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IT COST & FINANCE
IT cost & finance
Due diligence scope
Assessing the current financial realities and forward financials is an essential viewpoint in a technology due diligence for several reasons:
IT budget review
Understanding the IT budget and current spending and how it has evolved in the previous years is an indicator of where major focus areas for technology are. Identifying cost centers is a crucial part of understanding the technology context of an organisation. The IT budget can often act as an indicator of how well technology is aligned with the overall business and financial objectives.
Sector IT cost alignment
Business sectors have characteristic patterns of IT spending. Understanding significant ratios within a business such as IT spending as a proportion of revenue is an indicator of whether the technology investment in the company is sufficient or has been sufficient to date.
Technology costs
Reviewing technology cost breakdowns and aligning these with the nature of the business, company size, number of employees, and other factors can indicate unusual spending patterns which require exploration. Similarly certain categories of spending in technology can be categorised as R&D and can qualify for tax credits or other benefits.
Staff and outsourcing costs
A major component of technology cost is personnel. Reviewing IT staffing costs and any outsourcing and aligning these with technology strategy and transformation programmes is essential to optimising staff onboarding and expansion activities and understanding the appropriate mix of in-house, out-sourced, or temporary staff needed to properly execute technology within the company.
Technical refresh provisions
Technology often requires refresh or upgrades. The scale of such work varies from routine software patching to full-scale transformation programmes. Refresh programmes can often be intrusive and generate business disruption as existing facilities are replaced or reshaped. Costing such activities presents challenges to correctly anticipate the ordering allocation and provision of resources to such programmes.
Roadmap cost provisions
In addition to technology refresh, normal day-to-day technology revisions take place ( additional reporting, new software, etc). Understanding how these are provided for ensures that the technology roadmap is delivered to the business in a cost-effective manner.
IT cost & finance
High-level scope
IT staff costs
Review the company’s IT Staff costs and any projected IT staff revisions. Ensure that staff skills and associated costs aligns with the company’s technology roadmap.
Outsourcing and supplier costs
Review the outsourcing and supplier costs versus the current marketplace. Review all supplier contracts and ensure any existing arrangements are not subject to costing changes or renegotiation.
Infrastructure costs
Review infrastructure costs against the current marketplace. Ensure that cost savings or costing reductions across the infrastructure landscape are being gained as the infrastructure marketplace continues to change. Ensure that such costs are routinely reviewed.
Software licensing costs
Review all software license costs for business-critical software in use. Ensure that all terms and licensing options are appropriate and review software licensing promotions and bundling offers that can deliver significant savings are being exploited. Ensure that such costs are routinely reviewed
Anticipated roadmap OPEX and CAPEX spend
Gain an understanding of the anticipated roadmap OPEX and CAPEX spend. Review and align spends against marketplace spending and ensure adequate provision is being made, for both technology refresh but also business-as-usual budgetary allocations.
Digital advertising and marketing spend
Marketing and advertising are often budgeted separately from pure technology concerns. Increasingly these areas rely of technology-based channels for delivery. Reviewing existing marketing and advertising costs against website and sales portal performance (e.g., cost-per-click, etc.) can indicate if campaigns and initiatives are utilising these channels effectively.
Software development costs
Review any software development underway to understand what specific spends are taking place and ensure these are proportionate. Typical software development spending would include staff costs, specialised software, additional hardware and infrastructure costs, staff training and conferences and significant recruitment fees.
Technology related insurance costs
Review technology related insurance costs, such as cyber security insurance. Determine if such costs are disproportionate, and review terms to ensure that all such insurances are appropriate and that any such cover is not redundant.
Technology transition programme costs
Review any transformation programme costs underway and ensure that adequate provision has been made and that all realistic contingencies have been considered in terms of programme costings.
