As we move into 2022, you could be forgiven for confusing a plausibly-named Omicron operating system with Android or Apple’s Monterey. However, we will ignore these and instead look at the financial aspects of running your IT infrastructure and leave well alone the chaos caused by the Omicron and Delta variants.
With the Christmas break over, budget preparations will be beginning for many managers and finance teams, against a background of inflation above five per cent, rising costs of housing materials, sourcing/supply-chain problems and widespread remote working. Alongside these pressures are consequent expectations for housing providers to reduce their spending on other business areas, of which IT will be one of the main contenders.
Art vs. science
Budgeting should be more of a science than an art. The best IT budgets are aligned to your corporate or digital strategy, which itself won’t actually differ greatly from one housing provider to the next. After all, we all want flexibility, hybrid working, digitised services and online/self-service options for tenants. Underpinning that is the need to ensure our systems are robust, provide accurate reporting, integrate with other business application specialisms and that our cybersecurity is as strong as it can be.
The science comes from having a measure of risk, quality of the outputs, the efficiency of using software and hardware, and potential downtime from failures or planned updates. In short, the science is about following a moving target of maximising your ratio of outputs to inputs.
The artistic side of IT budgeting should be about deployment, user interfaces and making systems intuitive, and not about setting how much the organisation proposes to spend nor its objectives. There are some organisations who prepare detailed proposals with departmental managers for their finance teams to constructively challenge and scrutinise, only then for their trustees or executive team to knock off, say, seven per cent from a £100k budget and then proudly announce that savings of £7k have been made.
Defined outcomes
A clear scope is essential in producing an aligned and robust budget. Coupled with this is having defined outcomes such as:
- We want 80 per cent of transactions to be online;
- No hardware should be older than seven years nor running Windows 10 v2004;
- The ability to import property component replacement dates and values, plus easily adjust timescales;
- Users’ satisfaction levels for speed and performance to be above 80 per cent, or we might define success as five per cent higher end-user satisfaction than last year;
- Two-factor authentication for all remote devices connecting to our servers.
If you’re working on a complex or broad IT project then the business case evaluation (or budget) might have factored in contingency or padding on each milestone activity; this should be avoided because it doesn’t allow accurate comparisons between the actual results and objective expectations. Instead a project contingency is better because it’s harder to hide inefficiencies or show true obstacles that have arisen during deployment. Equally, finance teams should avoid any corporate pressure or temptation to prepare an artificially low budget in order to get approval, with the hope that prices or specifications will reduce.
Input-output ratios
One sector-wide problem we face is the shift towards software as a service (SAAS), in that it is priced with far too large a premium. Deploying software into the cloud may help with remote working or bypassing very local disruptions but the input-output ratio is heavily geared in favour of the IT suppliers; for little additional output benefit, the inputs of cost and administrative time significantly rise.
The historic on-premise model for using software usually includes an annual licence fee (typically dependent on the number of users), with updates every 1-2 years. Server hardware is often from HP and over the past 20+ years has been very reliable. If you had no security or performance degradation then the software lifespan could be stretched to 6-7 years, and the replacement cost was often not much more than was originally paid, due to costs falling in real terms. For example, Microsoft Office, for all its day-to-day mainstream programs, was a single cost for the lifetime that you owned the computer, generally between 4-7 years.
Fast forward to the current IT environment and companies are pushed towards monthly rental options, based on factors such as number of users, duration, data volumes and even quantity of transactions.
Introducing SaaS bundles
Two decades ago telecoms providers moved away from individual billing for each call, text or photo message (remember them?). The introduction of ‘bundles’ made budgeting far easier and usage exploded. This was followed by the likes of Viber and WhatsApp that effectively meant speech and photo messages were unlimited and had no incremental cost. The SaaS business model is moving us towards how telephony used to be, by making us pay for each area of functionality on a per-usage basis.
This is a great opportunity for IT firms to increase their revenues by touting cloud services as being the solution to everything. Microsoft now charges £9 per user per month for Microsoft 365 (renamed from Office 365), equivalent to £540 over five years. In contrast, Microsoft’s on-premise charity pricing was £60 for the 4-7 year lifespan. Sure, we now get some extra functionality such as online storage, OneDrive and emails from any browser, but we could have similar outcomes just from buying cloud storage and using a modern phone.
The real cost of cloud
I know of one popular cloud-based housing management system costing £29k per year for around 20 users and an on-premise provider’s annual licence charge of £18k for nearly 30 users. Admittedly, on-premise software will need occasional time from consultants for upgrades as well as perhaps higher server specifications for backup and storage. However, these are one-off costs and housing providers should look at their specific circumstances and build those into their IT strategies rather than automatically accepting cloud as the way forward. Having said that, IT suppliers are making on-premise software harder to buy, while promoting extra functionality and add-ons to give the perception of higher value.
If you recall from earlier, one of the key control measures is to have a clear scope and defined outcome of what success looks like. That reminds me of a recent comedy sketch about ordering a Chinese takeaway with the family so disappointed that free prawn crackers weren’t included due to the current supply problems. They phoned the restaurant to learn, however, that they could be bought. In this example, the ‘free add-on’ is a valued and desired product but most of the time we make no use of these and they should therefore have no bearing in our decision-making processes.
Built-in flexibility
A good IT strategy will accept that technology underpins almost every business function and should build in flexibility. In one area of Glasgow last October, BT Openreach suffered denial of service problems that lasted about a week. There was no access to any cloud-based software, including from office premises. Had the housing and operational software been on premise then there would have been no disruption to any office-based staff.
Internet or broadband infrastructure therefore becomes the weakest link here, over which housing providers have no control. If a car reverses into the street cabinet for your office or vandals attack it then your connectivity will be gone. An IT strategy should take this into account and build in resilience rather than just accept the IT industry’s sales pitch that the cloud is the solution to offering lower-spec servers, avoiding time to carry out local security or functionality updates and that access can be from anywhere.
Lastly, legislation and compliance is also a critical area nowadays. Larger housing providers will employ a dedicated data protection officer but the requirement to ensure that data is accurate, deleted or corrected (if wrong) means there is an obvious resource needed here and it will be heavily skewed towards IT and your digital records. This shouldn’t be forgotten during your annual budget process, although in most companies it will be down to departmental users to ensure these tasks are carried out in line with corporate policies and retention schedules. However, it would be prudent to include a specific budget resource for overtime or agency assistance if this area has been scaled back during the past 18 months.
Gamal Haddou is the finance and IT director at Cassiltoun Housing, and a trustee for Cathcart & District Housing.
