IT Cost Reduction

Unlock cost savings and increase business value through effective IT cost reduction strategies.

Topic

IT Cost Reduction

Budget Constraints? You’re Not Alone.

Organizations can be easily overwhelmed by IT costs and complexity. Most organizations have thoroughly scrutinized and re-planned their fiscal budgets to cut, delay, or renegotiate for potential savings. Compelled to fund business-critical initiatives and bolster growth, leaders are searching beyond their general ledgers for opportunities to shift spend and cut IT costs. What should you prioritize first?

This is an important decision with serious downstream implications. Comprising 30-35% of all IT spend, the application portfolio is an obvious target. But knowing where and when to cut is crucial. Imprecise approaches to application optimization can create more problems than they solve.

What is IT Cost Reduction?

IT cost reduction is the process of identifying and eliminating sources of waste, underutilization, or low business value within the IT budget. Also known as IT cost optimization, this practice yields savings that can reduce the size of the IT budget or be reinvested into new technology to drive business growth.

Four IT Cost Reduction Strategies

Some IT cost reduction opportunities yield quick wins because they are immediately obvious and easy to action. Others require greater effort to find and action. These four IT cost reduction strategies are generally ordered from easiest to hardest—getting your IT financial management (ITFM) principles in order is a lower lift than applying market forces to influence demand. Start with the low-hanging fruit and progress through stages that require involvement from more and
broader stakeholders.

Scrutinize

to tie up loose ends

Identify and correct inaccurate applications of IT financial management principles, such as misaligned depreciation and amortization schedules or excessive budget padding.

Economize

to eliminate waste

Detect areas where you have more capacity than needed and reassign or retire resources to right-size spend for business need.

Rationalize

to avoid duplication

Make informed decisions about what to keep when you have two or more systems doing the same job without any justifiable reason.

Commercialize

to curb demand

Apply the market forces of pricing and billing to encourage business units to right-size their consumption of IT services and resources.

How to Reduce IT Costs: 8 Key Areas to Cut Waste and Maximize Efficiency

When exploring how to reduce IT costs, it’s crucial to evaluate every layer of your IT value chain. By focusing on specific cost reduction strategies across different layers—such as cost pools (the types of technology assets or services purchased), IT resource towers (the technology functions that support IT spending), and applications and services (the output delivered by IT to business units)—you can significantly cut expenses. Below are eight key areas to focus on for reducing waste and optimizing costs.

Spend

Reduce padding by more closely tracking spend and taking quick action to avoid overages. Spot variance in major areas of IT spend like software, hardware, and internal and external labor. Identify specific line items and cost center owners that are driving variation. Monitor OpEx and CapEx variance and your mix of fixed versus variable costs in order to maintain flexibility in the face of austerity.

Applications

Quantify the business value your applications deliver by tying cost to business drivers (e.g. cost per web visitor, order, etc.). Know the cost of your top applications, broken down across run versus dev, infrastructure, and projects. Use this information to strategically reduce investments in applications that provide low business value for the cost they incur.

Labor

Understand and compare average monthly cost of staff across applications, geographies, and role types. Use this information to release temporary or contract staff, delay hiring or backfill, or shift labor to low-cost locations. Minimize disruption by reallocating internal resources in accordance with revised application strategy or business plans.

Vendors

Reduce costs by rationalizing vendors providing redundant business capabilities. Align vendor spend with strategic importance or business criticality of projects, applications, or business services they support. Drive accountability across teams with a centralized view into your entire vendor portfolio.

Projects

Prioritize investments by run, grow, and transform to identify projects to suspend or restructure in order to reduce operating costs and reallocate resources. Explicitly delegate and report run costs in the financial plan so the impact to specific cost centers is obvious on subsequent years’ budgets.

Business unit consumption

In business language, explain what each business unit receives for its IT dollars. Show how their consumption drives IT spend, so they can change behavior to reduce bottom line costs. Align IT projects and investments to business initiatives and sponsors, so that IT costs can be reduced in alignment with business reductions. Identify cost outliers by benchmarking IT spend per employee across business units.

Cloud

Inspect all your public cloud costs across providers like AWS and Azure in one place. Identify trends by application, department, and service type, such as compute, storage, network, and more. Spot anomalies and act quickly to prevent billing surprises and stay on budget.

Infrastructure

Evaluate drivers of infrastructure costs across network, compute, storage, and data center assets. Track how much infrastructure cost goes to supporting applications so that you can right-size infrastructure in alignment with shifting application plans. Retire underutilized assets.

Unlock Savings with the Right IT Cost Reduction Solution

To effectively manage IT budgets and maximize efficiency, organizations need a comprehensive IT cost reduction solution. A powerful IT cost reduction tool like IBM Apptio offers far more than what traditional spreadsheets can provide. With real-time insights, automated tracking, and advanced analytics, tools like Apptio Costing, Billing, and Planning eliminate the manual effort and inaccuracies often associated with spreadsheet-based management. By centralizing and automating IT financial data, businesses can quickly identify areas of waste, strategically reallocate resources, and optimize vendor contracts. This level of visibility empowers companies to make informed decisions that drive both cost savings and business growth.