It's that holiday time of year again. The Info-Tech elves gather together and ask the question on everyone's mind:
“Just what was the rate of inflation of IT products and services in the small enterprise sector this past year?”
Fear not. We have the answer. Last year, we introduced the Info-Tech Mid-Sized IT Christmas Price Index (ITMSITCPI) [NOTE 1]. It uses a new take on the "Twelve Days of Christmas" to assess the cost fluctuations faced by IT managers. We described the model and assumptions and now, after 12 long months, we get the answerWithout further ado, the results:
The 2018 rate of inflation for Canadian IT shops was 6.9%. There were, however, significant currency effects. Inflation for their American cousins was only 4.4% [NOTE 2].
This value for inflation needs to be understood in context of two other markers. The official Canadian rate of inflation for the period was 2.4% and the Canadian dollar depreciated against the American dollar by about 6.3%. So while an IT inflation rate of 6.9% is in excess of the official inflation rate it is less than expected when combining currency depreciation and inflation.
Twelve New Days of Christmas
We are great fans of the original holiday song but we made a few small changes to better capture the realities of IT operations:
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Generic Services Corporation (GSC)
In our model, one fictional organization makes these decisions every year in the very same way. It has 300 employees, with 10 in IT. In all ways, it is completely average when compared to Info-Tech's benchmarks. Generic Services Corporation (GSC) uses online/cloud services whenever possible and is based in Montreal Canada.
Throughout the year, GSC made 12 IT investment decisions:
One Mrs. Partridge, CIO and a Pear Tree
In 2018 GSC had to hire yet another CIO, conveniently named Mrs. Partridge. Her salary was consistent with the Robert Half 2018 Salary Guide for Technology Professionals. Including a regional variation for Montreal, her salary was:
CND$267,700
This value is an increase from last year: 5.7%. Note that Robert Half changed its salary reporting for the 2018 report by providing more detail. This development forced our elves to fit the new values into our model assumptions. It seems this increase in CIO compensation is driven at least as much by the increased variability in compensation as it is by an increased average. We inadvertently built our original model with a CIO salary larger than the mean. As the variability has increased, Mrs. Partridge's salary has been pushed further out. We will revisit this trend next year.
This Mrs. Partridge also puts a pear tree on her desk but there is no direct cost to GSC.
Two Turtling Data Breaches
Just like last year, GSC had two data breaches in 2018, exposing 5,000 records. The 2018 Ponemon Cost of Data Breach report estimates a response cost of US$148 per record, up 6.4% from last year. Including currency effects, the total cost of breach was:
CND$986,670, an increase of 10.6% from last year. [NOTE 3]
Three French Projects
GSC is average when it comes to project staffing and execution. The Info-Tech IT Staffing Assessment provides guidance on effort devoted to projects. We will include the following components:
| Category | % of IT Effort 2017 | % of IT Effort 2018 |
| Application Maintenance | 13.2 | 13.4 |
| Application Development | 6.5 | 5.7 |
| Project Management | 6 | 6.8 |
| Requirements | 4.4 | 5.7 |
To keep things simple, we can assume that each of GSC’s IT staff is compensated as a Systems Analyst (as per the Robert Half Technology definitions). We can then estimate the total project IT effort at CND$341,400, an increase of 5.2% from last year. A more interesting number is related to project waste. Info-Tech's Project Portfolio Management Current State Scorecard notes that, in 2018, 6.8% of projects are cancelled, for a total loss of:
CND$23,200, an increase of over 15% over last year. This value is driven primarily by the increased rate of project cancellation (from 6.2% to 6.8%) in addition to a greater focus of total IT effort spent on projects (from 30.1% to 31.6% of effort). Notably, the major areas of effort increase were in requirements and project management.
Four Calling Users
On the night before Christmas, all through GSC, everyone was sleeping… except for the helpdesk. Users make constant demands during the holidays. The Info-Tech IT Staffing Assessment notes that in 2018, 14.9% of total IT effort was spent on help/service desk activities, up from 14.8% in 2017. With the above assumptions, the cost of the service desk was:
CND$160,990, up from CND$155,030 in 2017, an increase of 3.8%. This increase was driven by incremental increases to both average IT salaries and the slight increase in service desk effort.
Five Gold Ring(ing) Phones
Everyone at GSC has a phone provided by Mitel (Phone Essential), with a list price of US$21.74 user/month, up from US$19.99 in 2017, for a total cost of:
CND$104,350 up substantially from CND$91,090, an increase of 14.6%. Vendor price increases compounded detrimental currency exchange issues.
Six Geese-a-Invoicing
GSC uses Oracle Fusion for its financial modules and has the regular misfortune of having to pay list price each year for new software.[NOTE 4]
Software -- CND$617,300.00
Maintenance -- CND$135,806.00
These costs represent an increase of 5.3% over last year. Note that Oracle made no changes to its public price list in 2018 so this increase is driven completely by currency exchange.
