Asset Management, Part One

Controlling costs is a fundamental business practice, but many companies fall short in one area: managing IT assets.

According to a 1997 Sentry Technology Group (Westboro, MA) survey of 1,600 companies, approximately 10 percent of total IT purchases can be described as inefficient spending. In other words, on average, 10 percent of a company's IT spending goes to unnecessary or underused equipment and software. The survey projects that in 1997 alone, companies could have wasted a total of $66 billion through bad IT spending practices.

One way to combat this problem is asset management, the careful tracking and analysis of IT equipment and software through their life cycle within an organization. By instituting a solid asset management system and adhering to good asset management practices, a company can realize significant cost savings.

Asset management addresses two primary issues: How a company spends money on its IT infrastructure, and how it ensures it is receiving the full value of its investment. For this reason, asset management is not confined to the IS department, but reaches across departments and disciplines within an organization. For example, it touches upper management, which validates purchase requests ; accounting, which tracks expenditures; and individual departments, which request resources to meet their IT needs.

In this tutorial (part one of two on asset management) I'll introduce you to the topic of asset management by uncovering where IT assets exist in your company and exploring the various forms they can take. I'll also point out the most common ways companies waste money and resources by mismanaging these IT assets.

Do You Know Where Your Assets Are?

Understanding exactly what IT assets are is the first step of any asset management strategy. Can you list what assets your organization owns? While such devices as computers, servers, and routers are obvious assets, many others are overlooked, leading to redundant spending and mismanagement.

Perhaps the single biggest investment is tied to your computersboth client workstations and servers. Of course, each computer you own is an asset you need to be aware of, but you also need to account for the other assets linked to each computer. For example, computer memory, including RAM and hard disks, is an asset, as is the computer's processor. In addition, any peripheral device attached to or installed in the computer, such as a CD-ROM drive, modem, or NIC, is an asset.

Aside from a computer's hardware, the software running on each machine is another asset you need to account for. This includes the operating system software, the applications you've bought and installed on the machine, upgrades, any in-house developed applications running on the machine, and so on.

Your network infrastructure also contains a multitude of assets, including printers, hubs, routers, switches, and cabling. Depending on your network environment, the list can go on and on.

While physical assets are fairly obvious to understand and identify, other assets are not. For example, software licenses, hardware and software warranties, maintenance and support contracts, and outsourcing deals all represent money your organization has spent to build and run its IT infrastructure.

To this list you can add any IT equipment your organization leases, the data lines for your WAN and remote access services, and any Internet service you purchase. Because you've invested money in these items, you ought to consider them IT assets.

How Companies Mishandle Assets

Companies mismanage their IT assets in several ways. One of the most common has to do with how companies value and use their computers. For instance, each computer in a company represents a dollar value, but in many cases this value isn't necessarily the mere purchase price.

When a company first purchases a set of computers, each computer costs a fixed amount. However, if you follow the computer through its life cycle in an organization, you see that the amount of the investment usually changes. For example, after the IS department receives a purchased set of computers, computer support usually configures the machines with the appropriate settings to work in the company's network environment. IS also installs software and any other peripheral devices users need. So, as you can see, the computers have already increased in value.

In addition, not all computers receive the same setup. For example, the ones headed for the accounting department receive the appropriate financial software and database front ends, while the remaining systems are outfitted with general applications such as an e-mail client, a word processing program, a browser, and so on. Obviously, each set of computers now has a different value, depending on what software is used.

The value of these computers may change again when they receive new peripherals, such as a faster modem, or additional RAM and software upgrades.

If your company neglects to track the assets that have been added to each computer, it may underestimate the computer's real value and not receive a full return on its investment. For example, once one of these machines reaches the end of its life cycle, you should redeploy associated software licenses to workstations that are still in use. Also, you should reclaim usable hard disks and RAM, as well as other peripheral devices such as NICs and internal modems. By doing so, your company won't have to spend more money purchasing these items for computers that need them.

Without a good assessment management system in place, you might not be able to detect these "hidden" assets in an old computer. As a result, you may end up wasting money by purchasing redundant IT assets such as RAM or software licenses.

Software Snafus

Along with PCs, software licenses represent another major IT expenditure, as well as another common area of mismanagement.

As previously mentioned, licenses are sometimes buried within older computers, which often descend down the corporate food chain to other users. For example, a computer purchased two years ago for an employee might have an associated database license attached to it. After a couple of years , the computer might be passed down to an administrative assistant. If the assistant doesn't need database access, that license is going unused and is a wasted asset.

