Understanding IT costs and IT value

(1)

Understanding IT costs and IT

value

BERNICE VAN DIJK

University of Groningen

Faculty of Economics and Business

Master Thesis - Business & ICT

University Supervisor: prof. dr. E.W. Berghout

Company Supervisor: drs. S. van der Linden

(2)

2

PREFACE

This master thesis is the result of research conducted at M&I/Partners based in Amersfoort, the Netherlands. Moreover, this master thesis is also my final report for the Master of Business & ICT at the Faculty of Economics and Business of the University of Groningen. The internship at M&I/Partners lasted for seven months and has allowed me to gain significant practical experience. Therefore I want to thank M&I/Partners for giving me the chance to do my internship there. I would also want to thank my colleagues at M&I/Partners who helped me during my research with providing information and moral support. In particular, I would like to thank Drs. Sanneke van der Linden, my company supervisor and a senior advisor, for all her help with conducting my research and her continuous support through my entire research.

Furthermore, I would like to thank Egon Berghout, my supervisor at the University of Groningen, for recommending me to M&I/Partners. I would also like to thank him for his efforts in giving me feedback and revising the several drafts of my thesis.

Finally, I would like to thank my family and friends for all their help and moral support through my entire study.

(3)

3

ABSTRACT

This thesis is written as a part of the completion of the Master Business & ICT at the University of Groningen. The problem statement in this research is defined as follows:

What is the relationship between IT costs levels and IT value creation?

For organizations it’s difficult to perceive benefits (returns) on their IT costs. One of the main reasons is that IT is still relatively new and is also rapidly changing. So people have to adjust and therefore it’s hard to get familiar with IT costs. Studies in the IS literature on the impact of IT costs on the productivity and performance of an organization have provided mixed results.

This report will build on the existing literature and try to give more insights of the relationship between IT cost and the IT value creation process. In order to give more insights the ICT Benchmarks of M&I/Partners in three industries (housing corporations, municipalities and hospitals) are analyzed. IT value is represented as the IT benefits, these benefits are linked to the IT costs of an organization. The analysis shows that linkage between IT value and IT costs is different per industry. However there are a lot of organizations with comparable IT cost levels with different IT Benefits.

(4)

4

1. INTRODUCTION

1.1 Initial Motive

Until the 1990s most organizations weren’t interested in evaluating the costs of Information Technology (IT). Lincoln (1990) stated that IT costs should be seen as an ‘act of faith’, because of the low IT costs compared to other costs and investments of an organization. However since the 1990s the IT costs started to impose a substantial burden on the financial resources of an organization. Dutch organizations invested 15.334 million Euros in IT capital (computer hardware, software and electronic networks) in 2009; the total capital investments made in the Netherlands were 111.080 million Euros (CBS, 2010). In figure 1 can be seen that the total IT investments made in the Netherlands are increasing since 2005, even though the total capital investments are decreasing in 2009.

0 20000 40000 60000 80000 100000 120000 140000 2005 2006 2007 2008 2009 Years Inv es tm ent ( m il li on s)

Total Capital Investment Total IT Investment

Figure 1 - IT investments (CBS, 2010)

IT costs isn’t a broadly defined term in the literature, it is assumed that IT costs is an unambiguous term that doesn’t need any explanation. Van Arendonk, van Oirsouw and Spaanderman refer to IT costs as the monetary value of all production assets that a company should improve so it’s able to connect its information management to the information needs of herself and her environment. According to Berghout and van Maanen (2002) IT costs are the financial representation of the sacrifices an organization makes in order to produce. This definition of IT costs makes a clear difference between IT costs and IT investments. IT costs consist of the depreciation costs and exploitation costs, IT investments are considered to be an expense instead of costs. In this thesis the following definition of IT cost will be used:

“IT costs are the financial representation of the sacrifices an organization makes in order to

(7)

7

Many organizations perceive very little to none benefits (returns) on their investments in IT. KPMG conducted a survey on releasing the value of IT among 124 IT decision makers, the results can be seen in figure 2.

Figure 2 – Payback of IT investments (KPMG, 2008)

This survey illustrates that only 4 percent of the IT projects always deliver the expected business benefits (KPMG, 2008). Of IT projects 4 percents rarely delivers any of the expected benefits to the organization. The other 92 percent of the IT projects nearly always or sometimes deliver the expected benefits for the business. Combining this result with the data from CBS, it can be argued that Dutch organizations invested 14.720,64 million euro in IT without getting the benefits they were expecting.

Studies in the IS literature of the impact of IT costs on the organizational productivity and performance have provided mixed results. Some studies concluded that there was little relation between IT investment and performance (e.g., Ahituv & Giladi, 1993; Roach, 1987; Strassman, 1985), this resulted in the motion: “productivity paradox”. Solow (1987) commented on this motion: “You can see the computer age everywhere but in the productivity statistics”. Meanwhile other studies dictated a positive relationship between IT investment and performance (e.g., Harris & Katz, 1991; Brynjolfsson & Hitt, 1996; Bharadwaj, Bharadwaj, & Konsynski, 1999; Stiroh, 2001).

There are several explanations of these mixed results in IS literature. Brynjolsson (2003) argues that these mixed results come from the redistribution of the profits of IT costs. Deveraj and Kohli (2003) state that there are mixed results because of four reasons:

1. The sample data isn’t representative or too small.

2. The lag effects between IT adoption and organizational performance are not examined because of the limits of cross-sectional data analysis.

3. Control variables are absent or limited used.

(8)

8

This study will build on the existing literature and try to give more insights of the relationship between IT cost and the IT value creation process. This study is based on the benchmark studies of M&I/Partners. These benchmark studies are held in three areas, being the housing corporations, municipalities and hospitals. Since 2002 M&I/Partners is conducting a yearly benchmarks to review the IT costs, IT maturity and IT functionality of organizations.

With these high investments made in IT, it becomes increasingly important to understand what the value is from these IT investments. It was common to determine the value of IT in financial terms like cost reduction or profit expansion accompanied by the investment in IT. Most of the benefits of an investment in IT cannot be determined in financial terms; these benefits are called the soft or intangible benefits (Bannister, Money and Remenyi, 2007). So for a complete analysis it’s needed to look at both the intangible and soft benefits and the financial benefits. According to Kalathur, Kekre and Mukhopadhyay (1995) IT business value is the impact of IT on the firm performance. Parker and Benson (1988) based their definition on the value chain of Porter (1985); they stated that IT value might be summarized as the ability of IT to enhance the business performance of the enterprise. According to Berghout and Renkema (1995) the value of an information system is determined by the financial and non-financial consequences. In literature the term IT business value is sometimes used to explain the value of IT. Gurbaxani, Kraemer and Melville (2004) argue that IT business value is the organizational performance impacts of information technology at both the intermediate process level and the organization wide level, and comprising both efficiency impacts and competitive impacts. In this thesis the following definition of IT value will be used:

“IT value is the ability of IT to enhance the business performance of the enterprise” (Parker

& Benson, 1998)

Earl (1989) argues that organizations become increasingly dependent on IT, therefore the management of IT becomes also increasingly important. With the increasing expenditure on IT and the increasing expectations of benefits from IT, the need for more understanding about the IT costs and the value of IT is increasing. Increasing this understanding is the central objective of this thesis.

