IT needs to get serious about Asset Management

26 Jun 2012 •

I am going to start this blog post with a quiz. Which of the following scenarios is the odd one out?

A business services organisation did not recover all of the fees it was due because of poor quality customer data
A telecommunications firm received a large licence charge from a major enterprise software vendor because they had unwittingly exceeded a key licence metric
A transport business continued to provide maintenance services unnecessarily for buildings that it had sold off
A government department delayed an expensive but critical applications upgrade in order to reverse engineer a business case for the project
A utility company had no software support in place for an application because the two people who had the necessary experience took redundancy in a re-organisation.

So which one did you pick?

The answer is no. 3 as this was a rare failure of physical asset management. The others are all examples of failures of IT asset management or more accurately the absence of IT asset management. How many other examples have you come across? I could have included examples of software and IT equipment going out of support unintentionally or I could have mentioned organisations which have idle or under-utilised data centre resources.

For all the talk of the importance of IT and how data and information are critical corporate assets few organisations back this up with much action and the industry as a whole provides little support for any organisation which wanted to take IT asset management more seriously. Would you like to help me change this? In this blog I share some thoughts on the nature of IT assets, explore why we in IT do such a poor job currently and provide some insights into how we can get better. Add a comment or use the Twitter button at the end of the blog if you want to get involved.

The anatomy of IT assets

In certain industries and functions asset management is a well understood and mature practice. The Institute of Asset Management defines the discipline as acquiring, operating, maintaining and disposing of assets in order to realise their value. The IAM provides a number of guides which are an easy to read introduction to the topic and although they are necessarily generic and high level they cover some simple building blocks such as asset condition, asset life-cycles and asset systems and starts to build a framework for decisions about making investments in assets. Could we use this as a foundation for improving asset management in IT?

Physical IT assets

Some recognised good practice can be directly applied to some classes of IT assets. Servers, storage, desktop equipment and communications equipment share many characteristics with traditional physical assets and could be managed using traditional asset management techniques. In the telecoms sector and some other utilities it is becoming increasingly difficult to distinguish between operational and IT assets and these industries should be a good source of insights and practical techniques. With a few extensions bought in software and licenses can be treated much like physical assets.

Once in use these assets may have some potential re-sale value but their contribution to an organisation is almost entirely indirect as a necessary platform for systems and data. This is one of the reasons why setting the right level of investment for IT infrastructure assets is difficult. The construction industry and the public sector face similar challenges with very different types of infrastructure and the occasional grid-lock on roads or the boom and bust cycle in prime office accommodation show that it can be very hard to get the balance right.

Applications and systems

IT systems (including in-house developed software, configuration information associated with IT equipment and packaged software and even spreadsheet formulae!) are more of a challenge. These assets have little value in the buy-and-sell sense but enormous value in terms of allowing organisations to operate. The life-cycle of these assets including how their value changes over time (degradation, depreciation or appreciation) is not well understood and they have complex dependencies on other assets, in particular the underlying IT infrastructure.

Most organisations exploit accounting rules to create capital assets associated with their IT systems but aside from sharing a name the financial representation of a system is usually managed completely independently of the system itself. The accounting value of the asset is usually derived from the project cost of creating the asset and then depreciated at an arbitrary rate over time and bears no relation to the actual condition and contribution of the system.

Data and Information

Perhaps the most challenging class of IT asset is, ironically, the one most discussed in the media - data and information. In a very small number of cases data sets have a clear commercial value and are traded and managed like physical products. Marketing lists and books fall into this category. In most cases data and information assets are created as a side effect of the use of systems, they are encoded and structured for the efficient use of individual systems and are managed as part of the system.

Given the repeated media stories about the value of knowing about your customers, data being a key corporate asset and the potential of Big Data it is disappointing that there are so few attempts to quantify the value of information. It is possible to find academic work in this area but much of it values information in relation to the value of commercial businesses and we know from the dot-com bubble that this can be very unreliable.

Blame the finance department!

At the beginning of this blog I shared some examples of poor asset management. All of these were based on actual situations I observed in organisations that I have worked with. An initial analysis would show a variety of different underlying problems including broken processes, poor staff performance and lack of governance. These could be traced to other issues such as an emphasis on projects rather than assets, lack of investment in IT or poor IT and business alignment. All of this may well be true but there is a much simpler explanation. Organisations put their attention into managing the assets which directly affect their value. In most organisations and for most IT assets this is simply not the case and so IT asset management is not given a great deal of attention. IT value is a controversial subject. 10-years on, Nicholas Carr’s question about whether IT matters can still generate strong reactions both for and against. Regardless of where you stand on the principles the fact is that in corporate accounts IT assets are valued based upon their direct purchase or construction costs and not on their contribution to the organisation. Information, which is accumulated through the use of systems, often has no accounting value at all. Since IT rarely features prominently in the accounts any shifts in the value of IT assets will have little impact on overall corporate value and this makes any investments to improve or protect the value of IT assets hard to justify.

If the positive value of IT assets is not sufficient to drive good management what about the cost of asset management failures? Once again this is a controversial area with powerful voices raised on different sides of the debate. Failures of IT can have a high profile within organisations and occasionally more widely but few of these can entirely be attributed to poor IT asset management and it is quite reasonable to question how many of these would have been prevented if more had been spent on IT asset management. Perhaps the current poor state of asset management in IT is actually a rational response to all of this uncertainty.

Practical steps for IT asset management

So if it is clear that IT assets are important and should be managed but it is not at all clear, especially to those who are not IT specialists, how much management attention and resource should be committed to this process what should a CIO do? I don’t suggest you launch a programme to create a method for valuing your IT assets. Leave this to the relevant academic and professional communities so that it can be done thoroughly once and then shared across the industry. For example, there is a growing body of work about the idea of technical debt which could become a useful tool for making decisions about IT asset management. In advance of new industry developments CIOs can take the opportunity to introduce asset management concepts into existing IT management processes. Some examples are provided below.

Adopt recognised good practice in enterprise architecture. Aside from all sorts of other benefits this will create a framework for identifying and analysing IT assets and the dependencies between them. It will also provide a shared language for engaging other parts of the business about IT in general and asset management in particular.
Explicitly acknowledge key assets in your business processes and engage appropriately senior business sponsors to provide oversight. Test your policies for allocating funding and resources to make sure they support your key assets appropriately.
Set out a life-cycle plan for key assets defining principles such as when and how they will be refreshed. As an example there is more on this topic for applications in another blog post.
Include a provision for the maintenance of key assets in medium and long term portfolio plans. Use estimating factors or benchmarks if the specific timing and scope of the work is hard to assess in advance.
Call out and challenge obvious bad practice e.g. weak whole-life planning in the business cases for projects and programmes.

I suspect that IT asset management will continue to be overlooked until the industry finds better ways to properly account for the value of IT assets. In the meantime CIOs can take some practical steps now to avoid repeating some common mistakes and make sure they look after their key assets.

Add a comment or use the Twitter link below to let me know what you think.

Valuable vs. fun: Learning to love IT Asset Management by @PeterKretzman

How to monetize your data

Data as a resource

The biggest barrier to change - accounting by @BDuperrin (thanks to @ChrisDPotts for the link)