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IT cost structure is the relationship among different types of expenditures within a larger IT budget.

Effective planning around an IT cost structure should consider long-term business investments over several years, followed by the creation of line items in the budget that can be categorized and tied to specific costs. Four categories that contribute to the overall IT cost structure are:

  • Operational costs - the price of the running of IT services on a day-to-day basis.

  • Staff costs - a total of all expenditures associated with hiring, training and retaining an employee.

  • Core costs - general operating expenses that have no direct relationship to the production or selling of a company's goods and services. Also known as overhead.

  • Capital costs - money invested by a company to acquire or upgrade fixed, physical, non-consumable assets, such as buildings and equipment or a new business.

Many IT expenses are fixed, allowing limited options for IT executives looking to reduce expenditures. In building and trimming an IT cost structure, typical cost management initiatives include rationalizing IT assets and resources and renegotiating vendor contracts. The chief information officer (CIO) is primarily responsible for the strategic decisions in the IT department, including the IT cost structure, and determines whether proposals fit within the IT budget.

To control IT costs in a manner that accommodates growth without sacrificing service quality, companies will need to pursue two broad avenues of reform. The first is optimization of service delivery structure and process. The second broad path to sustainable IT costs control is to create price signals to consumers of IT services, such as chargebacks, cost allocation, and service catalogs.

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