Network Communications News (NCN) August 2016 - Page 15

hot topic COLUMN Counting the cost Steve Martin at the Electrical Contractors’ Association (ECA) looks at value engineering and cost cutting – and why the two disciplines are very different. N ews that nearly half (46 per cent) of the European IT leaders who took part in a recent survey by Claranet saw cost cutting as a core function was surprising. Although controlling outgoings is a key principle of business, focusing on cost doesn’t always deliver the best results. In some cases, it can have the reverse effect – especially if attempts to cut costs create a situation where further investment is needed. Understanding – and being able to prove – the difference between ‘cost’ and ‘value’ is a crucial aspect of managing budgets. Many businesses make cost cutting a priority, but doing so is merely a means of controlling expenditure, not managing return, and the difference between cost (a quantifiable expense) and value (worth), are significant enough to have a serious impact on a budget and on a business. Understanding – and being able to prove – the difference between ‘cost’ and ‘value’ is a crucial aspect of managing budgets. Of course, the IT industry is well aware of this. Over the last 10 years the role of IT professionals within a business has changed from one of facilitation – making sure that users had access to the devices, systems and software they needed – into providing support to a business’ marketing, sales and security functions – to name but a few. They have also become a key driver of business innovation – and able to save or make millions of pounds for a business if it is given the time and support required. The very fact that IT is now, in the majority of instances, judged on value rather than cost highlights how corporate attitudes towards the discipline have changed – and why placing an emphasis on cost doesn’t always deliver the returns – and the results – you might expect. With this in mind, it would be fair to suggest that the discipline of value engineering would be more useful to the IT industry than cost cutting. Value engineering focuses on identifying how every pound spent can deliver the best returns. It looks at ‘function in relation to cost’, and considers whether a reduction in costs will affect functionality, whereas cost cutting typically aims to reduce the amount of money invested – or expended – on a service. The subtle, but crucial, difference lies in the outcomes that result from the processes, as a change in supplier or a reduction in service can have a real impact on a company, its operations and its success. One key example of this would be the area of data centre commissioning – not least because it is an area where IT departments are increasingly taking a leading role. In this instance, appointing a company to design and build a data centre purely because they offered the lowest price during the tender process may not yield the best results. This is because a number of the businesses who specialise in this work won’t use any materials which they haven’t tested – and, as a result, often put in higher tender bids than those who don’t adopt this approach. Anecdotal evidence suggests going with a ‘cheaper’ but less experienced – or inexperienced – supplier because they offered the most cost effective option can cause issues in the long term. I’ve been told about multiple cases where a short term saving on the cost of a data centre contract was far outweighed by the scale of the additional investment required to enable the data centre to perform at its optimum level – far from ideal if a substantial investment has already been made. I’ve also been told that there are times where a firm has been unsuccessful in tendering to design and build a data centre, but is then brought back in later to audit or troubleshoot it when problems arise – a situation which is far from ideal for the client. Can businesses avoid finding themselves in this scenario? The short answer is ‘yes’ – but it requires them to be willing to look at the detail underpinning the quotes they have received, and invest the time to do so. It may seem laborious, but it enables those making the decisions to get the best value from the service – and from the supplier providing it. This approach is true for any instance where quotes are sourced and external service is provided – and for when budgets are being reviewed. By following the true principles of value engineering, businesses can ensure they get the most for their money and budget holders can make an educated decision about how their resources are invested – crucial at a time where IT professionals are playing an increasing role in business, and cost cutting is becoming a dated concept. 15 15 Hot Topic.indd 15 02/08/2016 12:07