Maximizing IT Investments Through Managed Services

One of the major challenges small and medium-sized businesses face is maximizing available resources without affecting employee productivity and operational efficiency. While hiring and training additional staff is an option, utilizing managed services can provide businesses an effective solution to their IT management needs.

Many businesses now rely on IT systems to provide essential services to internal users and clients. From basic network connectivity, to remote data access and cloud computing services, a properly managed IT environment can considerably improve productivity and efficiency throughout the enterprise. However, IT systems require constant monitoring and management, which can be a time and resource-consuming activity for organizations with limited financial and human resources.

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Managed services are structured to take over an organization's day-to-day IT management tasks. Depending on a company's requirements, managed IT service providers can handle specific segments of their infrastructure, or deliver an end-to-end solution that covers every aspect of their IT infrastructure.

Outsourcing IT management tasks to professional service providers offers a number of distinct benefits over maintaining a large pool of in-house IT professionals:

• Enhanced operational efficiency. In-house IT personnel often need to multi-task and work with limited tools and expertise to manage an organization's IT infrastructure. This can lead to a more reactive IT management approach where IT staff only deal with problems as they arise. Professional managed services can supplement the capabilities of in-house IT departments, and enable them to implement a proactive IT strategy where potential IT issues are immediately reported and addressed before they affect operations.

• Cost savings. Employing additional staff to handle the support requirements and IT infrastructure of a growing company can be a costly proposition. By leveraging the expertise and systems of a managed IT services provider, organizations can avoid the costs of hiring and training personnel to handle specialized IT tasks.

• Improved security and system update procedures. Failing to update software and hardware can lead to serious security and operational risks. Managed IT service providers can ensure that their clients' IT systems are updated as soon as software patches become available. This minimizes the risk of system downtime and security vulnerabilities.

• Capacity planning and resource scaling. Fast-growing companies in high-demand industries can easily outstrip their available IT resources. Processing power, storage, memory, and bandwidth are factors that can affect the efficiency of a corporate data system. Professional IT management services can monitor the state of an organization's infrastructure and provide essential data that IT managers can use to determine future capacity needs and performance trends.

Outsourcing IT management functions to managed services providers can be a more cost-effective solution for long-term IT infrastructure management and support. By leveraging service providers' systems and expertise, organizations can better focus on their core business processes and maximize available resources.

Maximizing IT Investments Through Managed Services

Discover Profits Through Activity Based Costing

As businesses grow and expand, the business owner needs to know further details about the sources of revenue, costs and profit. Many people believe the 80/20 rule can apply. For instance, 80% of their profit is coming from 20% of their products or services. That may be correct but there is a more definitive method to discover the exact source of the business profits. This method allows the business owner to identify what product and services are the true profit generators.

This method is called activity based costing or ABC. Note: Activity Based Costing is a management reporting and decision making tool, it is not appropriate for accounting records as it allocates most of the company's overheads, not just those overheads that are supporting the direct production or service delivery. It removes the assigning of an "overhead percentage" or overhead lump sum to the business to obtain a profit number.

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Let's take an example of a computer hardware company. This company sells computer hardware but also has a services division. The services division will host client servers as well as provide software as a service or cloud computing. Our company is a medium size business and it does not have separate management teams overlooking each area of the business. The human resources such as technicians and sales people work in both the hardware and services business.

In a standard model of accounting all revenue will be recorded and the cost of sales would be removed and we calculate a profit or loss. Revenue and product margins will be visible but some of the important costs slip into a general cost of sales account, or are hidden elsewhere within the accounting statements of the company.

It should be noted that because ABC allocates different overheads and different costs than standard accounting methods, the margins we can see from ABC are usually significantly different, and prove to be a better tool for making management decisions.

If we recast the business accounting numbers into an activity based costing report we could find deeper meaning or the "behavior of our costs" in the numbers.

For instance:

How much of our overhead costs are allocated to service the customers, whether they place an additional order or not? This could be the sales force maintaining existing relationships and the cost of acquiring new clients. What are the indirect costs required to manage the production/delivery of what the customer is buying? This could be the production area overheads such as supervisors, rent, and depreciation of front line equipment, delivery vehicles and so forth. Are there indirect costs associated with merely receiving an order from a customer? There may be a need to schedule with production to ensure the order can be satisfied, to buy any materials and supplies to satisfy the order, the production line may need to be modified to accommodate the order.

Once we understand the behaviors of the costs then the "true" overhead costs required to deliver the product or service to a customer are revealed to the business owner.

The result can be quite astonishing. Perhaps the business owner will find that the 15% product margins on the computer hardware sales are being eaten up by the free installation costs. The software as a service provides the business with 60% profit margins, 20% of the sales revenue and 80% of the overall profit. This kind of information allows the business owner to market their product differently. Emphasis on converting hardware customers to software as a service clients with 15 days free trials will allow the hardware to be a loss or break even leader into the client. The hardware business is now known to be the lead generator for the software as a service business. Or the business owner may find that the 15% margins on hardware sales are not enough to support the service and administrative costs. The owner now has information that can be used to transform the business from a hardware supplier to software provider. Another software as a service offering can be provided as the basic infrastructure is in place and the expansion of services can result is higher margins and better cash flow.

Activity Based Costing is a powerful decision making tool for the business owner. It can be the difference between the business breaking through or breaking down.

Discover Profits Through Activity Based Costing