Understanding your technological risks

Technology is one area where tough questions need to be asked before a board signs off on the expenditure, writes Cathy Parker.

Technology can support a business, supercharge a business or cripple a business – and often the line between each of these is small. So how can directors ensure they consider these aspects to the best of their abilities, especially when they may not be technology experts?

One advantage of current technology, especially for small and medium sized businesses and startups, is that there is not the daunting capex for hardware. Where once you would need beefy on-premise servers’ now, in most cases, you can buy capacity with one of the many cloud suppliers; extra capacity can be stood up almost instantly; and excess capacity reduced rather than having to wait for additional hardware and installation. 

You also avoid regular significant upgrade costs. On the downside the operating costs are higher and need constant monitoring.

One of the challenges in operating costs is that each piece of software requires an extra subscription – a bit like streaming services. You start with Netflix, then Neon, Disney+ and maybe Spotify. 

For businesses it is Office 365, maybe a database, accounting and payroll, Adobe Creative Suite, Zoom, etc. 

When you stop to add it all up, the monthly cost can get scary. You certainly want to ensure that your IT team is proactive about allocating licences and reducing licence count if head count changes. 

They should also regularly review the subscriptions you have to ensure that the product is still needed, or look at whether you could get that same functionality via another product you are also paying for.

Software and website development is now probably the largest IT risk area. Software development projects are notorious for large cost and time over-runs – partly due to poor specifications, but also due to specification creep as the project continues. 

Some lessons can probably be learned from the software industry where perfect is the enemy of good. They will launch a Version 1.0 even when they know there is more work to do – and use their customers as a de facto testing team, rather than waiting for perfection or all the features to be ready. Projects are more likely to come in on budget with tight up-front specifications and strong governance and management oversight to prevent specification creep and consequent blow outs. Get that version 1.0 out there and working. Website development can follow a similar path – as users test, more and more ideas get thrown into the mix and then time and costs blow out. 

Given we can be dealing with five to seven figure budgets, depending on the project size, blow outs can be significant. 

For startups, especially, big blow outs in upfront website or app development costs can change the whole viability of the business plan as the investment/return ratios can quickly turn upside down. 

The board needs constant updating when a major software project is underway and needs to ensure senior management have strong control with constant reviews.

It’s also an area where tough questions need to be asked before a board signs off on the expenditure around:

• What contingency factors are built in?

• What is the management and review process during the build phase of the project?

• Even – what the plan B is, if the original targets prove to be unobtainable or you need to cut your losses at a certain point?

One other area of concern for boards is over significant legacy software systems that a number of businesses still rely on. 

Not only are these systems likely to be significant cyber security and privacy risk areas but often the code base is not well supported in terms of expertise as most people in the industry transition to newer programming systems making ongoing maintenance a challenge. 

These are usually large complex systems with a large development cost to develop new state-of-the-art replacements.

IT is complex and expensive – it needs tight monitoring, especially during major projects.  

 

Cathy Parker is a director of Adrenalin Publishing, which owns Management magazine. She also sits on a number of boards.

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