IT Costs - If Nothing Else (And There Is A Strong "Else"), It's About "Truth In Reporting"

My last blog "When David And Goliath Come To Terms, One Wonders What The Sub-Goliaths Were Doing" was about the absence of accuracy in reporting the true cost of IT. Here, I'll give my views, based on my work experience at 331 banks, as to why accuracy is more than just a good thing to do in compiling a P&L. An accurate IT cost is a major factor in taking initiatives to arrive at sound IT decisions.• Peer comparisons - Any rookie who has been in banking for at least a fortnight will have understood how bankers live by the rule of comparisons. That can be dangerous. For example, a $200 million bank in the Chesapeake Bay area that only makes boat loans (a former client) is going to spend far less on technology than a $200 million bank doing business in a broad based community like Baltimore (a former client).

• Most banks do not include IT-related human resource costs in the cost of IT. Just look at any annual report and you'll see that all HR costs are lumped together on one line item. Every survey I have seen shows that, generally, HR represents 40% of any bank's IT budget.

• Any decision to change a process, for example in-house vs. outsource, will inevitably raise the question, "What are we spending now?" If the total costs aren't documented, there will be one giant "oops" in the executive suite after the fact. And the lieutenants will have a lot of explaining to do. Take a lesson from the CIA. Get it right and stick to the truth.

• It's nice to be well informed and pay attention to what gurus offer. For example, last week, Gartner announced that global IT is expected to grow 8.7%. Several months ago, my calculation for banking specifically was a minimum of 7%. I know I tend to be conservative so I would defer to Gartner's projection. But a greater difference would be what number one applies that percent to.

In banking, it's generally accepted that peer comparisons are good measures. For example, any bank earning a 1% Return On Assets is not too shabby. "Return" is easy to measure and "Assets" is easy to measure. But a bank that spends 6% of its total operating cost on IT vs. a bank that spends 20%, doesn't mean a thing, because IT is measured by the rules of the measurer.

-Art Gillis artgillis.comIn banking, it's generally accepted that peer comparisons are good measures.