Seven Swans-a-Storaging
GSC currently has 2.4TB of storage requirements, increasing at 20% per year, and requires six dedicated Amazon EC2 hosts (type m4), all billed as 1 year no upfront reservation, from the US-East availability zone. This configuration has an estimated monthly cost of US$6,270, for an annual cost of:
CND$100,290, an increase of 5.9% over 2017. Currency exchange accounts from most of this increase. The actual cost of service remained remarkably consistent given the across-the-board 20% annual increases to storage, I/O, and number of required servers.
Eight Maids-a-Meeting
Meetings are the bane of many at GSC. IT has determined that it is dead average in the amount of time the average IT staffer spends in meetings according to the Info-Tech IT Staffing Assessment – 9.9%, completely unchanged from 2017, for a total cost of:
CND$106,960, an increase of 3.1% driven completely by the rise in average IT salaries.
Mrs. Partridge is shocked at this level of investment in meetings, something that most in IT despise!
Nine Ladies Dialing
GSC depends on its CRM system and currently supports 150 users on Salesforce.com's Lightning Professional edition, with a list price of US$75/user-month -- unchanged from 2017 -- for a total annual cost of:
CND$180,000, an increase of 5.3%. As with GSC's ERP investment, this increase is totally due to currency effects.
Ten Lords-a-Emailing
IT staffers spend a lot of time on email. Specifically, as per the Info-Tech IT Staffing Assessment, in 2018 they spent 10.9% of their time sending and replying to email. This value is down slightly from 11.1% in 2017. The total cost of this effort in 2018 was:
CND$117,770, up 1.3% from 2017 primarily due to the increase in average IT salary.
Eleven Pipers PowerPointing
Users need access to their productivity applications. GSC is on Microsoft Office 365 Office Premium with a one-year list price of CND$16/user-month, up from CND$15.20 in 2017:
CND$57,600, an increase of 5.3%, driven completely by vendor price increases.
Twelve Drummers Noshing
IT staffers need snacks and GSC likes to keep them fed with coffee and donuts. Tim Hortons donuts are fine but GSC has more elevated tastes when it comes to coffee. Specifically, they want the best from Costa Rica.
The Cup of Excellence from the Alliance for Coffee determined that a Gesha from Finca Don Cayito had the best Costa Rican beans and they sold for a high bid of USUS$300.09/pound. One pound of coffee beans will make about 36-8oz cups of coffee. There were 240 net work days between January 1, 2017 and December 31, 2017. If each IT staffer has 1 cup of coffee per day, GSC needs to spend $26,700 on coffee beans.
The staffers also appreciate donuts. Currently, Tim Hortons donuts retail for $0.99 each. If each staffer has a donut per working day, the donut-related cost is $2,380, for a total snack-related expense of:
CND$25,050, an increase of over 260%! This type of increase does significant damage to any annual inflation model so the Info-Tech elves decided to omit it from the overall analysis. It does, however, beg a question: "What the heck is happening with boutique coffee?!?!"
We checked in with Will Young, CEO and founder of Campos Coffee in Australia. He noted that the coffee is incredible, perhaps among the best in the world, but what really drove the bidding was the emergence of non-traditional coffee markets that particularly value premium coffee. The Japanese market, for example, puts a lot of value in the best products. The increased popularity of premium coffee in China is creating an incendiary bidding environment.
Mrs. Partridge is thankful that inflation in her particular IT-centric corner of the market isn't driven by these kinds of market forces.
Bottom Line
The biggest contributors to IT cost in 2018 were the increased costs of data breach, the increased rate of failed IT projects, currency effects, and vendor price-list increases. All-in-all, the rate of inflation was rather moderate. 2019 could, however, present a different environment if the macro economy decompensates. The Info-Tech elves will be watching developments!
Do you have any ideas for how to improve our model or any concerns about our assumptions? If so, please let us know in the comments below.
Happy holidays from Info-Tech!
George Goodall, Director of Small Enterprise Research
Notes.
- I still can't believe that marketing actually let us run this acronym. It really is terrible. Not that we have taken inspiration from the much-respected PNC Christmas Price Index.
- This rate of inflation is based on eleven of the twelve cost components. One of the elements -- 12 Drummers Noshing -- was simply too volatile to include in this year's model. It does, however, yield an interesting backstory.
- Our elves engaged in some discussion to assess the number of records breached. Should this value be larger than last year's? We kept it the same largely because the average size of a Canadian company has stayed the same. From June 2017 to June 2018, the number of employed Canadians remained largely consistent with the number of Canadian businesses. The employee/business ratio increased by 0.14% during this period. For details, see the following Statistics Canada resources:
• Table 33-10-0034-01 Canadian Business Counts, with employees, June 2017
• Table 33-10-0092-01 Canadian Business Counts, with employees, June 2018
• Table 14-10-0287-01 Labour force characteristics, monthly, seasonally adjusted and trend-cycle, last 5 months - Model assumptions remain unchanged from last year.
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