Virtually every CIO is now under immense pressure to save money – and fast. However, overhasty cost-cutting could both undermine business-critical services and cause the company to miss out on investments which might have enabled future success.
To avoid this double risk, the CIO needs to take an integrated view of the costs and values of both projects and services. Since projects and services usually have to compete for the same limited funds, providing a service means sacrificing some project work, and vice versa.
The CIO therefore needs a thorough understanding of the trade-off between services and projects, which implies an integrated portfolio management approach to both, something that few companies have at present. How can they set about implementing such an approach?
Developing an integrated view of projects and services
While there are obvious differences in the type of contribution which services and projects make to the company, and to their cost profiles, they both draw on the same resources and it is possible to compare the two sub-portfolios. Therefore, in PA Consulting Group’s experience we advise organisations to assess their portfolio of services and projects as a whole. In this way they can take a view on areas that require investment, where efficiencies can be sought (for example through alternative sourcing approaches) and which aspects may need stopping.
Look at services first, then projects
In practice, companies need to address service and project portfolios separately before bringing the two together. Stopping or reducing projects could undermine longer-term sustainability and competitive advantage; therefore it makes sense to consider first whether service costs can be lowered. Services consume up to 60% of the IT budget in PA´s experience, and savings can often be made without impacting business continuity.
We recommend assessing each business service, looking at a range of elements including,
the components (people, software, hardware) needed to deliver to and run an application or set of applications
current service level (availability, integrity and security)
cost of delivering the current service level
whether this cost can be reduced without affecting the service level (for example by eliminating ‘spare’ resources)
the level of service (if any) required to ensure business continuity
the impact on the business (now and in future) if the service is withdrawn, fails or is reduced.
It then becomes possible to identify the potential for cost reduction in the light of cost and business importance. Inessential services can be turned off completely; others can be reduced. However, there are generally opportunities to cut costs without reducing service levels.
Obviously projects that are found not to add significant value to the business will be cancelled, but others can probably be postponed. The overall aim should be to safeguard investment in innovative projects wherever possible, economising instead in the service area.
Keys to success
This process is not as simple as we have made it sound, particularly when it comes to comparing the values of projects with those of services. The whole exercise is likely to be iterative, with a few reviews required to strike. A key to success is to involve all stakeholders in the decision. This is likely to mean setting up a joint consultative committee, close to senior management, for both services and projects.
Conclusion: microsurgery, not amputation
An integrated portfolio view of projects and services is vital to the company’s well-being because it enables precisely targeted cost reductions rather than across-the-board cuts – microsurgery, as opposed to amputation.
To find out how this approach can hep you develop a rich relationship with business clients contact us now.