Eliminate waste & free up budget Jump to IT costs poster During periods of economic uncertainty, a measured IT cost reduction strategy can help a company navigate through unexpected difficulties. Jump to IT costs poster It’s become important for modern organizations to develop a variety of IT cost-reduction strategies, especially during periods of economic uncertainty. When faced with the challenge of reducing costs quickly, IT architects need to examine what areas can be quickly and efficiently cut to immediately relieve pressure on the overall company. Cost reduction is different from long-term cost optimization – which is the ongoing evaluation of IT processes to eliminate waste and reduce spending. IT cost reduction reduces IT spending quickly and is usually a one-time measure introduced to protect the medium to short-term health of the company. IT cost reduction is a set of measures introduced to cut IT costs immediately with the least amount of damage. It is done to save or benefit the mid-to-long-term health of the company. This usually happens during difficult economic periods such as inflation and recession. It is not a strategy used for the long-term growth and health of the business. A strong IT cost reduction framework is not something that can be introduced arbitrarily. Gartner explains that there are rules IT architects need to consider before introducing IT cost savings. A structured and measured approach to the process will make sure the business achieves its cost-saving goals with limited damage. Follow the rules below: If companies don't cut deeply or efficiently enough the first time, they may need to repeat the process more than once. This drives uncertainty, loss of productivity, and could lead to other more serious problems down the line. This may include loss of morale and possible insecurity. IT cost optimization will evaluate expenditure throughout the entire IT landscape – which means you need to track the inventory of IT resources. IT visibility is a key part of cost optimization. A thorough, accurate inventory of your IT landscape and visually mapping it are essential to any potential tech stack optimization. The LeanIX Enterprise Architecture Management (EAM) and SaaS Management Platform (SMP) are two of the tools which provide visual maps for organizations to evaluate their IT environments. That way, leaders can make informed decisions about where value can be maximized. The SMP and Application Portfolio Management (APM) allow businesses to discover which On-Prem and SaaS applications already exist within the IT landscape and what business units they are part of. From here, architects can visualize where money is being spent. They can also quickly rationalize based on the respective lifecycle stage, usage, business value, and risk. Before making any cost-saving decisions, a baseline needs to be defined. This involves collaborating with stakeholders and business leaders to establish a clear and structured approach to what cost-saving strategies are necessary. Questions IT architects need to establish with stakeholders before cost-cutting include: Fast IT cost reduction involves targeting areas of instant impact. This means eliminating, reducing, or suspending items that will deliver the results in days, weeks, or months rather than years. You can do this by eliminating services, rationalizing assets, projects, personnel, and renegotiating contracts. The goal of IT cost reduction is to release cash quickly in a way that affects the profit and loss statement, rather than non-cash items. Reexamining cloud services is a great opportunity to release money, as there are many strategies you can use to negotiate or evaluate cloud systems so that they are better aligned with the monetary and functional needs of the company. Make sure you reduce or eliminate costs right away, rather than freeze them. This is important because frozen costs may return to haunt the balance sheet down the line. In this way, it’s beneficial to take a more determined approach to IT cost cutting. READ ON BELOW White Paper Setting the Stage for Growth with Data-Driven Application Rationalization.. Report Gartner® Report: How to Choose the Right Approach for Application.. White Paper Applying the Gartner TIME Framework for Application Rationalization Tools Application Rationalization Questionnaire [CONTINUED] Once the need for IT cost reduction has become pressing, working with the right framework, complete visibility and real insight is vital for elimination and rationalization efforts. Data needs to be gathered effectively so the health of the company can be evaluated post-cut. This will also show whether the process has been successful. These IT cost reduction strategies should bring impact 1-6 months in the future; thus, have almost an immediate effect on a company’s profit/loss balance sheet. The three main strategies are eliminate, rationalize and renegotiate. The first and fastest way to release cash is to eliminate IT assets. By visualizing your IT landscape, it is easy to see which IT assets no longer add value to the company. Examples of assets that can be eliminated are application licenses, end-user computing, services and service levels, and infrastructure assets. The LeanIX EAM and SMP can provide these insights, making application rationalization and elimination an easy way to cut IT costs quickly. By managing their application portfolio effectively, IT architects can see which licenses are unused, duplicated, or excessive and remove them from the portfolio. Ways to reduce IT assets include eliminating printers, reducing the number of company phones and laptops, using cloud storage instead of on-site, and exchanging expensive hardware for something less expensive. However, they offer businesses the benefit of less technical maintenance and not having to hire large IT teams. Companies can easily reduce service spending by downgrading service levels, eliminating maintenance services, and decreasing service instances over weekends and holidays. The second strategy to reduce IT costs quickly is to rationalize infrastructure assets, subscriptions, IT projects, and personnel. Rationalization is the process of evaluating the application portfolio, ongoing projects, and other areas of the IT landscape to determine which assets should be eliminated, retained, or reimaged to help the company save money. This is done by