1.2 Problem Statement

Information Technology (IT) costs imposes a substantial burden on the financial resources of an organization. However many organizations perceive very little to none benefits (returns) on their investments in IT, in literature this phenomenon is called the “productivity paradox”. With this increasing expenditure on IT and the increasing expectations of benefits from IT, the need for more understanding about the IT costs and the value of IT is increasing. Therefore the objective of this thesis is to increase the understanding of IT costs and the IT value creation process.

The main research question is formulated as follows:

What is the relationship between IT costs levels and IT value creation?

(9)

9

In this sub question there will be looked at IT cost management. Why is it so difficult to measure IT cost? In order to understand this it’s necessary to elaborate on how IT cost can be managed.

2. How is IT value created?

In this sub question there will be looked at what the possible determinants of IT value are. All of the IT value models from IS literature will be described in this section, in order to create a good overview of the IT value creation process. The data from the benchmark at hand will be analyzed to further show how IT value is created.

3. How are IT costs measured in practice?

In this sub question there will be look at how IT cost are measured in practice. There will be looked at how the benchmark data at hand from M&I/Partners is collected.

4. Which elements of value creation models are applied in benchmarks at hand?

In this sub question the determinants of the IT value models are compared with the benchmark data from three industries: Hospitals, Municipalities and Housing Corporations. The model that best fits with the benchmark data at hand will be used for the analysis.

1.3 Preview of the organization of the paper

Firstly, in the research methodology there will be made clear which methodology was used for this study. In addition, it will become clear how the articles where gathered for this study. There will also be discussed what the reliability is of the used literature.

Secondly, in theory the first two sub questions of this thesis will be addressed. So an overview will be provided on the literature about managing the IT costs. Also an overview of literature on IT value models is provided, so it will become clear on what the determinants are in the IT value creation process. This together will constitute the theoretical background of this study. In the analysis chapter last two sub questions of this thesis will be handled. Firstly, there will be a description about how M&I/Partners have conducted its ICT benchmark in the three industries: hospitals, municipalities and housing corporations. The analysis section is divided in two parts: costs analysis and benefits analysis. In these two analyses of this chapter there will be looked at what the trends are per industry (housing corporation, municipality and hospital). For each industry there will be looked at whether or not there are economies of scale. The analysis will be concluded with a comparison between the data from the hospital, the municipality and the housing corporation industry. The focus will be on what the differences and the similarities are between the three industries. This chapter is concluded by an analysis of the influence of the costs on the benefits.

(10)

10

will be looked at how the difference between best performers and worst performers can be explained.

(11)

11

2. RESEARCH METHODOLOGY

The outline of this thesis is illustrated in figure 3 and consists of six steps: orientation, literature review, research question, analysis and reporting.

Figure 3 – Research outline

Orientation

This research is based on the benchmark studies of M&I/Partners. These benchmark studies are held in three areas, being the housing corporations, municipalities and hospitals. The benchmarks studies of housing corporations started in 2002, municipalities in 2004 and hospitals in 2006.

Since 2002 M&I/Partners is conducting a yearly benchmark to review the cost, maturity and IT functionality of housing corporations. A housing corporation is a non-profit organization that focuses on building, managing and renting affordable housing (social housing). Providing good and cheap housing is largely left to these corporations by the Dutch government, so the housing corporations in the Netherlands play a central role in the housing industry. The Dutch government has limited its role to that of a financier, regulator and supervisor. According to the Dutch financial regulator of housing corporations there are 418 housing corporations in the Netherlands. So this benchmark data covers about 9 per cent of the Dutch housing corporations per year. In this thesis the results of the ICT benchmark in housing corporations are covered from 2004 until 2011.

(12)

12

office of the Netherlands there are 415 municipalities in the Netherlands. Therefore this benchmark data covers about 4 percent of the Dutch municipalities per year. In this thesis the results of the ICT benchmark in municipalities are covered from 2004 until 2010.

Since 2006 M&I/Partners also conducted an ICT benchmark in hospitals. Hospitals are institutions where professional healthcare is granted. This is done by physicians, medical specialists and nurses. Hospitals consist of different departments like for instance the emergency room, laboratory, intensive care or pharmacy. According to KPMG (2012) there are 106 hospitals in the Netherlands. So this benchmark data covers about 12 percent of the Dutch hospitals per year. In this thesis the results of the ICT benchmark in hospitals are covered from 2006 until 2010.

Years Housing Corporations Municipalities Hospitals

2011 36 - - 2010 42 14 9 2009 34 17 11 2008 31 13 13 2007 38 14 15 2006 39 14 15 2005 39 15 - 2004 35 13 - Total: 294 100 63

Table 1 – Number of benchmark studies

This benchmark data of M&I/Partners was stored per participant of the benchmark in an excel file. In order to analyze the data, the data is reformatted and an overview is created of all the data in one excel file per industry (hospitals, municipalities and housing corporations).

Information about how the benchmark was conducted at M&I/Partners is provided in the first section of the analysis chapter. In this section there will also be looked at what data is stored in the overviews of the three industries.

Literature Review

In the literature review step there was an extensive search for literature on IT costs and IT value. Most data that is used for this report comes from the database Business Source Premier (BSP).

For the theoretical background of this report there are different search terms used. Here each search term will be explained and which fields were selected and how many results there were. Addition to that there will also be an indication of how many of these results are useful for this report.

 Search term: cost management and information technology (SU)  there were 112

results  of these 135 articles there were 4 articles of use for this report.

 Search term: “IT investment” and information technology (SU)  there were 134

results  of these 135 articles there were 36 articles of use for this report.

 Search term: “Value” and information technology (SU)  there were 34 results  of

these 34 articles there were 4 articles of use for this report.

 Search term: Total cost of ownership and information technology (SU)  there were

(13)

13 Research Question

During this step the research question is formulated with the corresponding sub questions. Furthermore at this stage is looked at how this paper should be structured so that this assignment would conform to the university level and form a clear story.

Analysis

In the this stage of this assignment there is looked at how the literature review can be used to analyze the relationship between IT cost levels from the benchmark data from M&I/Partners on the IT value creation In this step the benchmark data at hand is analyzed in order to answer the various research questions.

Reporting

(14)

14

3. THEORY

3.1 IT Value Creation

Since the early days of the computer, cost management of IT exists (Bannister & McCabe, 1999). Meanwhile organizations still struggle to get the benefits of IT investments. Kauffman and Weill (1989) argue that most decisions about IT investments are based on the ‘gut feeling’ of the decision makers, because 90 percent of the senior Information Systems (IS) managers didn’t know how to measure the value they were getting from IT. Although 50 percent of respondents of a Computerworld survey said that their investments in IT were increasing the firm’s performance.

