Technology is changing so quickly in unprecedented ways. Concerns about new AI tools, the cloud, sustainability, data privacy and a host of other issues are changing the daily roles of both CFOs and technology chiefs across all organizations.
Understanding the key drivers of technology costs is crucial to making sure we can manage the onslaught of budget requests from our technology teams and mitigate excessive, unwarranted spending due to a “better safe than sorry” mindset. Companies depend on technology to increase productivity and streamline operations, to the point that all companies are now technology companies. But the very tools that are designed to help make us more efficient are driving up costs because, to put it plainly, they’re not being managed efficiently.
It is crucial for CFOs to have a thorough understanding of the total cost of ownership (TCO) for their technology systems, just as you would want to understand the TCO of a new car purchase. To achieve this, a productive and transparent relationship between the CFO and CTO must be forged to ensure effective financial planning and decision-making.
Here are the key principles CFOs and CTOs need to understand about the true costs of
technology in the age of cloud computing and rapid innovation.
TCO of code and data
The design choices we make for our enterprise applications in terms of design, coding,
processes and data modeling all have lasting impacts on the bottom line, both from a resource perspective, but more importantly on the financials. Most applications are in use for 10 to 20 years; however, technology teams are mostly focused on the here and now.
At my company, Fortified, we identify the costliest processes in a system and then ask the technology team if they think these could have been designed 30 percent more efficiently. The answer is always, yes. Then, we ask them to think about what the financial impact of these costs could be over the next 20 years. It’s usually a rude awakening as most teams are too busy working on their product roadmap to consider the true costs of what they’re developing.
But the true TCO of code, data and processes long term has ramifications. Inefficient code created today will cost more in support and maintenance down the road, independent of the resource cost. Inefficiency has a price, and unfortunately, this price is often overlooked when calculating tech costs.
Collaboration is key
CFOs and CTOs need to work together to forecast the TCO annually over the life of an application for budgeting to be more reflective of the true costs to run the enterprise application. This process involves identifying the potential cost takeouts as well, because if code can be 30 percent more efficient, this would further reduce the cost. The CFO is not the only one who needs this data; everyone from the developers to the management does.
Our goals as technology professionals should be to understand the efficiency and costs of the features or code we are creating before they are promoted to production. This is the only way to truly control the costs of the application and enterprise cloud bills, which are often way over budget since this mindset is not currently built into operations.
At Fortified, we’re writing algorithms that allow our team and clients to see the efficiency and total cost of their technology systems, along with other metrics. Just like a car, every server has an engine (capacity) and gas mileage (efficiency) and is run at a level of speed that will either tax the system or is sustainable. We check these regularly as a matter of course for our cars; why not for our technology?
The true costs of cloud computing
A survey from 451 Research found that 57 percent of large enterprises worry about cloud costs on a daily basis. Why are cloud costs so troubling? The answer is because
they are extremely difficult to predict, a phrase that causes grief to many a CFO trying to budget for technology costs in years to come.
Prior to the cloud, companies would pay for their computer hardware upfront, along with
warranties and the electricity to power the systems, and you more or less knew what your costs were. The cloud model now is consumption-based, meaning you pay as you go or pay for what you use. The problem is that no one can accurately predict what they’ll be using in an era of rapid technological advancement and uncertain growth trajectories.
Today, if a CFO wants to know what’s driving an increase in cloud costs, the only details he or she receives are down to the resource or server level. He or she cannot drill into the application, process or code level to determine what is costing the most.
Tech debt will get you if you don’t watch out
Another way CFOs and CTOs can work together is to control technology debt. Most application development is centered around new features that need to be developed quickly because the market cannot wait and competitive threats loom large. But this mindset has led to the notion of technology debt (aka technical debt or tech debt), which results from the frequent deployment of “quick and dirty” solutions at the expense of a well-thought-out approach.
Tech debt results in all the things you would love to do to enhance your system but haven’t gotten around to doing. Often, this includes fixing or improving existing technology, which falls by the wayside in favor of new, bigger, better. All growing organizations have some degree of tech debt. Mounting tech debt will likely increase your support, licensing, hosting and resource costs to fix, thereby increasing your TCO.
In order to address tech debt, developers need to become stakeholders in the business, not just taskmasters or feature builders. Additional information needs to be funneled to the executive or manager level that will help influence their decisions to have developers prioritize fixing bad or inefficient code or processes.
Having transparency into the true costs of your technology systems for CFOs and CTOs alike means knowing not just how much you spend from a budgetary perspective, but how much it actually costs your company to run and maintain the technology. What’s more, it means understanding how much value the technology brings to your business.
A productive relationship between the CFO and CTO is essential for transparency in technology spending. The CFO needs to know what the costs are for technology investments, and the CTO needs to justify these costs. By working together, the CFO and CTO can ensure that technology investments are aligned with the company’s overall strategy.