examining the IT landscape to discover where the most value lies. Once this has been established, IT architects can make informed decisions on where best to cut costs for immediate benefit. This IT cost reduction strategy is done by assessing the value of all infrastructure assets and making the decision to rationalize. Infrastructure rationalization includes consolidating data centers, eliminating unused servers, selling assets, and adopting cloud services, eg. IaaS. It’s important not to cut projects where costs are incurred and ongoing – this may cause problems later on. Instead, review future plans and rationalize lower-value projects and cancel any that don’t bring immediate value. There are several different avenues to minimizing personnel costs that have an immediate impact. One well-known way to do this is to reduce the number of permanent staff, contractors, and consultants hired by the company. Other ways to reduce personnel costs include limiting business travel, and postponing or canceling external training. In-person meetings can be done virtually, whole workforces can go remote, and open job positions can remain open until the time is right to resume them. FREE POSTER The third cost reduction strategy IT architects and business leaders can use is to negotiate contracts with SaaS products and other IT suppliers. By working with vendors to eliminate unnecessary spend and services, businesses can negotiate contracts to reduce costs. IT vendor management is beneficial both as a cost reduction strategy, but also as a way to optimize and streamline SaaS, IaaS, and other services to better suit company needs. A successful SaaS strategy requires a renewal strategy, and tools help keep track of SaaS usage and come prepared for the contract's notice period. Examples of SaaS contract renegotiation include negotiating with lower than the contractual value of users and setting vendor price benchmarks which can be found in the LeanIX SMP reports or by peers. Questions IT managers can ask themselves about their suppliers include whether or not the service is used by the employees, whether the supplier is critical or just “nice to have,” whether it works with the new budget you are trying to create, and if it satisfies the evaluation criteria you set for it. Do you have a similar, cheaper product that essentially does the same thing? Once these questions have been answered, the next step is to renegotiate IT supplier contracts. This includes renegotiating contracts and costs with manufacturers, software resellers, distributors, and system integrators. IT cost reduction can be the thing that makes or breaks a business in times of economic uncertainty. Having a mapped-out strategy in place – such as managing an application portfolio – eases the pressure of rapid cost reduction. This helps IT architects and business leaders mitigate damage and make sure it’s deep enough to only need to be performed once. Free Poster Get more insights on how to get yourself on the right IT cost-saving path. Context and visuals to support each of your cost reduction initiatives Access additional cost-saving resources to support IT financial management (ITFM) and enterprise architecture (EA) 6 easy ways to start saving on IT costs with LeanIX How can IT departments reduce costs? There are several ways IT departments can reduce costs, either through short-term cost-cutting strategies or through ongoing IT cost optimization. Both examine which IT assets bring the most value and which can be removed to reduce spend. What is information technology cost? Information technology costs are the costs incurred through a company’s IT landscape – these costs can cover anything from IT personnel to servers to SaaS. How do I reduce server costs? You can reduce server costs by consolidating and optimizing your database, classifying your data, choosing software with a long-term strategy in mind, and rationalizing hardware. What are the challenges of IT cost reduction? Challenges to IT cost reduction include a lack of alignment between stakeholders and business leaders, an unclear strategy, a lack of collaboration, and bad tracking of whether or not cost-cutting measures have been successful. What is an IT cost reduction example? An example of IT cost reduction would be to eliminate unnecessary applications and services, reduce overheads by reducing staff numbers, and renegotiating contracts with SaaS services and other IT suppliers. What are the ways to reduce IT cost? You can reduce IT costs by eliminating, rationalizing and renegotiating various assets and services within the IT landscape. This is done by carefully mapping and examining where the most money is spent and deciding whether it can be removed or changed to the benefit of the company. How can an IT department save money? IT departments can save money through rapid IT cost reduction or through a long-term, IT cost optimization strategy. Learn more about Free Poster Save Your IT Costs Support your cost reduction initiatives Download now! Shortcuts
Introduction
IT cost reduction framework
1. Do it once
2. Map the IT landscape
3. Define baseline
4. Target instant impact
5. Focus on cash
6. Reduce, don't freeze
IT cost reduction strategies
Eliminate
Software licenses for on-premise or SaaS software are usually one of an organization’s biggest expenses. Eliminating old or unused licenses can be achieved quickly when a business is actively managing its application portfolio.
Even though hardware and end-user assets are becoming less important, it is still one of the highest costs right behind the applications. Therefore, companies can quickly eliminate unused devices that are not needed anymore.
Examining and eliminating services such as maintenance and outsourcing for what brings the most value can provide many cost-cutting opportunities. Services such as cloud computing provide many benefits but also come with caveats that must be considered to make them worthwhile. This includes licensing agreements, shadow IT, and a lack of in-house expertise.Rationalize
Unused infrastructure assets such as data centers, servers, hardware, communication systems, etc. can be completely eliminated or consolidated from the application portfolio to save money.
Review and prioritize planned and upcoming projects for value and urgency, and then reevaluate the need to proceed in line with your IT cost reduction strategy.