IT evaluation is according to Beach (1990) so difficult because of the following five features: complexity, ambiguity, time, stakeholders and unfamiliarity.

o Complexity: What also makes it harder to evaluate IT is the changing effect of IT. When IT was first introduced in organizations one of the main benefits was that it replaced workers and therefore reduced the overall costs. Nowadays the benefit IT is usually intangible or soft like for instance better information for management.

o Ambiguity: Decision makers often don’t have a clear image of what’s the real problem.

o Time: In order to make decisions about IT investment, decision makers have to look at the total life cycle costs. It’s not that simple to estimate future costs of an IT, also when the organization is constant changing over time.

o Stakeholders: According to Symons and Walsham (1988) the evaluation of IT is so difficult because of the different views of all the stakeholders. Stakeholders like for instance users, developers and management all have different views on what constitutes the value of IT. For instance the users can value IT when IT is helping them to perform better. For developers IT is valued when it’s always performing (online) and therefore has very little downtime (offline). Management perceives IT value when the overall cost will be reduced or there is an increase of the profit.

o Unfamiliarity: IT is still rapidly changing and is relatively new. So people have to adjust and therefore it’s hard to get familiar with an IT.

In order to evaluate IT investments it’s important to understand what the determinants are with the value creating process of an IT. There are several models in IS literature that describe the IT value creation process. The following IT value creation models will be discussed:

1. Appropriate Use (Lucas, 1993).

2. Leveraging IS Processes (Beath, Goodhue & Ross, 1994). 3. How IT Creates Business Value (Markus & Soh, 1995). 4. Perception Model (Ragowsky, Stern & Adams, 2000) 5. Full lifecycle management (Berghout & Nijland, 2002) 6. IT Business Value (Melville, Kraemer & Gurbaxani, 2004).

(15)

15

The first model from IS literature is the “Appropriate Use” model of Lucas (1993); Lucas was concerned with how IT increases the performance of an organization. The first factor in the model of Lucas (figure 4) is information technology; this information technology should be designed in such a manner that it will fit with the organizations task at hand. So choosing/using a certain information technology is very important but not enough for increasing the organizations performance. The second factor in Lucas’ model is the appropriate use of the Information Technology. Without using an Information Technology it’s impossible to increase the organizations performance by using IT.

Figure 4 - Appropriate Use (Lucas, 1993)

Lucas (1993) states that there are other variables (e.g. reaction of competitors) then appropriate use that may influence the performance of an organization. However Lucas makes it clear that the appropriate use of an information technology is crucial in order to get value from IT.

3.1.2 Leveraging IS Processes

The second IT value model from IS literature that will be discussed here is the “Leveraging Is Processes” model (figure 5) of Beath, Goodhue and Ross (1994). The value and the inimitability of an organization’s IT capability depend on the status of three assets:

1. Human Assets: This asset has three dimensions:

a. Technical skills: Because of the rapidly changing nature of IT, employees have to be able to adapt to new technology like a new information system.

b. Business understanding: This dimension is about whether employees can interact closely with clients and see the benefits of their efforts.

c. Solving business problems: The freedom for IT employees to solve business problems on their own.

(16)

16

a. Technology architecture: This architecture should have rules for distributing hardware, software and support. If an organization is lacking a good architecture, then systems can be very expensive and/or poorly supported.

b. Data and platform standards: Standards enables IT employees to provide faster and efficient support, because of the limited number of technologies to support.

3. Relationship Assets: This asset consists of two dimensions:

a. Business partner ownership: A champion for managing the IT project from the beginning.

b. Management support: Top management is involved in decision-making process, to ensure that the available resources of an organization are spent on the right technologies.

These three assets are highly interdependent; for instance the architecture (technology asset) is only valuable if the top management supports it (relationship asset) and only if it’s managed by employees with good technical skills (human asset). These three assets together are called the IT assets of an organization.

Figure 5 – Leveraging IS Processes (Beath, Goodhue and Ross, 1994)

The IT assets lead to the IT value by their impact on IT processes (planning, delivery, operations and support). These three IT processes influence (build) the IT assets by deploying (leveraging) them in the process, organizations can get a competitive advantage by this interactions between IT processes and IT assets.

3.1.3 How IT Creates Business Value

(17)

17

Figure 6 - How IT Creates Business Value (Soh, Markus. 1995)

Markus and Soh (1995) divide their IT value creation process in three distinctive processes:

1. The competitive process

There are three definitions of organizational performance, these three definitions vary on what perspective we view an organization. Organizations are:

o Rational and goal seeking entities: Organizational performance is the successful achievement of the preset goals.

o Coalitions of power stakeholders: Organizational performance is the degree of satisfaction of these power stakeholders (customers, employees etc.)

o Bargaining relationships with their environment that transform input into output: Organizational performance is the organization’s ability to produce valued outputs, with using scarce resources.

According to Sambamurthy and Zmud (1994) there is IT impact if one or more of the following statements are correct:

o IT has been incorporated in new service/products that led to an increased customer satisfaction (organizational performance) etc.

o The business processes have been redesigned with the use of IT and has become more efficient or effective.

o Organizational decision makers have improved their understanding of resources by using IT. This led to better services and or products.

o The organizational structure is has become flexible and adaptive by the use of IT. These four IT impact can only result in organizational performance if the conditions of the business (competitive dynamics) are in favor. Because when the IT impact is competed away by a competitor (competitive position) the bottom line results is low.

2. The IT use process

In order to experience IT impacts, an organization should have good IT assets (Applications, IT infrastructure and technical skills of employees).

(18)

18

3. The IT conversion process

The necessary condition for IT assets is IT expenditure, because without spending resources it’s hard to obtain IT assets. Although higher expenditure on IT doesn’t always directly mean that an organization will have better IT assets. The management of IT influences this process; there are four dimensions of IT management influencing the IT conversion process:

o Formulation of IT strategy.

o Selecting an appropriate organizational structure. o Choosing the right IT projects.

o Effectively managing IT projects. 3.1.4 Perception Model

The fourth IT value model that will be discussed here is the perception model of Ragowsky, Stern and Adams (2000). This perception model (figure 7) is based on the following four assumptions:

1. Look at the decision maker’s perception of IT value.

2. Consider the degree of risk associated with a decision, as well as the obtained value of the organization.

3. Different organization can have different value from IT from using the same applications.

4. The benefits of IT should be measured at the level where the primary activities take place.

Figure 7 - Perception Model (Ragowsky, Stern and Adams, 2000)

(19)

19

the managers. This understanding of how IT is used and the perceptions of the organizational performance lead to the managers’ perception of the value of IT. The operational environment of the organization influences this value creation process.

3.1.5 Full Lifecycle Management

The fifth IT value creation model from IS literature is the Full Lifecycle Management (figure 9) from Berghout and Nijland (2002). Berghout and Nijland (2002) argue that cost/benefit analyses of an IT investment often only include the development cost of a technology. Therefore a lot of IT investment proposals shouldn’t been approved, if all the life cycle costs were used in the cost/benefit analysis.

