Managing IT Costs in Tough Times
In today’s tough economic times, Technology Leaders face many challenges. These include economic uncertainty, more competition, and the need to be sustainable. Keeping a close eye on the technology budget is key, especially when money is tight. Being financially prudent helps your organisation grow/survive, invest in new products, or start new projects. IT Cost Optimisation is not an option anymore and Technology Leaders must take ownership in a companywide collaborative approach.
When times are tough, all eyes are on costs under Technology or IT, as it usually is the biggest bucket of money. In my experience, it is always seen as the go-to place to reduce costs even though some of the costs may sit with another part of the organisation and I just happened to sign the cheques. In some cases, the decision to reduce or remove the spend will be made outside of Technology and it may become a battle to change the technology that the business unit is using.
I have pinpointed four main areas of focus for taking a tactical IT cost optimisation approach:
- Gain visibility into technology spending and reduce unnecessary expenditures;
- Identify unnecessary expenditure and recommend usage of existing services to optimise costs;
- Align IT investments with business goals for maximum return on investment;
- Continuous Improvement, for establishing ongoing monitoring and governance.
By focusing on these areas, organisations can manage IT spending better, work more efficiently, and get the most from their technology investments. However, IT cost optimisation cannot be done in isolation. Technology and Finance teams must collaborate in new ways to manage and budget costs effectively, enabling companies to identify ‘quick wins’ to eliminate or reduce costs.
Introduction to IT Cost Optimisation
What is IT Cost Optimisation?
It is the strategic process of reducing unnecessary costs, improving efficiency, and maximising the value derived from technology investments within an organisation. It involves a comprehensive review of all IT-related expenditures, and business objectives while ensuring that technology solutions are effective, secure, and scalable. However, it is not cost-cutting for the sake of cost-cutting, it is taking a more strategic approach that can be both tactical and long-term in nature.
The benefits of cost optimisation in IT
It makes the use of technology more efficient, helps in better resource use, and gives a clear view of technology spending. Other benefits may include:
- Enhanced Financial Control: Organisations gain better visibility and control over their technology spending.
- Reduction in Unnecessary Spending: Over time, IT environments can accumulate redundant tools, underused software licenses, or outdated hardware.
- Being Prepared for Economic Challenges: Identify areas where costs can be reduced without sacrificing essential services or capabilities.
- Sustainable and Long-Term Value: Ongoing cost optimisation promotes the adoption of scalable, energy-efficient solutions. Continuous improvement of processes, contributing to the long-term health and viability of the organisation.
The importance of cost optimisation in IT
IT cost optimisation is essential for ensuring that technology investments are both efficient and aligned with business goals. As IT expenditures often represent a significant portion of an organisation’s budget, optimising these costs helps maximize return on investment, eliminate waste, and enhance operational efficiency. By strategically managing IT spending, organisations can free up resources for innovation, improve financial control, and remain agile in a competitive market. Additionally, cost optimisation ensures that IT initiatives support long-term growth, allowing organisations to sustain their technological infrastructure while adapting to evolving needs and economic conditions.
1. Gain Visibility into Technology Spending
It’s important to understand IT costs clearly. This means seeing where the money goes, like cloud computing or buying new servers or software licenses. It helps track costs and who uses them. This clear view links IT costs to specific people or groups. It helps decide if new projects are worth it or if a product should stay.
It’s also key to map out the IT landscape. This shows what makes up the organisation’s technology setup, from hardware, and cloud computing to cybersecurity. Mapping business capabilities and processes helps spot where things can be done better or cut back on. Being open about IT spending is vital. This openness leads to a closer look at how technology adds value. With these strategies, organisations can better understand their IT costs and make smart data-driven choices.
Visibility into IT costs cannot be achieved without reviewing associated contracts, and lots of data. Whether that is using your Financial reporting tools or your cloud FinOps solution, data is key. Having access to data, reviewing contracts and a view of your IT landscape is a great starting point on your IT cost optimisation journey.
2. IT Cost Optimisation
Optimising IT costs is key for organisations to boost their finances and stay competitive. It involves two main steps: finding where money is wasted and making sure IT spending matches the business’ strategic goals.
Identify Unnecessary Expenditures
After gaining visibility over IT costs, the next step is to “follow the money”. Find out where resources (e.g. licenses or cloud-computing instances) are being wasted or used poorly. This means reviewing associated contracts and checking how these resources are being used, both in the cloud and on-premises. By keeping an eye on how resources are used (and by whom), organisations should be able to cut down on waste and save money. Five specific areas to focus on for cost optimisation include:
- Application and License Rationalisation;
- Rationalising Hardware (e.g. servers, desktops) and Network Spending (including Telco costs);
- Cost Management for IT Services, Vendors and Outsourcing;
- Optimising Support Costs;
- Cloud Costs.
3. Align IT Investments with Business Goals
This is crucial when undertaking IT cost optimisation. It ensures that technology expenditure directly supports the organisation’s strategic objectives. This alignment helps prioritise spending on initiatives, projects, and technologies that drive business value.
When IT investments are closely linked to business goals, organisations can avoid wasting resources on redundant or non-essential technologies. This focused approach not only maximizes return on investment but also ensures that technology supports the broader business strategy.
Alignment between IT and business objectives helps in making informed decisions, fostering collaboration between departments, and adapting quickly to changing market conditions.
“IT cost optimisation initiatives should focus on activities with the best and quickest return on investment, looking no more than a year or two into the future due to the fast pace of technological change and business dynamics.”
4. Cost Optimisation Never Stops
In my quest to manage technology costs and support digital growth, I’ve used many strategies. I have cut cloud costs by focusing on the removal of services no longer required. Implemented FinOps tools, reserved instances, and savings plans. I have also optimised support and outsourced or insourced where required. Made it a priority to tackle technical debt, and streamline hardware, software, and network resources.
Reflecting on this journey, I have seen how crucial managing technology costs is for success and credibility. By keeping a constant eye on costs, especially cloud computing costs, as these are consumption-based and can grow rapidly if left unchecked. I’ve saved money for big projects or reduced operating expenses for increased profitability.
The work in managing technology costs never stops. It needs constant effort, lots of accurate data, collaboration, and a readiness to adopt new practices. I plan to keep improving my methods and following the latest trends. This way, I can keep finding the funds needed for new initiatives and to help organisations stay ahead of the competition.
Also by having a culture of continuous improvement within Technology, you are fostering a mindset within your team to be financially prudent and to always look at contracts and technology costs critically. Are we getting value for money, or do we need these three project management tools?
Need help with understanding your IT Costs?
I have been a Technology Leader for over 15 years and have spent a lot of that time looking at ways to optimise Technology costs. Fully understanding the Technology budgets and being clear about what they were being spent on and more importantly why, has allowed me to question the necessity of the expenditure.
If you want to discuss IT cost optimisation or technology in general, feel free to email me at pete@livingthetech.com and check out my other article on Technology Costs – 7 Actionable Optimisation Strategies