An approach for realising cost savings in the IT department

With technology taking an ever-growing role in the business amid today’s digital-driven world, IT costs are coming under pressure. Experts from management consultancy Coeus Consulting share how organisations can optimise their IT spend using a three-step approach.

In our experience, cost reduction requires a blend of ‘top down’ and ‘bottom-up’ analysis on data to ensure practical and implementable cost measures. The ‘top down’ approach is vital to enable the organisation to spot areas of spend that are out of kilter with expectation (i.e. network spend is 20% higher than peer organisations). This analysis can provide an initial set of hypotheses by comparing overall costs for functional areas with comparator organisations.

In order to then find reduction initiatives, these hypotheses then need to be tested in a ‘bottom-up’ approach, using both benchmarking data points and deeper analysis of the underlying data. Through a series of practical working sessions with the teams involved in providing the actual services, the initial hypotheses can be proven or disproven, thus identifying realistic areas for improvement.

From this point a series of implementable measures can be drawn up, all of which then need to be considered against their likely return and cost / time to implement – effectively determining the return on investment for each optimisation measure. 

Cost optimisation measures

An overview of some of the typical cost optimisation measures that organisations can implement:

Quick wins
5% to 10% savings that can be realised in the short term:

• Review user policies and apply segmentation e.g. JML, mobile usage, and access to applications, UC, printing
• Retire redundant software licences, hardware and applications (including pricing and billing audits)
• Review project portfolio to identify, and stop redundant or marginal projects
• Set demanding targets for project delivery
• Reduce non-core technical and administrative resources
• Reduce travel and training budgets 

Streamlining
10% to 20% savings that can be realised in the mid term: 

• Standardise, rationalise and consolidate application, retire legacy or move to lower cost delivery model
• Standardise, rationalise and consolidate hardware e.g. cloud
• Review and reduce standard SLAs and redundancy, backup, archiving, and storage tiering
• Reinforce demand management policies, supported by recharge model
• Review and optimise organisational spans, layers and hierarchy
• Exit low performing staff or duplicate roles
• Renegotiate and consolidate locally held contracts e.g. telephony, mobile, internet 

IT transformation
20% to 30% savings that can be realised in the mid to long term: 

• Realignment of apps capabilities to business processes, customisation focused only on strategic apps
• Review IS and supplier governance model (regional vs global)
• Selectively explore new regional outsource model e.g. EUC, telephony
• Develop IT Analytics capability
• Review IS locations and explore clustering of disparate resources
• Evaluate current shoring arrangements
• Standardise software development methods and tools
• Ensure compliance to standard architecture, remove customisation
• Review IT portfolio evaluation criteria to reinforce financial criteria and apply to current portfolio 

Managing IT as a value-driving entity

In order to build long term optimised costs, CIOs need to be more proactive and demonstrate the business leadership and commercial skills that are expected of any business leader. This is now more important than ever, as the business and IT boundaries continue to merge and CIOs play a greater role on the board. 

The technology function has a long history of not being able to properly explain the value it brings; linking ongoing costs, and investments, to the top or bottom line. However, now CIOs must be driving the conversation of their function as a value and not a cost centre. The CIO needs to deliver transparency, support processes and decision making and ultimately be willing to disrupt their own organisation in order to build a sustainable cost optimised model for IT.