The UK Computing Services Association has issued a briefing note in an attempt to highlight the hidden costs of in-house computing versus facilities management. The Association says that a significant change in management philosophy is taking place, with organisations switching emphasis to concentrate on core activities. The drive for outsourcing non-core activities has followed the devolution of management responsibility to departmental, divisional or subsidiary level. This has resulted in companies finding that they have a surplus of computer resources at the same time as major technological advances are being made and smaller and more powerful computers are coming to market. Also, improved communications – increased speed and security – means that it is unnecessary for users and systems to be located in the same building.
Fuelled the growth
These factors, combined with a reappraisal of cost-effectiveness, have fuelled the growth of facilities management. Nonetheless, there are a number of factors to bear in mind, and key is the real cost of facilities management. First of all, evaluate proposals. The briefing points out that there are costs associated with the gathering and preparation of information. It is essential to prepare a statement of requirements and to agree the contractual commitments that may affect supplier charges. Only then can proposals be compared on a like-for-like basis and the expectations matched to supply. The evaluation criteria must be established, and sufficient time assigned for evaluation. The Association recommends that in an open tender situation, it is advisable to limit the requirement for a detailed tender response to a maximum of six suppliers. Apart from preparing for facilities management, users must look at the initial transfer costs. If the service is to come from the supplier’s data centre, costs will be incurred when kit is decommissioned, transported, installed and recommissioned. Likewise with the rerouting of networks. On the supply side, the facilities manager will need to be familiar with the company, operations and how services are to be delivered. The task is existing staff will transfer, but if not, there may be redundancy costs. The contract must be managed properly and few agreements remain unchanged over time. Changes should be handled through a variation procedure, and there will be costs associated with monitoring performance against targets. Every contract should be audited periodically to ensure that contract and service levels are being met.
The service bureau is dead: long live the service bureau! In the first decade and a half of business computing, it was normal for companies to get the payroll, and progressively more of their accounting functions, handled by a service bureau, which was originally all batch, but might install remote batch, and ultimately interactive terminals at the customer’s premises to put users closer to their data. The bureau went into what seemed like terminal decline as the in-house data processing department became the norm, but now the wheel has turned full cycle and outsourcing the task of providing computer services has become all the rage, only everyone involved now winces if you dare to suggest that the bureau is being reborn. By issuing a briefing paper on the pros and cons of outsourcing, and how to go about it, the Computing Services Association might be thought to be talking its members’ book, but the paper takes an even-handed view, and Janice McGinn has been reading it.
Large contracts ought to be audited annually, either internally or by a third party, but both will generate costs. Similarly, it is seen to be in the interests of both parties that the terms for renegotiation are specified in the original contract. The second plank of the briefing addresses how suppliers achieve savings when they provide facilities management. The first saving comes in economies of scale, since the overheads of the data centre, staff and hardware will be shared. Secondly, suppliers should know how to improve productivity through efficient
management and cost-effective technology. Thirdly, by leveraging buying power and exploiting aggressive negotiating skills, suppliers are able to cut costs. While it is difficult to define a standard method of setting up a cost centre, the briefing suggests that there are three generic types: resource cost centres; service centres; and overhead centres. The first is based on the resources provided to the user and include computer processing time, disk storage and printers. The second category is based on services available to the user, including micro support, training and development. The overhead cost centre includes expenditure on management and administration of the department.
Predetermined formula
Whichever the cost centre, any method should distinguish between direct and indirect costs, and the latter can be allocated only on the basis of a predetermined formula. Even where costs do fall into a specific category, employee costs for example, they should be broken down into basic components. The real cost of employing computing staff is estimated at between 1.8 and 2.3 times a basic annual salary. Other costs that have to accounted for when comparing in-house computing versus facilities management include those of spare capacity. Data centres are geared to handle peak loads, which may be infrequent but must be catered for and costed. Also, there are the costs associated with extra staff for special developments or for changes in skill requirements. Other factors, often overlooked, are the the costs of housing systems, the costs of decentralisation and retraining, and the advantages of a more flexible infrastructure that can react to business changes. The briefing concludes that facilities management can offer significant advantages, but only after rigorous examination and consideration. The Computing Services Association is based in High Holborn, London and it counts among its membership all the major UK computing software and service companies.
