Shared IT services failing through negelect

Organisations still have little understanding of the resources and costs tied up in IT, despite that function accounting for a quarter of total costs. And that is leading to failure to make savings through shared services. These are the allegations in a white paper from enterprise performance optimisation firm ALG Software. Authors Richard Barrett and Pam Kearns highlight the challenges facing organisations that have gone for centralised IT shared services across business unit. They contend that, while these initiatives often generate initial savings through economies of scale, ongoing benefits only come if increased accountability and a common understanding of the factors driving cost are developed across the organisation. “In many organisations, the costs of shared services functions, such as IT and HR are simply apportioned to the P&L accounts of business units, based on some easily available metric such as revenue, headcount or full-time equivalents,” says Barrett. “Shared services departments tend to plan their resources and budget separately from the operational planning and budgeting process of business units. As the financial year progresses, the capacity of shared services departments and demands of business units can become grossly miss-aligned.” And hence the problem. The pair recommend that organisations pay attention to their costing methodology so that the IT costs are allocated according to business unit consumption. “Given the complexity that can result from multiple line items, services, cost drivers and business units, as well as the need to trace cross-charges right back through the system, the only way to understand shared services costs is by deploying an application capable of managing [that],” says Barrett. “Activity-based costing is one such application.”