IT Stress Test for Colleges and Universities

IT Stress TestAn IT stress test is a “what-if” scenario analysis of an IT department’s ability to scale down or scale up its costs, staffing, and capacity in response to changes in the economy, funding, or other forms of business stress.

With so many college and university IT departments running at a fixed cost of 85% or greater with IT demand far exceeding supply capacity, conducting an IT stress test will determine the risk of an IT department’s inability to be flexible under dynamic business conditions and the IT department’s ability to support the organization’s response during difficult economic conditions.

Fixed Cost Versus Variable Costs

Before you can conduct an IT stress test you must first know what the fixed costs and variable costs are for your IT department. Fixed costs and variable costs are the two components of your total cost.

Fixed Cost vs Variable CostsFixed Costs are those expenses that do not fluctuate with the business or change with business activity. Variable costs do fluctuate, or I should say can fluctuate, with business activity.

For college and university IT departments the fixed costs are those that do not change with enrollment, research, or similar activities. These fixed costs represent the IT overhead cost, or run rate, of operating the IT department.

What is a fixed cost versus a variable cost can depend. Labor costs are usually deemed variable because of hourly worker schedules can be reduced and because you can downsize. However, in higher education and for some labor expenses it may appear to function as a fixed cost.

Software expenses can also be a fixed cost and a variable cost depending if you use fixed fee or enterprise licensing or an FTE based licensing model. Cloud bases IaaS and SaaS applications may be a variable cost based on metered consumption, while managed hosting or outsourcing are likely to be fixed costs.

There are several ways to determine your fixed costs versus variable costs. One method is to rate each budget line item on a scale from 1 (fully fixed cost) to 5 (fully variable cost) which you then total for a weighted rating of your total costs.

The easiest is to simply take a detailed budget breakdown and classify each expense as a fixed cost or a variable cost. I provide a fairly straightforward method in an earlier post on IT Budgeting to Improve the IT Value Proposition.

IT Staffing Level Analysis

In order to determine your fixed cost basis you may have to also conduct a simple IT staffing level analysis to determine your minimum IT staffing level required to support the core operations and maintenance workload.
This is similar to how many CIO’s perform IT capacity planning as part supply side IT governance and portfolio planning. This method is described in great detail in the IT Portfolio Planning Toolkit which includes a template for developing the IT staffing levels.

If you are one of those IT departments that has a full time IT staffing level based on operations and maintenance and a flexible IT staffing levels for project work using supplemental labor you are way ahead of the game.

IT Stress Test for Decline Scenarios

Develop scenarios for declining revenues or declining enrollment and analyze how your total costs will perform. This should not be that difficult given recent cuts in state funding and tuition increases that do not always close the gaps. This is the IT stress test.

Your IT stress test scenarios should include a range for best case and worse case scenarios to account for multiple years of decline. Although you do not want to get overly complex, you do need to consider opposing forces that might result during an economic downturn such as further cuts in revenues and increases in enrollment.

Issues to consider include the key IT financial performance metrics of cost per FTE, expense versus revenue, and any transaction cost ratios. ROI’s previously committed on projects may need to be adjusted or the strategy revisited in order to achieve the committed returns.

IT Stress Test for Growth Scenarios

It is equally important to consider IT stress test scenarios for growth. In these scenarios you are attempting to analyze how quickly IT can scale up and how much growth can be sustained before fixed costs and variable costs increase.

Possible scenarios to considered might include growth in online enrollments, campus expansion, large influx of students, major grant award, or adding new programs

Issues to consider are how quickly can IT staff up for the growth or add additional infrastructure capacity. Closely related issues include the IT economic risks from being under capitalized or under funded.

The objective of conducting an IT stress test is for your organization to develop the basic model and financial data so that you can do “what-if” scenario planning for growth and decline. The results of your IT stress test will also move budget debates away from emotional or anecdotal arguments to fact-based reasons linked to business performance.

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