1. Start with a solid understanding of the current state of IT Spend: How much and in what places
IT Spend by Strategic Category
IT Spend by Cost Component
These days, the most substantial portion of IT costs for most organizations is associated with internal staff and outsourcing. Improving cost-effectiveness and enabling cost reductions will require a detailed look at services by category and identification of duplication of services while exploring alternative delivery models.
Do you know who your essential team members are?
IT Spend by Technology Domain
2. Next, look for opportunities to cut costs.
- Quick cost-saving “WINS”: Scrutinize in-flight or planned Grow or Transform initiatives to eliminate or defer anything that does not contribute to immediate cost reductions or profit margin increase.
- One-time hard savings (current spending or next budget cycle}: Reduce fixed costs by a set amount in the present or future budget cycle/quarter.
- Recurring hard savings (current spending or next budget cycle): Reduce variable costs regularly, proportionate to volume, in the present, or next budget cycle/quarter.
- Reduced future costs: Savings on what would have been spent during out years. For example, renegotiating a three to five-year maintenance contract reduces savings in out years, which should be captured and tracked, but don’t have the same cash-flow impact as savings in the current or next budget cycle.
- Expense deferral: Taking an action that will result in an expense being due and payable at a future date, rather than during the current time period. Many cost optimization efforts make the mistake of not differentiating between putting off a cost into the future and making structural changes that will reduce the long-term run rate.
- Staff/Headcount reductions: Reduction in force is never easy and often results in significant lost productivity. Analyze your skills inventory against critical functions and talk in detail. Without this level of scrutiny, staff reductions represent the highest risk of cutting to the bone. It is essential to have a clear understanding of the functions of every team member.
3. Finally, inform and negotiate cost-cutting targets
4. Last, execute against the plan
IT Executive Advisor and Leadership Coach
☎ 480.393.0722 (AZ)
Let’s Talk sponsored by ITeffectivity.com – an IT Executive Coaching and Advisory practice targeting CIO’s challenge of leading and delivering business solutions with a focus on effective people and process capabilities. Discover the possibilities by scheduling a complimentary strategy session with Mary Patry.