The biggest IT resource allocation mistake an IT manager can make is to commit too many resources to relatively unimportant areas, thus underpowering crucial IT operations. How do you know if your resource allocation is appropriate, much less optimally tuned? Well, sometimes wisdom comes from unexpected sources. You probably wouldn't think that a 19 th century Italian economist and a 20 th century American management theorist could revolutionize IT resource allocation, but if their names are Vilfredo Pareto and Joseph M. Juran, they can.
Pareto's area of study was the distribution of wealth and other nonlinear economic systems. He observed that 80 percent of the property in Italy was owned by 20 percent of the Italian population. In 1937, quality management pioneer Joseph M. Juran conceptualized what he called the Pareto principle: that 80 percent of the consequences stem from 20 percent of the causes. The Pareto principle is also known as the 80/20 rule and is represented perhaps most familiarly in the phrase "the vital few and the trivial many." (Juran's actual words, applied to human resources, were "the vital few and the useful many.") The Pareto principle is used to address the management problem of how to allocate resources to correct the few faults that cause the majority of defects, rather than to correct the many faults that cause only a small number of overall defects. Today, the Pareto principle is applied to many areas in business to determine maximum resource allocation efficiency. You can use this principle to better allocate IT resources by determining how faults are distributed and targeting your resources optimally to reduce the overall defects in your IT support system. This approach will yield measurable data that you can use to reduce the costs of IT support.
Putting 80/20 to Work
If you're an IT manager responsible for IT problem management, one of the single most important contributions you can make to your department, as well as to your business as a whole, is to reduce the cost of support. Easier said then done, right? To simplify the job, break it down into three parts: First, identify and separate the vital 20 percent of IT support incidents from the trivial 80 percent. Second, analyze the vital incidents and design countermeasures for them. Finally, measure the effect the countermeasures have.
Identify Vital Support Incidents
The first step is to identity the 20 percent of incidents that draw 80 percent of the overall IT support costs for a given period, either quarterly or monthly. To do so, for the period you choose, assign each support incident to a category (e.g., place all password-related problems into one category, all virus problems into another category, and so on). For each category, find the average cost of resolving incidents by multiplying the time it takes to resolve the issue by the applicable labor cost, adding any other costs to the result. (For more details on calculating support costs, see The Business End: "Don't Gamble with IT," October 2005, InstantDoc ID 47637.)
Now, determine the cost of each category as a percentage of overall IT costs by multiplying the category's average cost by the number of occurrences. For example, if your total IT support costs are $10,000 for January and there were 200 password-related calls during January that cost an average of $12.00 per call, the total cost of your password-related incidents in January is $2400, or 24 percent of January's total IT support costs. List all the support-incident categories (you could also graph them) in descending order of cost. The categories that take more of your IT support costs will be at the top of the list, and the less costly incidents will be at the bottom. Allocate your resources to the more crucial and costly—the vital few—incidents. Although the 80/20 rule dictates that to achieve maximum efficiency with your resource allocation you should target the 20 percent of incidents that comprise 80 percent of the overall costs, your list most likely won't break out neatly to 80/20. In this case, "close enough" is good enough.
Analyze Vital Incidents, Design Countermeasures
Once you've identified the "vital few" incidents, analyze these incidents for their causes. Depending on how broad your categories are, at this stage it can be helpful to break each category into subcategories. For example, if you have a category such as "password-related incidents," you could divide it into smaller categories, such as for password resets, account lockouts, and so on. For each category and subcategory, determine what the most prevalent causes of the support incidents are. (If you're really ambitious, you could graph the causes according to the 80/20 rule.)
Once you've determined the prevalent causes of your incident categories, you can design countermeasures for each. The countermeasures should either reduce the frequency of each incident type through prevention or lower the cost of resolving the incidents.
Measure the Impact of Your Countermeasures
After your countermeasures have had time to take effect (ideally, at least two reporting periods after implementation), you can measure how much they've changed IT support costs by repeating the exercise of multiplying the number of incidents within a category (during a specified period) by the average cost of resolving the type of incident. Compare this result to the costs you calculated during your initial measurement to determine overall cost reductions that the countermeasures achieve. The cost changes you calculate are your gross cost reductions (or increases) by incident category.
For example, after implementing a longer password expiration period to reduce password resets, you might see that the number of password-reset support calls in a month has decreased from 200 to 150. At an average cost of $12.00 per password reset, reducing the number of times your staff must perform this support task by 50 amounts to a gross $600 per month cost reduction. The ROI achieved on your countermeasures is the difference between the cost of a countermeasure and the gross reduction or increase in cost that the countermeasure achieves.
Over time, continually working through these three steps will result in a continual reduction of IT support costs. The key to making this process work efficiently is to quantify the distribution of support incidents and optimize resource allocation according to the 80/20 rule. This framework will also give you a quantitative basis on which to request additional IT resources, whether in the form of additional staffing, training, or budget. In short, applying the Pareto principle and the 80/20 rule will take the guesswork out of optimal resource allocation.