In an era when the accountant is king, CIOs better watch their assets.
When I speak with CIOs they frequently tell me about the difficulty of IT asset management. The pace of business change is such that it’s easy to overlook updating records when the ownership or location of equipment moves. In addition, the high rate of obsolescence of IT assets means that an inappropriate value can easily be assigned to the equipment in the fixed assets system. Unless CIOs are on top of these challenges they run the risk of being seen as financially inept. A recent IDC report makes the point that if a CIO wants to lower the total cost of ownership of equipment they need to effectively monitor the true value of it throughout its life cycle.
The report illustrates how important this is by showing the impact of an inappropriate depreciation scale for an item of equipment. If a PC is depreciated over a five-year time frame, but in reality only has a three-year working life, the books will record a loss against that equipment if it is retired in under 60 months. Yet often the finance department has set the depreciation scale arbitrarily without the CIO’s input. In effect the finance department’s ignorance of the value of IT makes IS look incompetent.
IDC argues that there are four main components to an effective asset management system. It must determine what equipment, (including configurations), is owned by the organization. It has to recognize where these assets reside and who is responsible for them. It should identify the current financial obligation for each asset. Finally, it should help the CIO understand how they could replace or dispose of the assets and avoid financial losses.
These challenges are compounded by the fact that the management strategy for all IT equipment varies. In my InTEP travels I have encountered many organizations successfully running 10-year-old AS/400 systems with solid legacy applications. Yet at the desktop the same CIOs struggle to get more than three years life out of PCs. At the same time, CIOs are opting to defer acquisitions, especially in software, until release 2.1 is available. They argue that a wait-and-see approach leads to greater stability. Finally, there is IT equipment organizations buy and keep till it gives up the ghost, such as line printers.
The trick for CIOs is to chart the most suitable depreciation schedule for each individual IT system. To do this they need to understand the second-hand value of each item. IDC’s report suggests plotting the purchase date and expected sales date on the residual value curve for each technology and to then extend a straight line connecting the two points to the bottom of the chart. The point at which this line meets the Y-axis establishes the length of depreciation for that particular product.
In these cost-conscious times effective asset management must be a priority for any CIO. It offers them a number of financial benefits. Software licensing is more effective. Compliance is assured to not only protect the organization from potential fines but also to ensure the licences are accurate and only relate to equipment in use. Similarly, it guards against software and hardware maintenance being paid on decommissioned equipment. However, above all it ensures that assets are properly valued and depreciation is calculated accurately. In effect, solid IT asset management will certainly help CIOs convince the business that they do understand the real cost of IT.