Your Guide to Popular IT Spending Metrics

As a percent of revenue

Pros: Easy to calculate; provides some basic insight into spending levels in specific industries. Widely used.

Cons: Averages can often mislead, masking wild variability in the sample. Fluctuating revenue can affect percentages. Doesn’t distinguish between strategic and nonstrategic spending; doesn’t describe impact, only costs.

LIGHTS-ON operations as a percent of revenue

Pros: Distinguishes between strategic and nonstrategic spending; can show trends in improved IT efficiency over time, even if overall spending doesn’t change.

Cons: More difficult to calculate. Definitions of strategic and nonstrategic IT vary across companies and industries. Not widely used.

Per employee

Pros: Easy to calculate and widely used. Maps IT spending directly to those consuming IT services. Can be used with percent of revenue to gauge the true similarity of companies in an industry.

Cons: Outsourcing can skew numbers. Numbers can be unnaturally high in capital-intensive industries. Does not describe IT effectiveness, only costs.

Per user

Pros: Can be useful for benchmarking the cost of well-understood categories of products and services, such as PCs or enterprise applications. Can be extrapolated into “unit cost” of automated services, such as ATMs in banking.

Cons: Does not differentiate between strategic and nonstrategic spending.

Industry standard metrics

Pros: Many industries have a favorite benchmark (such as “cost-per-ton” in the chemical industry) that is accurate and widely understood. Puts IT into a business context.

Cons: IT is generally one of the highest-cost services in a business. May make IT look egregiously expensive.

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Copyright © 2006 IDG Communications, Inc.

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