IT Cost Reduction
// by Matthias Rensing
IT & Management Consulting, IT Strategy
Management’s continuous task
Due to fluctuations in the economy or changes in the financial results of the companies, the expenditures for IT are subject to cyclical changes. Measures kept in abeyance in the short term and the cost savings resulting therefrom are offset in the next quarters. Increased investments are done again, only to ring in the next round of cost-cutting.
In general, reducing costs in the IT department does not differ from the cost reduction demands made of other departments. Only, that the interconnections of the systems and the dependencies very often are more complicated in IT and require specialised knowledge of both business administration and IT. When we take a look at the projects that consultants from noventum are participating in, it becomes apparent that in most cases cost-savings are an important goal of the project. Hardly any project is being started without having an ROI calculation done and cost reductions are expected by management. However, this goal very often is hidden in the phrasing behind the technical reasons and the increase of the productivity of IT or the increase in quality is in the foreground.
Topics on IT cost reduction in this issue of novum
At first glance, the topic of license management does not, as described here in this issue, relate to cost reductions. The exact determination of the licenses of an organisation does rather indicate an additional cost item, due to higher license costs, than real savings. But, if professional license management can avoid expensive penalties as a result of licensing after the fact, this generates a real cost advantage. The triple jump is called compliance – transparency – costs and as such implicates the cost factor. For that reason: compliance costs money, non-compliance, however, may cost millions.
The subject of outsourcing is and continues to be a classic for cost reduction in IT. The decision to outsource certain parts of IT does, in the calculations, often hide enormous sums in cost savings. In this issue, approaches, ideas and methods are depicted in the article “Weighing all cost aspects with noventum’s IT outsourcing strategy.”
IT Cost Reduction als Methode
The considerations regarding cost reduction in the IT
department should always have this thought in the foreground: Why do I initiate a project with this goal? What are the triggers? Which tasks are to be solved with this project?
In doing so, the following approaches are worth considering:
Short–term cost cutting
The approach of reducing the costs while maintaining performance and quality is the one used most often. And it is the one that [management] loves to request for the short term. Projects with this requirement are intended to identify major cost drivers in IT and help with immediate savings that are necessary due to budget reasons, decreasing sales or other economic difficulties. Within this framework, the examples are renegotiations of agreements with providers, cutbacks in personnel or optimisations of the hardware landscape. As a rule, these projects are revisited in certain cycles and are time and again achieving significant savings potentials.
Efficiency increase in the mid-term
The shifting of the cost approach finds its origin in projects to increase efficiency. The economic principle to maximise the output with a given input (=costs) takes place, for example, during process optimizations, during automations, virtualizations and standardisations of IT.
Long-term business IT alignment
The goal of IT, independent of the previously mentioned cost-savings potentials, must always be the support of the business goals of the company. The exact alignment with these business goals, the knowledge where the business is going and the support of these goals by IT is made possible via a transparent depiction of the utility for the business. Setting up corresponding KPIs or control mechanisms supports the management of IT in this. Cloud-based technologies or SaaS bring new, innovative options to flexibly offer the company cost reductions.
The methodical approach
The brief outline about the various forms of cost reduction shows how important it is that the principal commissioning an attempt at a cost reduction project coordinate with the contractor or project leader exactly what the target images are. He who saves money in the short term but loses sight of the long-term and the sustainability might not have solved the task satisfactorily.
For this reason, noventum developed a procedure that quickly determines the most important approaches by means of a standardised process (catalogue of questions, workshops). The scope of the projects is determined via this analysis and the phase plan is then defined.
During the first phase, the analysis is prepared and the potential is determined. The goals are set, cost scenarios are generated and possible potentials are determined by using benchmarking and analyzing the vertical range of manufacture. Subsequently, during the second phase, the measures are generated by calculating the business cases and prioritising the measures. In the implementation phase that is following thereafter, the processes and systems are optimised and implemented while, after a successful conversion, suitable control instruments for permanent monitoring and control of the costs are set up in the completion phase.
But with all cost-reducing measures: It remains a challenge for the IT management to optimally support all business critical processes even under cost pressures.
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