’ll need support from leaders in other business units, and especially the IT department, to understand what benefits a certain solution may bring to the company. A few questions to ask your colleagues, as you determine these benefits are:
- Will this new tool facilitate a new service offering for our company?
- What will be the profit margins we expect to see once customers start buying the new service?
- Will this IT solution help us expand our services into other areas in Connecticut?
- How will using this tool cut our costs?
- How long will it take before we see these results?
Consider the Intangible Benefits of Your IT Project
Return on investment for technology is hard to measure, and just like ROI, the disadvantage of a CBA is that it cannot calculate the intangible benefits. We understand intangible benefits are hard for financial leaders to embrace, because they are not easily stated using numbers and figures. However, in our experience, companies who adopt innovative IT systems may bring radical changes to the business operations that in turn create a favor in the eyes of consumers. This boost in brand klout may bring about new business and consequently, positive cash flows for your SMB.
Here are some of the intangible benefits you may look for when evaluating IT:
- Increased competitive advantages and market value
- Happier customers and increased inbound sales
- Improved operations and increased productivity
- Faster response times between business units
While the intangible benefits of IT have been the subject of continual debates in the business world, we recommend you consider discussing intangibles when determining whether IT will truly be an investment or become another cost you’ll need to cut later down the road.
If We Do Decide to Invest in IT, How Will We Plan for Success?
In early 2021, the state of Connecticut launched and communicated a plan and process to build a new IT organization within its government. Then, in October, our governor announced an impressive $8.3 million in funding that the state will invest in strengthening the long-term competitiveness of Connecticut's manufacturing sector, through new and existing technology and workforce initiatives.
What do both of these announcements have in common? Other than a focus on technology, Connecticut is planning to leverage IT strategically for long-term growth. Leaders like you know that spending on IT cannot be taken lightly, and your SMB simply cannot adopt technology for technology’s sake.
It’s not enough to crunch numbers, review pros and cons, and map a company purchase to its goals. Our experience has taught us that to ensure your IT expenses will be an investment and not an expensive mistake, leaders like you make sure to plan for success. Below, we’ve included a few additional questions that will help you plan for success before implementing a new IT solution or tool:
- What are the required outcomes of this implementation? Understanding what each colleague expects to gain from the IT project in question and clearly documenting those expectations will save money, time, and effort in the long run.
- What is the timeline for implementation? Establishing an agreed timeframe for each phase of the project will allow all stakeholders to appropriately plan around any expected disruptions to important technological services and to adjust accordingly, and this could help reduce costs.
- Who is the project owner and implementing team? Make sure you have a plan on how to manage the transformation and any related projects. The project manager will need to establish an accountability system, so that the project is as efficient as possible.
- How will we measure success? Last but not least, we recommend you ensure the IT department and other business units agree to track and monitor specific KPIs that will show whether or not the implementations are creating value for your organization. Make sure you also agree on a reporting structure for the KPIs.
When Operations, Finance, and IT Align, Tech Is a Sound Investment
To ensure technology becomes an investment and not a costly expense, operations, finance, and IT units need to align in common goals. Analyzing and comparing costs to benefits, both tangible and intangible, will help build your case for or against a particular implementation. As is the case with any large investment, the final decision on whether to adopt a particular tech solution must be in line with the company’s strategic advantage.
Once you do decide to invest, knowing your Connecticut SMB is planning for success by outlining requirements, timeline, accountable parties, and the appropriate KPIs will put your leaders and colleagues at ease.
Want an assessment to evaluate your current IT infrastructure and how you can make it profitable? Book a meeting with Tom.