Rationalizing personnel can come in many different forms and is a quick way to cut costs effectively.Optimize IT Portfolio with Application Rationalization
Renegotiate
Managing and renegotiating SaaS contracts is the fastest way to examine and lower the costs you're paying to use the service. Cloud budgets can get out of control if they’re not properly monitored, so modern tools such as the LeanIX SMP can give you insight into SaaS usage, different renewal dates, costs, overlapping tools, etc.
Evaluating IT suppliers using IT vendor management will pinpoint where money can be saved. It uncovers which software is bringing value to the company and which can be eliminated or negotiated.Conclusion
6 Ways to Save Your IT Costs
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Answers to frequently asked questions on IT cost reduction
IT Cost Optimization
FAQs
What is the IT cost optimization strategy? ›
IT cost optimization strategies can help identify areas for reinvestment of existing budgets. By establishing and implementing an effective cost optimization plan, businesses can avoid unnecessary expenses and encourage cost transparency by identifying underused and obsolete services or infrastructure.
What are the methods of cost reduction? ›Some common cost reduction examples are: Reducing labour costs by automating routine tasks or by outsourcing non-core business functions. Bringing down office expenses, such as electricity bills, by opting for energy-saving technologies or scaling down on office space by offering remote working options.
What is strategic cost reduction? ›It's a way for companies to cut costs and boost their bottom line. How and where organizations implement this strategy can vary depending on their products, services, and existing budget. Both large and small businesses stand to benefit from cost reduction strategies.
What is the IT cost reduction framework? ›IT cost reduction framework. IT cost reduction is a set of measures introduced to cut IT costs immediately with the least amount of damage. It is done to save or benefit the mid-to-long-term health of the company. This usually happens during difficult economic periods such as inflation and recession.
What is the difference between cost optimization and cost reduction? ›What is the difference between cost reduction and cost optimization? Cost optimization is a continuous, business focused discipline aimed at maximizing business value while reducing costs. Cost cuts are a short-term move to decrease expenses.
What are the five areas of focus for the cost optimization pillar? ›- Practice Cloud Financial Management.
- Expenditure and usage awareness.
- Cost-effective resources.
- Manage demand and supply resources.
- Optimize over time.
Combination: Bundle goods and services across an organization to reduce costs. Elimination: Remove unnecessary products, processes, benefits, and workflows. Optimization: Streamlining processes and workflows to reduce bottlenecks and redundancies. Substitution: Using cheaper products or services.
What is the cost minimization strategy? ›Cost minimisation is a financial strategy that aims to achieve the most cost-effective way of delivering goods and services to the require level of quality. It is important to remember that cost minimisation is not about reducing quality or short-changing customers – it always remains important to meet customer needs.
What is best cost strategies? ›Best-cost provider strategies are a hybrid of low-cost provider and differentiation strategies that aim at satisfying buyer expectations on key quality/features/performance/service attributes and beating customer expectations on price.
What is KPI in cost reduction? ›Similar to the procurement ROI, cost reduction is an important KPI in procurement management. It measures the hard savings that were achieved through various cost and procurement management techniques. This KPI can be measured by comparing old and new costs for the good or service.
How do you approach cost reduction? ›
- Define Your Goals. ...
- Assess the Potential for Cost Reduction. ...
- Gather Spending Intelligence. ...
- Pinpoint Reduction Opportunities. ...
- Develop Your Cost Reduction Program. ...
- Get Everyone on Board. ...
- Establish a Structure of Governance. ...
- Inspect and Manage Business Processes.
- Go All-In on Cloud Computing. ...
- Get Cloud Costs Under Control. ...
- Virtualize In-House Servers. ...
- IT Process Optimization. ...
- Outsource IT Services. ...
- Eliminate Unnecessary IT Assets. ...
- Standardize Your IT. ...
- Use Open-Source Software.
Cost reduction is the process of decreasing a company's expenses to maximize profits. It involves identifying and removing expenditures that do not provide added value to customers while also optimizing processes to improve efficiency. Cost reduction typically focuses on generating short-term savings.
What is cost optimization in software development? ›Cost optimization, on the other hand, is the process of continually evaluating and configuring resources through an overarching IT strategy to save money through increased efficiency. Rapidly cutting costs across infrastructure, personnel, and resources to save money quickly.
What is cost-based optimization? ›The cost-based optimizer (CBO) enables the Query service to create the most efficient plan to execute a query. The execution of a query involves many possible operations: scan, fetch, join, filter, and so on.
What is cost time optimization? ›The objective of time cost optimisation is to determine optimum project duration corresponding to the minimum total cost and this can be achieved with help of reducing the duration of critical activities in the network in order by breaking the activities of critical activities to minimize the overall project duration.
What is price optimization technology? ›Price optimization is the process of setting prices for a product or service to maximize revenue. This typically involves analyzing customer data to understand what price points are most likely to result in a sale, then setting prices accordingly.