United States
Site Map Contacts Hitachi Global Community
David Merrill’s Blog - Data Storage Cost Reduction Hitachi - Inspire the Next

David Merrill's Blog - The Storage Economist

Home > Corporate > HDS Blogs > HDS Bloggers > The Storage Economist
Products, Solutions and more

The Storage Economist

Considerations for Project-Based IT Funding

by David Merrill on Jan 25, 2013

There are probably a dozen ways IT departments get funding (primarily CAPEX) to handle new growth and daily operations. I am going to present a few of these traditional funding models, and some of the risks that these funding types may experience to non-traditional IT ownership models. I have been writing about some of these non-traditional methods for the past few months, and you can see them here:

Back to 1999 CAPEX Ratio
Challenging the Tradition of Depreciation for IT Ownership
Alternative Acquisition Methods
An 11-Step Program

The difference of these new modes is a pay-as-you go approach. Even if these methods reduce cost, it will cause a disruption (in the force) on how project-based funding works today. Let’s review the approach and the possible conflicts going forward. Again, there are dozens of funding models for IT, and this post will cover just 1 type of project-funding.

Some IT departments depend on new projects to bring company-approved funding to the table to acquire new storage, servers, apps etc. that the project needs. Characteristics include:
• Project brings CAPEX dollars to have IT purchase the needed hardware and some software
• This is a one-time infusion of cash; the project does not pay for on-going or recurring costs
• IT may be forced to provide 3, 4 or 5 years worth of assets for the project, even though it will take years for the project to grow into the capacity (therefore there is a lot of waste)
• Some IT departments use this cash to add capacity to the shared services pool of IT resource leadingnew projects to provide all the new cash for internal organic growth
• The project usually does not pay on-going costs that will exist over the life of the project, such as:
o Labor
o Backup services
o HW and SW maintenance
o Migration services at the end of asset life
o Monitoring, tuning, optimization
• Sometimes the project does not even pay for organic growth required during the life of the project
• In this mode, the IT department has to maintain a separate budget to cover the above costs. Sometimes new projects fund the on-going costs of older projects (sounds like a modified Ponzi scheme…)

Now if an IT department wants to consider a pay-as-you-grow or consumption-based model, there will need to be some pretty hard changes to project-funding methods
• A charge-back method will usually be needed as the service provider will charge on a per TB or per-volume basis
• Project funds that come into the front door will have to be placed into some type of escrow account to fund the OPEX model over several years
• Projects may have to change from a one-time CAPEX budget to an annual OPEX spending budget
• New incoming project funds may not be allowed to pay for older project OPEX costs (from the utility OPEX model) due to accounting and SOX-type legislation
• IT central budgets will have to undergo a transformation around run-rate costs and utility pricing that they provide for projects

Some of these accounting practices will require significant re-design, and in some cases may delay a move to utility or consumption-based IT resourcing. My next few blogs will review other funding methods and the impact to traditional accounting and funding practices.

Related Posts Plugin for WordPress, Blogger...

Comments (0)

Post Comment

Post a Comment

Current day month ye@r *


David Merrill - The Storage Economist

David Merrill
Chief Economist

Connect with Us


Most Popular

Switch to our mobile site