Accurate calculation of the costs and benefits requires looking at the full life cycle of an IT, like for instance an information system. The full life cycle of an IS can be seen in figure 9.

Figure 8 - Full life cycle management (Berghout & Nijland, 2002)

Information systems are planned, and then developed if the information system isn’t already rejected. After the development stage the new information systems will be implemented and exploited by the organization. Full life cycle management consists of three stages:

1. Planning: In this stage the importance of IT investment is compared to that of other investments. IT investments are identified and prioritized compared to the other IT investments.

2. Developing: In this stage the best-prioritized IT investment is built, tested and implemented.

3. Exploiting: In this last stage the information systems are exploited.

(20)

20

In order to value IT it’s necessary to have insights in the cost of IT (Berghout & van Maanen, 2002). According to McKeen and Smith (2010) the most common response by many organizations was to adopt a chargeback mechanism to allocate IT costs to different departments. These mechanisms had some issues like, with correctly dividing the cost over the different departments and the pricing of IT and the lack of life cycle IT costs.

In response to these problems with chargeback mechanisms Bill Kirwin of the Gartner Group developed in 1987 a methodology for tracing all the costs of IT, this methodology was called the total cost of ownership (TCO). TCO makes it possible to determine the direct and indirect cost of an IT. The TCO methodology considers the IT expenditure throughout the life cycle of a certain technology, enabling better decision-making. An example of a typical application costs can be seen in Appendix B, this figure shows what type of costs are involved in the life cycle of an application. The TCO of an information system can be defined as: all the costs associated with owning and using the information system throughout its life cycle.

Figure 9 - Overview Cost Management Activities (Van Maanen and Berghout, 2002)

Van Maanen and Berghout (2003) identified that cost management consists of seven different activities (figure 9):

o TCO assessment: An assessment of the direct and indirect costs of IT. o Benchmarking: Comparing the IT costs with other similar organizations. o Budgeting: Making a budget for every organizational unit.

o Investment evaluation: Evaluating IT investments.

o Project cost management: Cost management of IT projects.

o Operational cost management: Cost management of operational IS. o Charging: Charging organizational units for the use of IT.

According to van Maanen and Berghout (2002) existing TCO models provide support for TCO assessment and benchmarking but these models don’t provide support for following activities: budgeting, investment evaluation, project cost management, operational cost management and charging. The existing TCO models don’t support these five activities because:

o These models don’t look at the distribution of IT costs, so it’s for instance impossible

(21)

21

o The cost of IT must be continuously tracked, while in practice this is done on an ad hoc basis.

Cost management has been around since the early days of computers, but in order to efficiently manage the cost of IT new TCO models are needed.

3.1.6 IT Business Value

The last IT value creation model from IS literature is the IT Business Value model (figure 10) from Melville, Kraemer and Gurbaxani (2004). Melville et al. (2004) wanted to develop a descriptive model of the value generation process. They based their model on the resource-based view (RBV); this view says that a competitive advantage of an organization is depending on the application of the resources of an organization. These resources need to be valuable, rare, in imitable and non-substitutable in order to create a competitive advantage.

Figure 10 - IT Business Value (Melville et al, 2004)

(22)

22

macro environment, so the characteristics of a country. Melville et al. (2004) conclude that IT value consists of three domains:

1. Focal firm.

2. Competitive environment. 3. Macro environment.

1. Focal firm

IT value is generated by using the IT resources and complementary organizational resources. These two resources influence the business processes and the performance of these business processes. Ultimately the organizational performance is influenced.

The IT resources consist of two different categories:

1. Technological IT Resources (TIR): These resources consist of the infrastructure (technology services, shared technology etc.) and the business applications that utilize the infrastructure (sales, purchasing etc.)

2. Human IT Resources (HIR): These resources consist of technical skills like programming and managerial skills like for instance project planning.

The business processes aren’t influenced only by the IT resources, but also by the complementary organizational resources. The complementary organizational resources are resources that are not specific for IT including for instance, the organizational structure or the policies and rules of an organization.

Together with the IT resources, complementary organizational resources influence the business processes of the focal firm. Business processes are the activities that underlie the value generation process; these processes transform input into output. Examples of business process are: customer service, sales, manufacturing etc.

These influences on the business processes of an organization may impact the performance of an organization. Melville et al. (2004) made a distinction between two kinds of performance:

1. Business process performance: this is about the operational efficiency improvement of a specific business process. Like for instance a reduced cycle time of the manufacturing process or a more flexible sales process.

2. Organizational performance: this denotes the impact of IT on all the activities of an organization. For instance cost reductions or turnover enhancement or a competitive advantage over competitors.

2. Competitive environment

The second domain of Melville’s model is the competitive environment of the focal firm. This domain is separated in two distinctive components:

(23)

23

2. Trading partners: IT is more and more causing a diminishment of boundaries between firms, with linking organization with each other by using electronic networking. Therefore trading partners have an increasingly impact on the IT value generation process of the focal firm.

3. Macro environment

The last domain of Melville’s model is the macro environment of the focal firm. This macro environment consists of the country characteristics of the focal firm. The characteristics of a country can be described in term of the level of development, the level of education, the investments in research and development, the population numbers, the basic infrastructure, culture etc.

3.2 Conclusion

These six IT value creation models from literature lead to the following two concluding remarks:

1. There are many different IT value creation models. Which vary a lot in terms of complexity, from very simple models (e.g. Appropriate Use of Lucas (1993)) to very extensive models (e.g. IT business value of Melville et al (2004)).

2. There isn’t a consensus about how and to which extent IT is creating value for organizations. Some value models focus more on the IT cost component (e.g. Full Lifecycle Management of Berghout and Nijland (2002), while other focus more one the perceptions of stakeholders (e.g. Perceptions Model of Ragowsky, Stern and Adams (2000)).

(24)

24

Figure 11 – Coverage of the IT Business Value model of Melville et al. (2004)

The ICT Benchmark data at hand covers the “green” determinants of the IT Business Value model of Melville et al. (2004). So there is data available about the IT resources and the Organizational Performance. Data about the “orange” determinants Country Characteristics and Industry Characteristics can be found in literature, the benchmarks at hand don’t give detailed information about these two determinants.

The IT Business Value model of Melville et al. (2004) contains seven determinants; the following data from the benchmarks at hand are available:

 Country Characteristics: The country characteristics are known, because all the

cooperating organizations in the three benchmarks are based in the Netherlands.

 Industry Characteristics: The participants of the three ICT Benchmarks are active in

the following three industries: housing corporations, municipalities and hospitals.

