Why IT Spend Management Must Evolve

6 min read Mansoor Ahmed

The idea of IT spend management is not new; there are dozens of tools that purport to help IT departments reign in their spend. It’s amazing how many of these are legacy solutions that were never intended to deal with the explosion of subscription-based licensing that comes with SaaS. Enterprises have 288 different SaaS apps, on average, and spend more than $4 million on them yearly.

The chances are good that your organization has built a spend management approach around traditional SAM (software asset management) and ITAM (IT asset management). But those methods are, to be candid, stuck in the ‘90s. When IT spend management doesn’t advance as quickly as the technology itself, wasteful spending gets out of control.

What is IT Spend Management?

Spend management is the process of gathering, maintaining, organizing, and analyzing spend data on reducing costs. At the same time, you are tasked with efficiency improvements, workflow optimizations, and regulatory compliance. This complexity makes the entire procurement cycle more complicated. If the lines between budget planning, license management, and cost tracking are starting to blur, this post might help you see clearly again.

Digging into SAM and ITAM

A look at the history of Information Technology Asset Management (ITAM) helps foster an understanding of how business practices have evolved, which leads to insights into how they should evolve further. Software Asset Management (SAM) was created as a subset of ITAM to help teams manage software lifecycles, but then the evolution halted. The first SAM tools were created decades ago, and they predictably fail to account for the SaaS licensing model. It is now imperative to track cloud costs and measure the consumption of assets on an ongoing basis.

Old asset management tools could provide information about who had which licenses, but that was about where the capabilities ended. To determine who was actually using their licenses, you would probably have to survey employees. Forget tracking actual feature usage unless you want to make the survey especially long and burdensome for employees. Then, every day you spend without deploying the survey again, you get one day further from accurate data. These methods and tools have no place in modern IT spend management.

The New Approach to IT Spend Management

Spend management can be divided into two categories: Capital expenditures and operating expenses 

Licensed software and hardware is a capital expenditure. Capital expenditures (CapEx) have classically been used to refer to physical assets like buildings, assembly lines, and equipment. For many modern companies, though, investments in physical goods have largely been replaced by the SaaS products they need to maximize productivity and undertake new projects.

One of the main issues with SaaS spending is that it often falls under operating expenses (OpEx), unlike traditional licensed software. The finance team might feel good that CapEx is more under control than ever but have no sense of how to tame the newly overflowing OpEx budget. It is time for the mindset to evolve from thinking about paying for a license upfront, then paying for maintenance and support costs down the road. 

At its simplest, the new paradigm for IT spend management can be condensed into two changes:

  1. The budget has shifted its weight. Old licenses were CapEx, and only the maintenance was OpEx, but SaaS is going entirely against operations.
  2. Spending is more consistent now. Traditionally, organizations would purchase new software licenses for a large lump sum every few years. The expenditures were big but rare. Now the spending is smooth and consistent, making it easier to lose track of the annual SaaS spending.

Unfortunately, traditional expense cards and spend management practices are not built for recurring SaaS billing.

Given that recurring billing has become prevalent among software vendors, their clients are starting to have some problems tracking and controlling costs. SaaS cost optimization, software license optimization, and asset management start to comingle under this new paradigm for IT spend management.

SaaS Spending in a Material World: What is the Asset?

It might feel like SaaS has been around forever—but even as recently as five years ago, most corporations relied on the use of on-premises software to maintain their information management systems. As SaaS replaces on-premise software, what one considers to be “the asset” changes too. It becomes something even less tangible: the consumption of software as a service. 

If the asset has changed, why should the way you analyze your spending remain the same? Trying to manage new IT assets with old asset management procedures is the first step on a short road to ungovernable spending.

Manage IT Assets to Manage IT Costs

IT asset management was not traditionally related to IT spend management because businesses considered it a sunk cost. Business leaders only had to worry about the asset itself–there was no need to consider the money until it came time to upgrade the software, which happened years down the road. 

Because of the ongoing nature of payments, IT spend management and IT asset management have to coexist and evolve. Old asset management tools might help you determine whether a product facilitates the achievement of business goals, but they fail to account for the constant costs of renewing subscriptions.

IT Spend Management for the Future of SaaS

The practices and tools businesses use to manage IT costs must keep pace with the evolution of software products themselves. Once companies understand that, to manage their software spend, they are monitoring and managing a bundle of subscriptions, there are several steps organizations can take to ensure effective IT spend management:

  1. Leverage holistic SaaS cost discovery. It is impossible to manage IT spending effectively without first identifying all of the relevant expenses. SaaS spend management tools can connect to IAM data to handle the discovery process automatically.
  2. Collect spending data in a centralized location. After the discovery phase, it is helpful to aggregate the information to enable visualization of the costs. Instead of bouncing back and forth between numerous spreadsheets, you can use a management tool to get a single repository for all of your SaaS invoices.
  3. Ensure accuracy by using recent information. Old data isn’t worth much to a business that needs to be agile, making live software cost tracking and analysis necessary.
  4. Categorize SaaS spending. With dozens of SaaS products at play, organizing them into categories will summarize where the money is going.
  5. Analyze SaaS costs against ROI. It can be useful to consider the returns generated by software spending instead of only fixating the amount of budget consumed.
  6. Measure SaaS consumption. Any level of expense is too high for a software product that goes unused, and utilization levels help expose the realized value of each subscription.
  7. Identify trends in IT spending. Historical looks at how costs and consumption change over time can empower insights and facilitate forecasting for the future.
  8. Manage change strategically. These steps bring clarity to the SaaS management process, but renewing, downsizing, and canceling software can still be difficult. When you have confidence in your spend management strategy, you are much less likely to be slowed down by cancellation challenges.

Managing IT spend is much more complicated than it used to be, but modern tools make it possible to navigate the complexity.

Ready for the Right IT Spend Management Tool?

As SaaS products become indispensable business expenses, you can stretch your budget further and gain an advantage by being a discerning consumer. At Quolum, we designed our SaaS management capabilities to help businesses track spend, measure consumption, and gain precise control of their entire technology ecosystems. Contact us to learn more about the comprehensive solution to IT spend management.

Feature image: A technician analyzing a computer server hardware.

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