Insight

IT cost reduction

May 12, 2010

So many levers, so little time

Cost reduction in IT creates both opportunity and risk. There is not a single, universal right answer. Pull the right levers at the right time and the results can be spectacular (would you like to cut your non-discretionary spend in half?), but pull the wrong lever in the wrong way or at the wrong time and you can destroy business value and be left unable to accelerate out of the current recession ahead of your competitors.

The current economic climate demands that cost reduction be at the top of the CIO’s agenda. Indeed, the Board expect their CIO to proactively drive down costs often whilst also asking for increases in capacity, availability and service quality. There are many levers that the CIO can pull to reduce costs, ranging from sourcing services offshore, re-negotiating service levels with the business, rationalising applications and simply stopping projects.

The list is long and well known. However, the modern IT function is a complex interaction of organisations, people, processes, technology and data and it is difficult to work out which levers to pull to achieve the best outcome with minimal adverse business impact. The type of levers available, the range of movement in those levers and the order of pulling the levers varies by industry sector, organisation size, IT organisation maturity and business context.

For example:

  • pulling the ‘rationalise hardware’ lever may be ineffective if you are not in 100% control of the IT budget – so called ‘shadow’ IT

  • not pulling the ‘virtualisation’ lever enough – for example to address the desktop – means you are missing further cost saving opportunities.

Cost reduction creates both risks and opportunities, there is not a single universal right answer to pick from and to make the challenge harder time is already running out. Of the available IT cost reduction levers, the impact will vary significantly depending on your organisation’s particular circumstances. You may already have excellent licence governance processes in place. You may already have a good deal for your outsourced helpdesk services. Or the business may genuinely require five nines infrastructure availability.

PA’s approach to developing a cost reduction programme is to adopt a business-facing approach to understand the impact and risk of cost reduction on the business, and to ensure that the IT organisation fully appreciates what the business is trying to accomplish as it seeks to adapt to the new circumstances. For example, it may be trying to facilitate more part time working, or it may even be trying to expand through acquisition. You don’t therefore want to cut service levels that support either of those key business objectives.

You need to understand how all proposed cost reduction activities are going to impact your IT service management organisation. If you are contemplating radical change, you need to pay particular attention to functions and processes in service transition and service operation, ensuring they are robust enough to help introduce the changes and then operate the enhanced ‘business as usual’ service. Lastly, you need detailed cost models to properly understand the impact of cost reduction exercises. These are essential not only to identify and quantify what the real financial benefits are going to be, but also to ensure that there are no unforeseen cost implications that need to be considered. For example, infrastructure virtualisation can bring significant benefits through increased hardware utilisation and decreased capital spend, yet often the costs of management tools, staff training and migration costs are under-estimated – especially by virtualisation vendors!

Once the costs, benefits and risks of all cost levers are identified it becomes possible to iterate a number of different cost reduction scenarios to determine a cost reduction programme that delivers the best mix of cost savings, value creation and minimum risk for your organisation. And all within the demanding timescales that you no doubt are under.

To learn more about how PA can help you reduce your IT costs, please click the 'contact us' button above.

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