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How Much Does it Cost to Spend Money?

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One of the expenses included in storage and IT economics is the cost of procurement. I discovered and documented this cost element about a year ago while working in Australia.

Anyway, I believe that traditional capitalization for IT will diminish over time, and we will move to contract or consumption-based contacts to secure IT resources in the future. I can image an advanced version of an app-store anddm12 facebook where I can ‘like’ a storage consumption model, then download it to my infrastructure to upload with my internal apps and systems.

In the meantime, we are left with more traditional procurement models that require a set of methods and rigor to get assets approved, justified, certified and priced correctly. The entire procurement process can take months and significant effort, so IT planners have become experts in forward-planning to meet capacity demands. There are many options to reduce the time and cost of procurement, but I wanted to start with some simple metrics that may helpyou get a jump start on efforts to reduce this time and cost of procurement.

The first step is to dollarize the cost of procurement. Easier said than done.

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Last March, Forrester released a paper covering eProcurement software and the impact this can have on the entire process. I found this to be an insightful read on the software automation side of the equation. Then a colleague sent me some information on the efficiencies of procurement personnel, and that the average procurement employee spends US $25M per year. And those employees burdened cost, on average in the US, is $112K.

Simple math then helps us to create a simple metric: to spend a million dollars on IT assets will cost (in labor) aboutdm3$4,500. Now there are other aspects of procurement that will not be in this number (such as RFI, ITT generation ad review, treasury funds, certifications) but assigning a rough cost of $5K to acquire $1M is an interesting start. This procurement cost can be seen as a tariff of 0.5% (.0005%) of all IT spending. Perhaps this is the kind of metric that can be used to start measuring the cost of spending money.

For other posts on maximizing storage and capacity efficiencies, check these out:
http://blogs.hds.com/capacity-efficiency.php


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