 IT Resources: The Resources of an organization can be indicated by data about the

size of an organization. The size of a housing corporation can be indicated with the use of the number of rental units (houses), the number of full-time equivalent (FTE) or the number of workplaces. The size of a municipality can be indicated with the use of the number of citizens, the number of full-time equivalent (FTE) or the number of workplaces. The size of a hospital can be indicated with the use of the number of actual or licensed beds, hospitalizations, consultations, day hospitalizations, FTE, FTE (specialists), FTE (contracted specialists), user accounts or workplaces.

 Complementary Organizational Resources: In the benchmarks at hand there isn’t data

(25)

25

 Business Processes: There is also data available of the IT maturity based on a

self-assessment of the COBIT framework for all three benchmarks.

 Business Process Performance: There is also data available of the IT maturity based

on a self-assessment of the COBIT framework for all three benchmarks.

 Organizational Performance: For the Organizational performance the data about the

turnover of the organizations can be used in the housing corporations industry and in the hospitals industry. In the hospitals industry there is also data available of the coverage of the personal health record (PHR).

(26)

26

4. ANALYSIS

4.1 ICT Benchmark M&I/Partners

The benchmark at hand was performed by M&I/Partners, a consultancy firm located in Amersfoort. Since 2002 M&I/Partners conducted a yearly benchmark to review the cost, maturity and functionality of ICT in housing corporations. The results of the ICT benchmark in housing corporations are covered from 2006 until 2010. Since 2004 M&I/Partners also conducted a benchmark in Municipalities. The results of the ICT benchmark in hospitals are covered from 2006 until 2010. Since 2006 M&I/Partners also conducted an ICT benchmark in Hospitals. The results of the ICT benchmark in municipalities are covered from 2004 until 2010.

The benchmarking process at M&I/Partners consists of seven steps:

1. After registration and acceptance of the protocol for confidentiality, the customer receives a confirmation of participation and the exact schedule of the ICT benchmark. 2. The customer then will receive the TCO model of M&I/Partners with a manual about

how to answer the questions in this TCO model.

3. M&I/Partners organize a kick-off meeting to explain the TCO model. The questions of the customer on the use of the model will be answered during the meeting.

4. During the collection of data, the customer can make use of a telephone helpdesk. 5. M&I/Partners check the completed models of the client during an individual interview

validation. In these conversations M&I/Partners assesses the models for accuracy and completeness, in this way a comparison can be made as good as possible.

6. The client receives the results in an anonymous report; this report also contains an analysis of the overall results. Furthermore, each customer receives a personal appendix with the data of the company (housing corporation, hospital and municipality).

7. The presentation of the results of the benchmark takes place in two privately meetings. During these meetings, the anonymity is removed so customers together can exchange the best practices.

The benchmark questions of M&I/Partners are partly changing every year, so the data has some minor differences. The benchmark questions are also different per industry, so the housing corporation benchmark has some other questions then the hospital benchmark. This is due to the differences in the industries, for a hospital the number of beds is important as opposed to the housing corporations industry. The available data can be categorized in three parts: general data, maturity data and IT costs data.

Each of the three ICT Benchmarks has general data about the organizations, like the size of the organization, the yearly turnover, the total number of employees and the total number of workplaces. A more detailed look at what specific data is collected in these three ICT benchmarks of M&I/Partners has been provided in Appendix B.

(27)

27

In the three benchmarks there is data available about the maturity of an organization is based on a self-assessment of the COBIT framework. COBIT is a framework for designing and evaluating a structured IT management environment. Each process can be scored on a scale from 0 (non-existence) to 5 (optimized).

The hospital benchmark has data available of the Personal Health Record (PHR) coverage of a hospital. This gives an indication of the extent to which the primary process is supported with PHR functionalities. The coverage scores are given per department, so it’s possible to compare departments between hospitals.

In the following section an overview will be presented per benchmark (housing corporation, hospital and municipality) of the available data about ICT costs.

Housing Corporation ICT Benchmark

In the housing corporation benchmark M&I/Partners divided the ICT costs in six cost categories, namely:

1. Management: Cost incurred with managing ICT on a strategic and tactical level. 2. Workplace: Costs for the workplace and includes the desktop/laptop, including the

additional built-in hardware and operating system (Windows, Linux and Mac).

3. Local Area Network (LAN): Costs of all services for LAN (Cables, network electronics and maintenance). The costs of peripherals (printers etc.) are included. 4. Wide Area Network (WAN): Cost of all services for data and speech communication

between organizations’ multiple locations.

5. Applications and Data Processing: Costs of critical applications for the company, not the cost for applications for the workplace.

6. Voice Facility: Costs incurred with using (mobile) telephones.

These 6 cost categories form the total ICT costs of a housing corporation. The last five cost categories consist of four ICT cost components, namely:

1. Hardware: Procurement and periodic costs of hardware like smart phones. 2. Software: Procurement and periodic costs of applications.

3. Personnel: Costs of own IT staff and hiring external personnel. 4. Miscellaneous: Outsourcing of ICT services, such as hosting websites

Per cost component in the benchmark the following three financial objects are requested: 1. Investment: Amount in the period of a year is spent on IT resources according to the

accounting rules of the corporation.

2. Depreciation: The expression of the depreciation of an asset over a certain period. 3. Exploitation: All costs incurred during the period of one year for the ICT resources. Municipality ICT Benchmark

In the municipality benchmark M&I/Partners divided the ICT costs in seven cost categories, namely:

(28)

28

printers, scanners, cameras, beamers and/or faxes. It doesn’t include registers or ATM’s.

2. Software and Servers: This includes all applications and services for these applications, with the exception of the operating system (Windows, Linux and Mac). 3. Data communication: This includes all internal and external connections (LAN, WAN

and Internet).

4. Servers and Storage: This concerns all hardware for storage, backups, firewalls and applications

5. Voice communication: This concerns all facilities that are present to make or receive a phone call.

6. Personnel: This involves the deployment of internal and external staff for ICT.

7. Facilities: This concerns the server rooms, back-up facilities, climate control systems, fire extinguishers, emergency power supply, furniture, etc.

These seven cost categories together form the total ICT cost of a municipality. In the municipality ICT benchmark M&I/Partners used three cost components, because Personnel is here included in the staffing cost category. The remaining three cost components are: Hardware, Software and Miscellaneous. The requested financial objects are the same as at the Housing Corporation ICT Benchmark.

Hospital ICT Benchmark

In the hospital benchmark M&I/Partners divided the ICT costs are divided in the same cost categories as the Municipality ICT Benchmark, only a video communication category is included in the voice communication category.

4.2 Approach

In the Business Value model, Melville et al. (2004) argue that the characteristics of an industry are an important determinant of the IT value creation process. Therefore it’s interesting to see how the IT costs and IT Benefits vary through time and the size of an organization in the three different industries (housing corporations, municipalities and hospitals). In order to increase the knowledge of IT costs, IT value and the relationships between ICT costs levels and the value of IT, the following eight analysis questions will be answered:

1. What is the influence of the size of an organization on the IT costs?

2. Are there economies of scale between the size of an organization and the IT costs? 3. What are the trends of IT costs and ratios?

