Why IT Service Costs Are Mostly Inaccurate
Every business needs to keep an eagle eye over their business, particularly when they are looking to expand rapidly. Every expense needs to be recorded scrupulously and every penny of the revenue accounted for. However, when it comes to expenses, most of the businesses fail to calculate IT service costs properly. There are several reasons behind the miscalculation. Let’s have a look at some of those.
- Inaccurately recorded expenses: This is one of the most common mistakes. Let’s take an example of your company to understand this point. Your marketing team needs a laptop costing $1,000. The accounting team records this expense under the marketing department because the laptop is going to be used by them. The same way, accounting department needs a laptop, and again the expense is recorded under the accounting department. Consequently, even though IT hardware expense increased, the IT department isn’t responsible for this. Technically, this is misappropriation of operational costs. These costs belong to IT department because they are assets of IT department.
- Recording all expenses: You have to record each and every expense, no matter how small it is. Usually every business has one or two major vendors who account for 75% of the expenses. So it’s a common mistake to focus on these vendors while ignoring the small vendors who account for 25% of the expenses. Once you track all the expenses, big and small alike, you will the actual expense of your organization. This will also help you for future budgeting.
- Recognition of expenses: This problem arises specifically in small businesses who don’t have dedicated IT department. They usually have couple of employees who are proficient in maintaining various IT devices. But as they have different roles, their expense is not considered as IT expense. For example, your small business has no IT department but you have an employee drawing $50,000 a year who looks after printer and server, along with his/her main role as executive assistant to marketing manager. Now this employee spends 10% of his/her productive hours in maintaining IT infrastructure. So ideally, $5,000 of the salary should go under IT department but unfortunately, most of the companies fail to do so. Once you start recognizing the IT expenses correctly, you will get better vision of your business.
There are several benefits of recording your IT expenses correctly. Some of them are as follows:
- Helps in proper allocation of budget
- Facilitates accurate accounting of each department
- Helps top management in making better operational decisions
- Facilitates proper future planning
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