Network Communications News (NCN) August 2016 | Page 15

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Counting the cost
Steve Martin at the Electrical Contractors’ Association (ECA) looks at value
engineering and cost cutting – and why the two disciplines are very different.

N

ews that nearly half (46 per
cent) of the European IT
leaders who took part in a
recent survey by Claranet saw
cost cutting as a core function
was surprising. Although
controlling outgoings is a key
principle of business, focusing on cost
doesn’t always deliver the best results.
In some cases, it can have the reverse
effect – especially if attempts to cut
costs create a situation where further
investment is needed.
Understanding – and being able
to prove – the difference between
‘cost’ and ‘value’ is a crucial aspect of
managing budgets. Many businesses
make cost cutting a priority, but doing
so is merely a means of controlling
expenditure, not managing return,
and the difference between cost (a
quantifiable expense) and value (worth),
are significant enough to have a serious
impact on a budget and on a business.

Understanding – and
being able to prove – the
difference between ‘cost’
and ‘value’ is a crucial
aspect of managing
budgets.

Of course, the IT industry is well
aware of this. Over the last 10 years
the role of IT professionals within a
business has changed from one of
facilitation – making sure that users
had access to the devices, systems and
software they needed – into providing
support to a business’ marketing,
sales and security functions – to name
but a few. They have also become a
key driver of business innovation –
and able to save or make millions of
pounds for a business if it is given
the time and support required. The
very fact that IT is now, in the majority
of instances, judged on value rather
than cost highlights how corporate
attitudes towards the discipline
have changed – and why placing
an emphasis on cost doesn’t always
deliver the returns – and the results –
you might expect.
With this in mind, it would be fair
to suggest that the discipline of value
engineering would be more useful to
the IT industry than cost cutting. Value
engineering focuses on identifying
how every pound spent can deliver
the best returns. It looks at ‘function
in relation to cost’, and considers
whether a reduction in costs will affect
functionality, whereas cost cutting
typically aims to reduce the amount
of money invested – or expended –
on a service. The subtle, but crucial,
difference lies in the outcomes that
result from the processes, as a change
in supplier or a reduction in service
can have a real impact on a company,
its operations and its success.
One key example of this would be
the area of data centre commissioning
– not least because it is an area where
IT departments are increasingly
taking a leading role. In this instance,
appointing a company to design and
build a data centre purely because
they offered the lowest price during
the tender process may not yield the
best results. This is because a number

of the businesses who specialise in this
work won’t use any materials which
they haven’t tested – and, as a result,
often put in higher tender bids than
those who don’t adopt this approach.
Anecdotal evidence suggests
going with a ‘cheaper’ but less
experienced – or inexperienced –
supplier because they offered the
most cost effective option can cause
issues in the long term. I’ve been told
about multiple cases where a short
term saving on the cost of a data
centre contract was far outweighed by
the scale of the additional investment
required to enable the data centre
to perform at its optimum level – far
from ideal if a substantial investment
has already been made. I’ve also been
told that there are times where a firm
has been unsuccessful in tendering to
design and build a data centre, but is
then brought back in later to audit or
troubleshoot it when problems arise
– a situation which is far from ideal for
the client.
Can businesses avoid finding
themselves in this scenario? The short
answer is ‘yes’ – but it requires them
to be willing to look at the detail
underpinning the quotes they have
received, and invest the time to do so.
It may seem laborious, but it enables
those making the decisions to get the
best value from the service – and from
the supplier providing it.
This approach is true for any
instance where quotes are sourced
and external service is provided – and
for when budgets are being reviewed.
By following the true principles of
value engineering, businesses can
ensure they get the most for their
money and budget holders can make
an educated decision about how
their resources are invested – crucial
at a time where IT professionals are
playing an increasing role in business,
and cost cutting is becoming a dated
concept.
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02/08/2016 12:07