4. What is the influence of the size of an organization on the IT benefits?

5. Are there economies of scale between the size of an organization and the IT benefits? 6. What are the trends of IT benefits?

7. What is the influence of IT costs on IT benefits?

8. What are the characteristics of the Best Performers/Worst Performers? These questions will be handled per industry in the next paragraphs.

4.3 Cost Analysis

(29)

29

chosen, this will be done based on the correlation of this indicator with the total costs of ICT (TCICT).

Secondly in section 2 there will be looked at if there are economies of scale in the three industries. In order to see a possible economy of scale the TCICT is divided by the size of an organization, because this makes it possible to compare organizations on their relative TCICT. The total costs of ICT are divided into several cost categories, therefore it’s possible to understand which category or categories are causing the possible economy of scale. The effects of the costs per workplace will be explained per cost category.

Thirdly in section 3 there will be looked at what the trends are in the three industries. First there will be looked at how the organization size indicator transforms over the time of the three benchmarks. Then the trends in the TCICT will be handled. Then the trends of the relative costs per cost category will be discussed. To conclude this section there will be looked at how the ratios of the cost categories transform over time, so it would be possible to say something about the predictability of the ratios.

Finally in section 4 there will be looked at what the characteristics are of the best performers and worst performers. This information will give insight what the cost patterns fit with the best and worst performers.

4.3.1 Housing corporations

1. Organization size

First a variable of the organizations size of a housing corporation should be decided upon, so it’s possible to see the influence of the size of an organization on the IT costs. There are three indicators available in the benchmark data at hand (see appendix B):

1. The number of rental units: this variable shows how many houses a housing corporations has in their portfolio.

2. The number of FTE: FTE (Full-time equivalent) is a unit that indicates the workload of an employed person.

3. The number of workplaces: this variable shows how many workplaces a housing corporation has available in their organization.

In order to decide which of these three variables is the most appropriate indicator for the size of a housing corporation, there should be looked at what the correlation is of these three variables is with the total cost of ICT (TCICT). The correlation between the three variables and TCICT can be seen in table 2.

TCICT

number of rental units 0,896

number of FTE 0,902

number of workplaces 0,905

Table 2 – Correlation of variables with TCICT in housing corporations

(30)

30 y = 78,725x2_{- 6857,2x + 900048} R2_{= 0,8234} € -€ 1.000.000,00 € 2.000.000,00 € 3.000.000,00 € 4.000.000,00 € 5.000.000,00 € 6.000.000,00 € 7.000.000,00 € 8.000.000,00 € 9.000.000,00 20 43 65 74 78 81 90 95 ₁₀₀ ₁₀₇ ₁₁₇ ₁₁₉ ₁₃₀ ₁₃₄ ₁₄₈ ₁₅₇ ₁₆₅ ₁₆₉ ₁₇₇ ₁₉₀ ₁₉₇ ₂₀₅ ₂₁₇ ₂₂₅ ₂₃₇ ₂₅₀ ₂₇₀ ₂₈₈ ₃₀₃ ₃₁₃ ₃₃₆ ₃₅₉ ₃₉₄ ₄₃₃ ₄₆₈ ₄₉₆ ₅₁₂ ₅₄₅ ₅₉₀ ₇₅₀ ₈₀₅ ₉₀₀ # Workplaces TC IC T

Figure 12 – TCICT vs. number of workplaces of housing corporations

The red trend line in figure 12 indicates that bigger organizations in terms of number of workplaces usually have higher ICT expenses.

2. Economies of scale

Based on figure 12 it’s hard to state whether or not there is an economy of scale in the hospital industry. In order to see a possible economy of scale the TCICT is divided by the size of an organization (number of workplaces), because this makes it possible to compare hospitals on their relative TCICT.

y = -0,0299x2_{+ 1,9225x + 8757,7} R2_{= 0,0786} € -€ 2.000,00 € 4.000,00 € 6.000,00 € 8.000,00 € 10.000,00 € 12.000,00 € 14.000,00 € 16.000,00 € 18.000,00 € 20.000,00 20 43 65 74 78 81 90 95 100 107 117 119 130 134 148 157 165 169 177 190 197 205 217 225 237 250 270 288 303 313 336 359 394 433 468 496 512 545 590 750 805 900 # Workplaces TC IC T/ w ork pl a c e s

Figure 13 - Economy of scale in TCICT per workplace in housing corporations

(31)

31

The total costs of ICT are divided into six categories: management, workplace, LAN, WAN, applications and data processing and voice communication. So it’s possible to understand which category or categories are causing the economy of scale in figure 13, if the cost of each category is per workplace just like in figure 13. The effects of the costs per workplace will be explained below per category.

Management: y = 0,001x2_{- 1,307x + 612,97} R2_{= 0,0984} € -€ 500,00 € 1.000,00 € 1.500,00 € 2.000,00 € 2.500,00 20 43 65 74 78 81 90 95 ₁₀₀ ₁₀₇ ₁₁₇ ₁₁₉ ₁₃₀ ₁₃₄ ₁₄₈ ₁₅₇ ₁₆₅ ₁₆₉ ₁₇₇ ₁₉₀ ₁₉₇ ₂₀₅ ₂₁₇ ₂₂₅ ₂₃₇ ₂₅₀ ₂₇₀ ₂₈₈ ₃₀₃ ₃₁₃ ₃₃₆ ₃₅₉ ₃₉₄ ₄₃₃ ₄₆₈ ₄₉₆ ₅₁₂ ₅₄₅ ₅₉₀ ₇₅₀ ₈₀₅ ₉₀₀ # Workplaces TC M /w ork pl a c e s

Figure 14 - Economy of scale in Management costs in housing corporations

The red trend line in figure 14 indicates that bigger organizations in terms of number of workplaces usually spend less per workplace on Management costs.

Workplace: y = 0,007x2_{- 3,1476x + 1196,7} R2_{= 0,0344} € -€ 500,00 € 1.000,00 € 1.500,00 € 2.000,00 € 2.500,00 € 3.000,00 € 3.500,00 € 4.000,00 € 4.500,00 € 5.000,00 20 43 65 74 78 81 90 95 ₁₀₀ ₁₀₇ ₁₁₇ ₁₁₉ ₁₃₀ ₁₃₄ ₁₄₈ ₁₅₇ ₁₆₅ ₁₆₉ ₁₇₇ ₁₉₀ ₁₉₇ ₂₀₅ ₂₁₇ ₂₂₅ ₂₃₇ ₂₅₀ ₂₇₀ ₂₈₈ ₃₀₃ ₃₁₃ ₃₃₆ ₃₅₉ ₃₉₄ ₄₃₃ ₄₆₈ ₄₉₆ ₅₁₂ ₅₄₅ ₅₉₀ ₇₅₀ ₈₀₅ ₉₀₀ # Workplaces TC W /w ork pl a c e s

Figure 15 - Economy of scale in Workplace costs in housing corporations

(32)

