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Featured Business Issue

22 Jan 2009
Reducing the Annual Operating Cost of QAD

In the current economic environment, CIOs face the challenge of having to  sustain the
current Business with a significant reduction in IT spend. In an IT budget close to 70%
is spent towards ongoing operations which is a non-discretionary expense, leaving very
little spend for growing and transforming the business.


Is it feasible to reduce the Annual Operating Cost (ACO)?

ACO comprises of 3 main components:

Software Costs: About 30-35% of the ACO is spent towards software and this includes Annual Maintenance (AMC) Charges.

Service Costs: Service Costs. Include both the internal staff costs as well as external service providers. Some part of these costs are fixed and some variable. Costs associated with the helpdesk, application support and operations support (DBA, Data Administration, Interface/Batch job Monitoring are included here.

Infrastructure Costs: The third and the largest annual operating costs item is infrastructure which typically include hardware – servers & storage, data center costs, Network costs, and risk management (backup, Business Continuity planning).

On an analysis of these cost components at large enterprises with over 500 users, we find that they typically spend between USD 6000-8000 per user per annum.


Can ACO be reduced?

Yes. However, Operating Cost reduction requires a holistic and phased approach. A planned approach and execution not only reduces operating cost but more importantly allows IT to concentrate on solutions that align with what business requires. ACO reduction could be carried out in three stages. Each stage when executed not only reduces the cost; it lays the foundation for the next phase.

Diagram

Overview of the key stages

Stage 1 - Movement to Central Support:
In a global environment, support is often de-centralized. Centralizing Level 2 and Level 3 Support as well as a common development team brings necessary consolidation of support resources. This enables unified SLA for consistent support across a large group of users. Enhancements can be governed through a business value justification as well as Return on Investment process across relevant stakeholders. Centralized Support encourages common business processes and reuse of custom codes.

Stage 2 - Infrastructure Consolidation:
Distributed computing environments are difficult to maintain as well as come with a high overhead. This not only increases the infrastructure cost, it leads to inefficient usage of computing and network resources. Consolidation of infrastructure from distributed hosting to a common data center largely controls infrastructure cost while improving the performance and improves reliability.

Stage 3 - Application Consolidation:
Multiple instances with various versions and local environments are common in large organizations. This leads to islands of customization, higher interfaces and poor master data management. Planned application consolidation to a common version reduces indirect costs on account of disparate business processes and involves

  • Migration to common version and
  • Consolidation of business practices.

What is the ideal operating cost per user per annum? In the environments optimized by Thirdware, we find the ACO to be $3500 per user per annum. In addition, it leads to savings through common business processes and enhanced compliance with corporate standards.

 
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