Managing Information Technology Costs in a Challenging Economy

Four steps to right-sizing your IT budget and avoiding long-term harm to your company's bottom line


  • Get a good handle on the total cost of IT within the business — In most companies IT costs are normally associated with the budget for the company's MIS, IS or IT organization. Suffice it to say, there are many IT costs that are often overlooked in a traditional IT "cost-reduction" effort.

    Consider the "ripple effect" (e.g., a stone thrown into a pool of water) of IT costs. Deploying a server and application in the data center has a ripple effect elsewhere within the user organization (e.g., printers, mobile devices, energy, paper usage, licenses/seats), and many times this ripple effect is not fully considered (and associated costs traced and identified), so money may be left on the table. In other cases, the ripple effect is not fully identified, and the company is surprised by some adverse action detrimental to overall business operations when certain services are eliminated. Consequently, additional costs are later incurred to "repair" the impact of the initial cost reduction.

    Lastly, in times of very challenging economic conditions, few companies truly understand their baseline costs for IT. By not fully understanding the entire picture of IT across the entire company, few companies come to grips with what the most minimally accepted cost structure can be to "keep the lights on and the engine room running."

  • Focus on the cost drivers of IT — First and foremost, companies need to understand what drives the demand for IT services and capabilities within their company. For example, in a recent engagement with a $1billion plus enterprise, company management thought that approximately 250 "minor" projects were consuming IT resource time, effort and costs; in reality there were over 800 "projects" approved, many of them ongoing even though the immediate need driving the request had long since been eliminated or overtaken by other business events.

    Treat IT like it was itself a business, with a fundamental need to balance supply with demand. Since most of the demand is internally generated (recognizing exceptions for regulatory or market driven requirements) by a company's own resources, balancing that supply and demand becomes an effort of tenaciously evaluating the value equation associated with that demand and understanding whether it is truly needed for baseline operations or is a discretionary costs — and if it is a discretionary cost, what the true value-add is of meeting the demand. The bottom line is that many organizations pay for levels of service or equipment capability that are not needed to support the business. Lastly, we find that IT costs are many times, in the end, driven by personal or organizational preferences that, over time, become the "sacred cows" of providing "user friendly" IT services.

    In robust economic times, companies may choose to overlook these additional costs, but in challenging economic times allowing personal or organizational preferences to drive demand for overlapping or redundant IT capabilities is a luxury most companies ought not and cannot afford.

  • Be relentless in valuing the work done and the services provided by IT — Always examine your cost structure through the eyes of your suppliers and customers (while also balancing that view with an understanding of the company's vision, mission and performance objectives). This approach will yield a new and different perspective as to what may be "on the table" when considering adjustments to your company's IT cost structure.

    To achieve long-term, sustainable cost improvement within IT, it is essential to adopt this customer-market based perspective and be relentless in objectively segregating IT functions and services into their value-add and commodity like categories and then drive their associated costs accordingly.

  • Be creative in meeting the demand or sourcing the work — During times of plenty, IT, like most organizations, tends to move towards "safe" or risk adverse solutions and processes. One of the oldest adages in the IT community is "no one ever got shot for choosing the leading vendor — IBM, Microsoft, HP, Cisco, etc."

    Additionally, from the process side, during times of plenty most IT organizations (both shadow and "real') add layers of process (and sometimes layers of people) in order to ensure the uninterrupted delivery of IT services in an attempt to reach that long-sought-after paradise of "100 percent up time delivered 100 percent of the time…. Exceeding delivery expectations and making sure IT is always there when you need it." The issue that occurs over time is that many organizations end up with more complicated and complex (potentially over-engineered) IT environments than is needed, even taking business risk into account. During challenging economic times, companies ought to take the opportunity to examine that people, process and technology infrastructure to see if there is a more creative (though decidedly less traditional) approach to providing IT services.



  • Investigate — includes gaining an understanding of the business, its expected financial performance parameters and operating imperatives, as well as an inventory of all IT related assets (e.g., people/organizations, locations, equipment and applications) associated with supporting the business. Key to this is ensuring that any discovery effort goes well beyond the organizational structure labeled "MIS" to identify all the "shadow" capabilities.

  • Consolidate — includes identifying those like/compatible work functions and services that can be combined. During challenging economic times most companies cannot afford the luxury of having multiple solutions to the same problem, so acute emphasis ought to be placed on identifying those situations and achieving cost synergies through consolidation.

  • Eliminate — includes taking the customer and market perspective during this stage of the effort to focus the company's attention on just how much of a premium they may be paying to "do it our way." This effort requires relentless and almost "ruthless" examination of the rationale for why multiple instances of the same service, function or component exist.

Take a Team Approach





About the Author www.grantthornton.com
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