32 LAN: y = -0,0105x2_{+ 0,9368x + 1373,9} R2_{= 0,064} € -€ 1.000,00 € 2.000,00 € 3.000,00 € 4.000,00 € 5.000,00 € 6.000,00 € 7.000,00 20 43 65 74 78 81 90 95 ₁₀₀ ₁₀₇ ₁₁₇ ₁₁₉ ₁₃₀ ₁₃₄ ₁₄₈ ₁₅₇ ₁₆₅ ₁₆₉ ₁₇₇ ₁₉₀ ₁₉₇ ₂₀₅ ₂₁₇ ₂₂₅ ₂₃₇ ₂₅₀ ₂₇₀ ₂₈₈ ₃₀₃ ₃₁₃ ₃₃₆ ₃₅₉ ₃₉₄ ₄₃₃ ₄₆₈ ₄₉₆ ₅₁₂ ₅₄₅ ₅₉₀ ₇₅₀ ₈₀₅ ₉₀₀ # Workplaces TC L/ w ork pl a c e s

Figure 16 - Economy of scale in LAN costs in housing corporations

The red trend line in figure 16 indicates that bigger organizations in terms of number of workplaces usually spend less per workplace on LAN costs.

WAN: y = -0,0015x2_{+ 1,1721x + 349,95} R2_{= 0,061} € -€ 200,00 € 400,00 € 600,00 € 800,00 € 1.000,00 € 1.200,00 € 1.400,00 20 43 65 74 78 81 90 95 ₁₀₀ ₁₀₇ ₁₁₇ ₁₁₉ ₁₃₀ ₁₃₄ ₁₄₈ ₁₅₇ ₁₆₅ ₁₆₉ ₁₇₇ ₁₉₀ ₁₉₇ ₂₀₅ ₂₁₇ ₂₂₅ ₂₃₇ ₂₅₀ ₂₇₀ ₂₈₈ ₃₀₃ ₃₁₃ ₃₃₆ ₃₅₉ ₃₉₄ ₄₃₃ ₄₆₈ ₄₉₆ ₅₁₂ ₅₄₅ ₅₉₀ ₇₅₀ ₈₀₅ ₉₀₀ # Workplaces TC W /w ork pl a c e s

Figure 17 - Economy of scale in WAN costs in housing corporations

The red trend line in figure 17 indicates that bigger organizations in terms of number of workplaces usually spend more per workplace on WAN costs.

(33)

33 y = -0,022x2_{+ 3,4071x + 4251,9} R2_{= 0,0321} € -€ 2.000,00 € 4.000,00 € 6.000,00 € 8.000,00 € 10.000,00 € 12.000,00 € 14.000,00 20 43 65 74 78 81 90 95 ₁₀₀ ₁₀₇ ₁₁₇ ₁₁₉ ₁₃₀ ₁₃₄ ₁₄₈ ₁₅₇ ₁₆₅ ₁₆₉ ₁₇₇ ₁₉₀ ₁₉₇ ₂₀₅ ₂₁₇ ₂₂₅ ₂₃₇ ₂₅₀ ₂₇₀ ₂₈₈ ₃₀₃ ₃₁₃ ₃₃₆ ₃₅₉ ₃₉₄ ₄₃₃ ₄₆₈ ₄₉₆ ₅₁₂ ₅₄₅ ₅₉₀ ₇₅₀ ₈₀₅ ₉₀₀ # Workplaces TC A D /w ork pl a c e s

Figure 18 - Economy of scale in Applications and Data processing costs in housing corporations

The red trend line in figure 18 indicates that bigger organizations in terms of number of workplaces usually spend less per workplace on Applications and Data processing costs. Voice communication: y = -0,004x2_{+ 0,8611x + 972,2} R2_{= 0,0049} € -€ 1.000,00 € 2.000,00 € 3.000,00 € 4.000,00 € 5.000,00 € 6.000,00 € 7.000,00 € 8.000,00 € 9.000,00 20 43 65 74 78 81 90 95 ₁₀₀ ₁₀₇ ₁₁₇ ₁₁₉ ₁₃₀ ₁₃₄ ₁₄₈ ₁₅₇ ₁₆₅ ₁₆₉ ₁₇₇ ₁₉₀ ₁₉₇ ₂₀₅ ₂₁₇ ₂₂₅ ₂₃₇ ₂₅₀ ₂₇₀ ₂₈₈ ₃₀₃ ₃₁₃ ₃₃₆ ₃₅₉ ₃₉₄ ₄₃₃ ₄₆₈ ₄₉₆ ₅₁₂ ₅₄₅ ₅₉₀ ₇₅₀ ₈₀₅ ₉₀₀ # Workplaces TC V C /w ork pl a c e s

Figure 19 – Economy of scale in Voice communication costs in housing corporations

The red trend line in figure 19 indicates that bigger organizations in terms of number of workplaces usually spend the same amount per workplace on ICT.

(34)

34

3. Trends

With the benchmark data at hand it’s also possible to see trends of the IT costs but also of the number of workplaces of a housing corporation. In table 3 the trend of the number of workplaces of the housing corporation benchmark. The trends are shown by the use of the mean, maximum, minimum, standard deviation and the median.

Mean Max Min

Standard Deviation Median 2004 172,91 675,00 20,00 139,88 145,00 2005 204,41 750,00 39,00 158,51 168,00 2006 250,90 750,00 57,00 164,39 225,00 2007 279,14 850,00 72,00 187,89 230,00 2008 307,00 1237,00 61,00 257,29 214,00 2009 297,68 950,00 56,00 212,77 226,00 2010 353,12 1600,00 41,00 311,59 221,50 2011 374,81 919,00 54,00 275,58 321,00 Total 280,20 1600,00 20,00 228,72 205,00

Table 3 – Trends of number of workplaces in housing corporations

It seems that housing corporations are still increasing their number of workplaces, in 2004 housing corporations had on average 172,91 workplaces. In 2011 this number has grown to an average of 374,81 workplaces. This trend is also visible at individual housing corporations that participated in several years. The standard deviation is also increasing in the period 2004-2011 from 139,88 to 275,58.

In order to understand the IT costs in housing corporations it’s also helpful to understand what the trends are of the IT costs. Firstly there will be looked at what the trends are in the TCICT and then there will be looked at how the costs of the six categories develop over time. The trends of the TCICT can be seen in table 4.

