Industry Benchmark Metrics Definitions

In this article:

Apptio's Interactive Benchmarking solution provides the following five industry benchmark metrics. 

For more information about IT spend, see Definition of IT Spend.

IT Spend as a Percent of Revenue

The IT Spend as a Percent of Revenue metric is the most recognized measure of total IT investment relative to top-line business results. 

Definition of IT spend: IT spend is the total annual spend for IT to support an enterprise. IT spend can come from anywhere in the enterprise that incurs IT costs. It is calculated on an annualized "cash flow view," which contains capital spending and operational expenses, but not depreciation or amortization. Organizations that do not track IT spend can instead use their IT budget for the year.

NOTE  IT spend does not include Shadow IT, a technology that falls within the scope of standard IT spend but is outside the control of the IT department. The IT department is not consulted about, nor does it support, this technology. 

Definition of revenue: Revenue is the enterprise revenue associated with the business units supported by the IT organization.

• Banks should use total interest income plus non-interest income minus provision for loan losses.
• Insurance companies should use gross written premiums and other income.

The value of the IT Spend as a Percent of Revenue metric is that it assists in identifying the competitiveness of investment levels relative to revenue, which is the most fundamental measure of business performance.

The metric alone does not explain why spending levels are at, above, or below median (which are often misinterpreted as "good" or "bad"), nor does it reflect IT's contribution to business performance. Thus, IT Spend as a Percent of Revenue needs to be considered in tandem with other industry benchmark metrics and in the context of business objectives, the rate of change, and the overall circumstances affecting the numerator and denominator of the calculation.

NOTE  If your IT spend only represents the spend for certain business units, the revenue number should likewise correspond only to those business units.

IT Spend as a Percent of Operating Expense

The IT Spend as a Percent of Operating Expense metric is another view of IT investment levels in terms of the role IT plays in overall business spending patterns.

Definition of business operational expense: Business operational expense is the total expense associated with the business units supported by the IT organization. This includes selling, general and administrative expenses, cost of goods sold (or cost of revenue), research and development, depreciation, and depletion and amortization expenses.

• For insurance companies, this includes underwriting expenses, and loss and loss-adjustment expenses.
• For banks, this includes interest expenses and non-interest expenses
• For government and nonprofit organizations, this is represented by the enterprise operating budget.

While revenue might be subject to external-market-based volatilities, business operational expense typically remains much more consistent and predictable year over year. Therefore, it better reflects the overall business investment strategy. Typically, organizations with a greater level of IT investment relative to operating expense tend to view IT as a strategic enabler, which can improve business performance and productivity levels.

Percent OpEx Spend

The Percent OpEx Spend (IT Operational versus Capital Spending) metric reflects IT operational spending versus capital spending to portray the IT investment profile for an organization in a given year.

Definition of IT operational expense: IT operational expense is the total day-to-day operations and maintenance expenses for the current fiscal year that have not been capitalized. These expenses do not include amortization or depreciation expenses.

Definition of IT capital spending: IT capital spending is the total capitalized IT spending for the fiscal year (that is, the full value of capitalized assets acquired in the fiscal year), including investments in new application development and IT infrastructure.

The Percent OpEx Spend measure can provide visibility into the cyclical nature of capital investments (such as hardware, software, and large service contracts) compared with recurring operational expenses (such as personnel, facilities, and maintenance expenses). The challenge is to leverage this information to communicate the link between IT investment and business results because it is a traditional accounting view of IT cash flow that typically does not highlight how IT investment enables improved business performance.

IT Spend per Employee

The IT Spend per Employee metric is often used to determine the amount of IT support received by the average organization workforce.

Definition of company employee count: Company employee count is number of employees (that is, head count, excluding enterprise contractors, and consultants) regardless of how often employees use the technology supported by the IT organization. This measure includes full-time and part-time employees, or as reported in the public record.

The company employee count establishes a link between IT investment and automation levels within the context of the workforce that supports revenue. Variations in this measure can represent niche industry-specific delivery processes for service or product delivery, so they should be viewed in relation to revenue and operating income per employee. Organizational staffing strategies and the use of contract employees can also impact this measure.

An increase in IT Spend per Employee is often viewed as a negative trend. However, this may not always be the case, as a decrease in employees (or a lack of increase of additional employees when business improves) can result in a higher value simply because a smaller number of employees is divided into the same or increasing IT spend, resulting in an overall trend impacted by continuing lower levels of general employment. In many cases, organizations in this situation have returned to profitability but are reluctant to increase hiring. For information-intensive enterprises, an increase in IT spending per employee could indicate a productivity improvement due to automation or digitization.

IT Full-Time Equivalents (FTEs) as a Percent of Employees

The IT FTEs as a Percent of Employees metric is a key measurement of IT support and IT intensity (the level of IT investment relative to business results) from a human capital perspective.

Definition of IT FTE: IT FTE represents the logical staff that supports functions performed by the physical staff, measured in calendar time. This includes all staffing levels within the organization, from managers and project leaders to daily operations personnel. This measure also includes in-sourced FTEs and contract FTEs; however, it excludes the staff of third-party vendors (for example, IT outsourcing) that is operationally managed by the vendor instead of the in-house staff.

Understanding the relative level of IT staff dedicated to supporting the business can help identify whether the staff size is appropriate. The IT FTEs as a Percent of Employees metric should be considered in the context of the overall enterprise sourcing strategy and future-state objectives. Additional variables to consider with this metric include IT staffing distribution, contract versus in-sourced FTEs, IT outsourcing as a percentage of IT spending, and the enterprise sourcing strategy - Does the total employee count accurately represent the organization's workforce that is supported by IT? Do you have the ability to track the total number of internal users supported by IT? 

(Back to top)