The cost of legacy IT

What is legacy IT?

The cost of legacy IT is often overlooked, partly because it can be difficult to ascertain and partly because it describes the status quo so it is the default.

“In a way, the fact that legacy IT is the source of so much trouble has obscured just how expensive it can be.
You have to understand that most Sheffield companies don’t think in terms of spend per line of code or a percentage of a big-picture technology trend. They think about how many people they have to hire and what those employees cost.”

“How do you measure expense? In dollars, naturally, but also in resource drain on the business as a whole…All told, Fortune 500 company US legacy IT costs were pegged at $7 trillion by Ponemon – a number greater than annual revenue for every S&P 500 member save one: Apple.”

More importantly, all this money is going toward systems that are themselves a cost to maintain and upgrade.

“CIOs spend their days figuring out how to keep up with Moore’s Law (itself often defined as the doubling of transistors on a chip every two years), which is the beating heart of business technology. A report from McKinsey found that companies spent $650 billion per year on incremental software-development costs.”

“If you want to go big, the numbers get even more over-the-top: Gartner predicted that, 70 percent of IT spending would be devoted entirely to maintenance and upkeep”… the CTO of an IT company which makes products for managing and migrating enterprise applications calculated that just one line of code costs over £5 to support over its lifetime!

“When you consider that some large Sheffield companies have tens of thousands of employees working on legacy software, the cost of maintaining it can be staggering…The average age for a company’s business-critical systems is four years old – a virtual eternity when it comes to technology, where a two-year product cycle in consumer markets is a sign a vendor has stopped caring about it. For every year beyond two years old, it was calculated in a report commissioned by BMC Software that your system becomes 8.6 percent more expensive to maintain and operate.”

In total, legacy IT costs US companies 7trillion dollars annually. That number doesn’t even include the cost of lost business due to legacy systems. Legacy IT also requires more people to maintain, costing companies $650Billion per year in incremental development. Business critical systems are 4 years old on average at any time, and become 8.6% more expensive every year beyond two years old they are introduced.

“Yet the notion that all this work is not only necessary but beneficial gets short shrift. “Typically what happens is senior management says, ‘You’re driving up our cost, you’re making us less agile,’” Nelson said.”
“‘We’re still able to do the things we need to do today,’ but there’s lots of risk when you don’t pay attention,” he said.”
“‘The reason why these costs are going up is because you’re not addressing the core root problem of why your costs are going up.’”
“A foundational principle of business is that if spending on a line item isn’t making things better, it should be abandoned or cut.”
It is evident from these quotes that companies need to stop putting money into legacy IT and start investing in new technology. Legacy IT costs US businesses 7 trillion dollars a year which could otherwise go toward R&D and innovation. In order to make headway, management needs to “abandon or cut” their investment in legacy systems as those systems will never innovate with their current budgets. This would incentivize departments to upgrade as quickly as possible as they don’t want to miss out on potential savings/investment in the future.

The money spent on IT can be used to innovate, or alternatively, help keep costs down by not having to maintain old systems. Companies need to stop spending their IT budgets on legacy systems and invest in new technology if they want to remain competitive. 7 trillion dollars is wasted every year because companies continually upgrade existing technology instead of investing in new technology. This system needs to change or else US businesses will never achieve breakthroughs into newer technologies. It is evident from these quotes that companies need to stop putting money into legacy IT and start investing in new technology. Aside from the obvious cost of maintaining legacy IT there are other costs like lost opportunity cost in terms of using increasingly out-dated and burdensome systems to run your operations inefficiently.

If you are becoming aware that your business’ legacy systems need to be reviewed with a view to upgrading and modernising then why not contact Sheffield Apps?

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