Financial Considerations For Digital Ventures

DigitalIntelligence

Money, especially in the form of return on investment, predominates in digital ventures. Dealing with hidden costs can be challenging. Technical teams play a vital role. From experience, the financial aspect of digital transformation initiatives has been the most important one. This aspect requires specific intelligence and approach.

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Let’s put it this way. Even if we create a pinnacle of architecture with impeccable designs, if the solution is economically not viable and does not produce compelling returns on investment, the business stakeholders will consider the venture a failure.

Therefore, financial intelligence for any digital venture is mandatory. The financial aspect always gets priority at the executive level.

In this article, I provide a high-level view of digital venture costs and value propositions from the technical team perspective. When digital and technology venture leaders understand the financial aspects they can make valuable contributions to the success of the venture.

Awareness of Digital Venture Costs

Everything in digital ventures generates substantial cost. We categorize them broadly as known and hidden charges.

Dealing with the known costs can be relatively more straightforward. The standard approach is to apply some logic using project management discipline and allocate necessary resources to address them.

However, dealing with the hidden costs can be daunting.

Hidden costs are the more significant part of the proverbial iceberg. Even though financial teams manage the cost, the technical team needs to find ways to make digital solutions inexpensive, affordable by lowering the cost gradually without compromising quality. Quality considerations are the critical requirements of digital transformation initiatives.

Quality Versus Cost

Some people believe that without compromising quality, it is not possible to make solutions cost-effective. Their reason is that a considerable number of trade-offs for quality must be made in the architecture, design, and deployment phases.

I agree with this statement. There are many challenges and factors to be considered to achieve quality maintenance goals. However, an innovative approach makes a difference in balancing quality and cost.

Exceptional leaders of digital ventures can reduce the solution costs by making trade-offs with a systematic and collaborative approach. For example, they can obtain collective input by bridging business and technology stakeholders.

They can also apply an agile approach and other innovative methods such as automation and standardization to repetitive and resource-hungry digital solutions components.

They can increase the solutions' quality by applying professional diligence, architectural rigour, delivering with agility, innovative collaboration across multiple teams, and harvesting re-usable materials.

These principle-based and cost reduction approaches are vital to maintain and increase quality. Increasing quality can create a favourable effect on the financial viability of the solutions.

Materials Costs

Material costs are known as Bill of Material in the project management discipline. A simple yet powerful impact on cost control is related to the Bill of Materials in digital ventures. Bill of Materials refers to hardware, software, and services costs.

Leaders of digital ventures can participate in cost model development proactively and engage with all stakeholders to prevent duplicated efforts. For example, they can develop a solution Bill of Materials after setting the solution strategy and complete all high-level design documents.

Why is this important? Because there may be tremendous pressure from project managers and procurement staff to generate an upfront Bill of Materials due to the project life cycle's demands. However, the responsible leaders can point out that it won’t be viable to commence purchasing materials upfront without agreed and approved architecture and design artifacts.

This assertive and straightforward intelligence from technical team members can save a considerable amount of funds to the digital ventures and save wasting well controlled and tight budgets in this economic climate.

Unfortunately, I witnessed millions of dollars of materials purchased upfront and wasted on several occasions due to solution architecture and design changes. This lesson learnt is worth consideration for leaders for digital ventures.

Infrastructure, Maintenance, And Support Costs

There can be extensive infrastructure, maintenance, and support costs associated with digital ventures. Data centres, server farms, mobile devices, storage units, data processing tools, analytics machines, and hosting in multi-Clouds are a few to consider.

These foundational infrastructure components are essential to make digital enterprise solutions viable.

However, a single failure or defect in a device or a group of devices serving the consumers via these high-end technologies can adversely affect the service levels, leading to high costs for service providers.

Service Availability and Performance Costs

Service availability and performance of the systems are the significant factors to address punitive service levels. One way of intelligence to manage these risks is the introduction of automation to service management.

Automated Service Level Agreements (SLAs) can detect low availability and poor performance. These automated SLAs trigger the rules and force the organizations breaching the agreements to pay the contractually agreed penalties.

System downtime is the most critical cost factor for generating excessive penalties. The longer the systems are down, the higher the penalties.

By taking proactive measures, leaders of digital ventures can contribute to cost reduction for availability and performance. Let’s touch on SLAs as it is a critical topic.

Service Level Agreements

Service downtime costs can be very high based on agreed rates. They can cause excessive penalties when organizations accumulate service-level breaches.

Service Level breaches also have a strategic adverse effect on an organization's product and services. For example, downtimes in services or defects in products can result in poor client satisfaction.

If we also look at the situation from the consumer perspective, they lose business due to service downtimes. Service downtime can create a lose-lose scenario even though the consumer organizations are compensated with SLA penalties paid by the service providers.

Leaders of digital ventures need to pay attention to the SLAs starting from the initial stages of the digital solution life cycle. The higher the solutions' quality is, the easier it can be to meet SLAs when the solutions are in production and the operational state. The rigour for quality in each phase can positively contribute to deal with SLA risks.

Some of the key considerations to address SLA issues could be autonomous condition monitoring and remote maintenance. There are specialist solutions regarding these trending techniques. Assigning automation and standardization specialists to design these unique features in digital solutions can be productive.

Service level management is also crucial in digital initiatives. To put this into a practical perspective, one of the biggest fears of business executives is the impact of poor performance and low availability problems damaging their organizations' client satisfaction. These issues can compromise business revenues.

To address the risks associated with these valid business concerns, digital venture leaders need to pay particular attention to their SLA strategy, planning, design and implementation in an integrated way.

Proactive and effective SLA management is one of the key areas where digital intelligence impacts cost management.

Costs For Digital Systems

Digital transformations are long journeys moving business organizations from chaotic situations to coherent service delivery. The transformation process includes every aspect of the business.

For the scope of this article, I only focus on digital systems. Even though digital systems look like only a tiny amount of an organization in an overarching enterprise, this field by itself can be massive, especially for large business organizations.

Business digital systems can include technology processes, business data, business applications, technology infrastructure, and technology service delivery. These domains can even be more complex and complicated when geographical factors, such as multiple countries, are added to the equation.

An essential workaround solution for this complexity is to modernize, transition, and transform these primary domains iteratively and rapidly in parallel.

Thank you for reading my perspectives.

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I write about important and valuable life lessons. My ultimate goal is to delight my readers. My content aims to inform and engage my readers. Truth, diversity, collaboration, and inclusiveness are my core values. I am a pragmatic technologist, scientist, postdoctoral academic and industry researcher focusing on practical and important life matters for the last four decades.

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