Mean Max Min

Standard Deviation Median 2004 1.553.378,31 7.440.000,00 159.495,00 1.453.545,05 1.211.715,00 2005 1.655.618,23 6.161.356,00 334.133,00 1.225.105,90 1.215.383,00 2006 1.910.400,26 5.641.448,00 237.700,00 1.230.762,91 1.585.470,00 2007 2.113.955,54 5.370.073,00 588.208,00 1.191.198,70 2.060.461,00 2008 2.233.955,32 7.783.445,00 338.100,00 1.637.780,41 1.753.268,00 2009 2.207.560,56 6.654.754,00 400.715,00 1.526.718,59 1.739.907,50 2010 2.667.518,19 8.287.126,00 294.221,00 1.958.411,97 1.994.993,00 2011 2.884.109,64 7.820.613,00 284.039,00 2.126.337,68 2.120.757,00 Total 2.156.425,60 8.287.126,00 159.495,00 1.619.279,86 1.707.958,00

Table 4 – Trend of the TCICT in housing corporations

(35)

35

The total costs of ICT are divided into six categories: management, workplace, LAN, WAN, applications and data processing and voice communication. So it’s also possible to look at the trends of the six cost categories, these trends can be seen in table 5. The costs are divided by the size of an organization (number of workplaces), because this makes it possible to compare hospitals on their relative TCICT.

Mean Max Min

Standard Deviation Median Management 449,55 2.247,65 19,80 274,57 405,42 Workplace 936,01 4.517,28 2,14 550,54 839,33 LAN 1.210,20 5.991,62 223,23 765,89 1.058,79 WAN 479,82 1.296,38 18,51 256,15 458,61 Applications and Data processing 4.121,02 11.993,63 881,91 1.643,65 3.841,91 Voice communication 982,65 7.932,40 222,93 539,41 904,67

Table 5 – Trends in average cost category costs in housing corporations

Housing corporations spend most of their IT costs on applications and data processing (see table 5); they spend on average 4.121,02 euro on applications and data processing per workplace. The second biggest amount is spend on the costs of LAN, housing corporations spend on average 1.120,20 euro for this cost category. The third en fourth amounts are spend on Voice communication and Workplace costs, with respectively 982,65 euro and 936,01. The smallest amounts are spend on WAN costs and Management costs, with an average of respectively 479,82 euro and 449,55 euro.

The trends of the six cost categories costs can also be seen over the period of time of the benchmark at hand, these trends can be seen in table 5.

Manag

ement Workplace LAN WAN

Applications and Data processing Voice communic ation 2004 536,97 1.157,61 1.260,28 499,03 4.107,73 1.166,20 2005 432,71 1.169,36 1.159,77 556,19 3.996,08 1.166,35 2006 420,63 964,34 948,34 438,31 3.971,36 1.147,57 2007 419,54 847,61 1.096,46 503,78 4.293,69 940,94 2008 443,30 859,20 1.163,61 468,81 3.984,09 954,70 2009 462,17 767,44 1.379,51 440,05 3.794,25 897,18 2010 411,03 845,17 1.359,41 478,60 4.436,17 799,38 2011 483,37 859,27 1.322,87 447,27 4.312,77 788,05 Total 449,55 936,01 1.210,20 479,82 4.121,02 982,65

Table 6 – Costs category trends in housing corporations

The costs for applications and data processing increase from 4.107,73 euro in 2004 to 4.312,77 euro in 2011. The LAN costs also seem increasingly to rise from 1.260,28 euro to 1.322,87 euro in the same period of time. However, the costs for management, workplace, WAN and voice communications have decreased compared to 2004.

(36)

36

the TCICT of an organizations. This data could say something predictability of ratios of the six cost categories. The average trends in the ratios of the six cost categories can be seen in table 7. The trends are shown by the use of the mean, maximum, minimum, standard deviation and the median.

Mean Max Min

Standard Deviation Median Management 5,51% 21,52% 0,30% 3,04% 5,07% Workplace 11,71% 52,73% 0,03% 6,18% 11,09% LAN 14,60% 50,62% 2,27% 7,33% 13,40% WAN 6,13% 15,86% 0,25% 3,27% 5,90% Applications and Data processing 49,62% 81,48% 11,21% 11,10% 50,55% Voice communication 12,44% 48,53% 2,49% 5,20% 11,61%

Table 7 – Trends in average cost categories ratios in housing corporations

Housing corporations spend most of their IT costs on applications and data processing; they spend on average 49,62 percent on applications and data processing. The second biggest percentage is spend on the costs of LAN, housing corporations spend on average 14,60 percent of this cost category. The third en fourth percentages are spend on Voice communication and Workplace costs, with respectively 12,44 percent and 11,71 percent. The smallest percentages are spend on WAN costs and Management costs, with an average of respectively 6,13 percent and 5,51 percent.

With the data at hand it’s possible to look at how the ratios of cost categories have developed over the period 2004-2011. These trends of the ratios over the years can be found in table 4.

2004 2005 2006 2007 2008 2009 2010 2011 Management 6,26% 5,11% 5,51% 5,19% 5,52% 6,06% 4,87% 5,80% Workplace 13,57% 13,87% 12,70% 10,77% 11,42% 10,17% 10,14% 10,99% LAN 14,14% 13,33% 12,34% 13,58% 14,70% 16,91% 16,30% 15,63% WAN 5,80% 6,82% 5,98% 6,35% 6,15% 6,01% 6,06% 5,78% Applications and Data processing 46,27% 46,53% 49,52% 51,79% 49,49% 48,76% 52,46% 51,70% Voice communication 13,97% 14,33% 13,95% 12,32% 12,72% 12,09% 10,17% 10,10%

Table 8 – Trends in cost category ratios in housing corporations

The costs for applications and data processing increase from 46.27% in 2004 to 51.70% in 2011. The LAN costs also seem increasingly to rise from 14.14% to 15.63% in the same period of time. However, the costs for management, workplace and voice communications have decreased compared to 2004. The costs of WAN in the last 8 years are more or less unchanged.

4. Characteristics of Best Performers/Worst Performers

(37)

37

worst performer will be the organization that spends relatively the most amount of money per workplace for ICT.

Best Performer

This organization spends per workplace 3.567,49 euro on ICT and has 1600 workplaces. The expenditure percentage and the relative cost of each cost category can be seen in table 9.

Mean TCICT per Workplace Management 3,15% € 112,24 Workplace 15,20% € 542,09 LAN 6,42% € 228,89 WAN 11,92% € 425,25 Applications and Data processing 47,75% € 1.703,44 Voice communication 15,57% € 555,58

Table 9 – Characteristics of best performer in housing corporations

Worst Performer

This organization spends 18.043,92 euro on ICT per workplace and has 157 workplaces. The expenditure percentage and the relative cost of each cost category can be seen in table 10.

Mean TCICT per Workplace Management 3,00% € 541,40 Workplace 1,91% € 344,59 LAN 23,63% € 4.264,33 WAN 1,59% € 286,62 Applications and Data processing 66,47% € 11.993,63 Voice communication 3,40% € 613,35

Table 10 - Characteristics of worst performer in housing corporations

4.3.2 Municipalities

1. Organization size

First a variable of the organizations size of a municipality should be decided upon, so it’s possible to see the influence of the size of an organization on the IT costs. There are three indicators available in the benchmark data at hand (see appendix B):

1. The number of Citizens: this variable shows how many citizens a municipality has. 2. The number of FTE: FTE (Full-time equivalent) is a unit that indicates the workload in

a municipality.

Understanding IT costs and IT value