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Insights / Modernization / The Real Cost of Aging IT Systems, Part One: How Outdated IT Burdens Budgets

July 18, 2017

The Real Cost of Aging IT Systems, Part One: How Outdated IT Burdens Budgets

3 mins read

IT leaders know aging technology systems eat away budgets, but what are the real and hidden costs to keep these critical systems going? How do you account for the budget impact of aging IT?

In this article, part one of our two-part series, The Real Cost of Aging IT Systems, we highlight the budgetary impact of aging systems. In part two, we lay out the specific costs (clear and hidden) incurred by organizations that maintain these systems.

Are You Stuck in the Past?

Technology is evolving faster than ever; meanwhile many organizations still rely on aging core systems to support their needs.

Older IT systems, also known as legacy systems, are not merely defined by their age. Legacy IT systems are business-critical software or application systems that “significantly resist modification,” and in which any “failure can have a significant impact on the business.”

Like an antique car, systems 20, 30, or 40 years old may continue to run, but are fragile and expensive to keep. Tried and true can provide value, but modern needs are rarely supported by aging technology.

Is Your Budget ‘Enlightened’ or ‘Keeping the Lights On’?

More than more 10 years ago Gartner reported that 60-80% of IT budgets were spent simply “keeping the lights on.” We know these operations and maintenance costs provide a lower return on investment than executives and shareholders would like, but even today’s CIOs struggle to allocate budget to new initiatives due to high O&M costs.

A recent American Council for Technology (ACT) and Industry Advisory Council (IAC) report found legacy systems across federal agencies consume around 75% of operations and maintenance funding, and as much as 90% at certain agencies. While the commercial sector has outpaced government in technology innovation, the sheer pace of innovation and explosion of data in the last five to 10 years may mean that fast is not fast enough.

Data creation is exploding, but legacy systems remain ubiquitous and continue to power the business world. It is estimated that close to $3 trillion in daily commerce continues to run through 60-plus year old COBOL systems. Just two years ago, it was reported that the banking and insurance industries spend close to 75% of IT budgets maintaining workhorse systems, such as these COBOL systems.

A Digital Future?

Top performing organizations align digital participation to CEO priorities. Where does your organization stack up?

According to Gartner’s 2016 CEO Survey, CEOs expect 46% of revenue to come from digital business by 2019. Meanwhile many businesses are still not “fully participating in a digital ecosystem” due to budget constraints.

Gartner’s 2017 CIO Agenda Survey representing more than 2,500 CIOs across 93 countries, found that top performing organizations devote 34% of their IT budgets to digital and innovation investments compared with just 18% at typical performing organization.

According to Gartner’s analysis, “trailing performers are investing heavily in non-differentiating activities,” which suggests they “need to work hard to modernize their technology core before they can even consider digital business-style investment.” For many organizations, investing in “non-differentiating activities” may be a means to surviving, but it does not lead to thriving.

For some companies, a convincing digital business strategy could justify investment in modernization to boost speed, agility, and innovation. For others, a need to mitigate risk and enhance security. While IT modernization comes at a cost many organizations are not yet ready or willing to incur, devoting considerable budget to “keeping the lights on” could end up costing those businesses in the long run.

 What Are the Real Costs of Your Legacy Systems?

When you add it all up, how much does it really cost to maintain an aging IT system?

With IT budgets burdened by legacy systems, organizations are unable to invest in the differentiating activities that propels their business forward. The unrelenting pace of technology, innovation, and data creation may leave many organizations dependent on aging core systems behind as their competitors fully engage in digital business.

Beyond significant budgetary impact, what are the potential costs to businesses that wait to modernize? In the second part of our series, we will list the top four costs of maintaining legacy systems – some are obvious, but others may surprise you.

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