Overbuying is another form of license mismanagement. For example, if your organization buys a 100- user , concurrent license for an application, and only 50 users use it at any given time, you've just paid for twice as many licenses as you actually need.

In addition to overbuying licenses, companies often overspend for them. Typically, this problem is linked to how an organization procures software for various departments, and how those departments communicate with one another.

Often, departments within an organization make IT decisions according to their own needs. For example, the personnel department, having determined that Access is the best database for its needs, decides to switch to Access for its 100 employees and puts in a request to buy the software and the appropriate licenses. Meanwhile, another department in the company is growing frustrated with its antiquated database package and decides that within the next six months it will also purchase a new system for its 50 users.

If the company doesn't have centralized procurement, it may end up investing in 100 Access licenses for the personnel department, then buying another set of 50 licenses within a few months. If it had a proper procedure for managing its software needs, the company could get a better deal from the software supplier by purchasing the licenses in a larger volume.

Ultimately, a company can optimize its buying power through volume purchasing. But, by not knowing how and when its departments purchase software, the company may let this opportunity to save money slip through the cracks.

When dealing with vendors , knowing what IT assets you already have and which ones you actually use gives you some leverage. To take the previous example, let's say your organization purchased 150 licenses for Access. When an Access upgrade is released, the vendor may call you and say it's time to upgrade those 150 licenses. If you don't know how your company uses Access, you may just stay the course and purchase those licenses.

However, if you've kept track of your organization's Access usage, you may realize that not all 150 licenses are being used. Maybe your company is regularly using only 100 of those licenses. With this information, you can make an accurate purchasing decision and avoid purchasing 50 unneeded licenses.

Along with overbuying software and overspending for licenses, companies sometimes buy software they don't need. For example, a company may purchase a software suite for its employees, who use only three of the applications. In this case, the company is paying for additional applications it doesn't need. It may be cheaper for the company to buy only those applications that are used.

In general, it's a software vendor's duty to sell you software. The more you know about the software your company already owns and how it uses it, the more immune you'll be to persuasion. Of course, this also applies to hardware vendors.

Signing On The Dotted Line

Aside from assets such as computers and software, your company probably has assets in the form of maintenance and support contracts, warranties, and leases. Like their physical counterparts, these assets are often mismanaged, leading to a poorer bottom line for your organization.

In general, companies need to keep track of the maintenance and support contracts and warranties they enter into with outside vendors. If a new computer has problems and is still under warranty, investing the in-house time and labor to fix that computer is a waste of money. Without a good system for tracking warranties and tying them to individual properties, it's hard to know whether an individual computer is still under warranty.

An even worse scenario is when a company actually pays a vendor for support or maintenance on IT equipment and then puts in-house staff to work on it. In this case, the company is wasting not only the money it has spent on vendor support, but also the money tied to its own IS support person.

Another example of a contract pitfall is the company that has lost track of which support contracts apply to which IT properties. If the company no longer uses the software or equipment under contract, it is paying for support it doesn't need.

Equipment leasing also contains some hidden money traps. As mentioned, your organization ought to keep track of the life cycle of its IT assets and how these assets change during that cycle. In some cases, you may find you've added investments to these assets. For example, say you add memory to several machines you've leased. If you don't keep track of these additions, you won't know that the computers contain the memorywhich is rightfully yours and could be used productively elsewhere in the companywhen you return them to the leasing vendor.

Overall, your organization needs to keep track of the various vendors with whom it does business. This practice can uncover other forms of asset mismanagement. For instance, you may discover you're paying multiple vendors to provide similar services. By consolidating vendors, you can reduce this redundant spending. Also, by offering more of your business to fewer vendors, you may be able to leverage your buying power to cut better deals.

Coming Soon ...

So far, we've discussed where IT assets exist in your company and the ways in which companies often mismanage them. In an upcoming tutorial, "Asset Management, Part Two," I'll give you some guidelines about how to develop an asset management plan and system for your organization. Along the way, you'll learn how asset management can benefit your organization, both operationally and financially . In addition, I'll cover the types of asset management solutions currently on the market and some practices that will help ensure that your company is spending its IT dollars wisely.

This tutorial, number 118, by Lee Chae, was originally published in the May 1998 issue of Network Magazine.