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STRATEGY

IT Cost Reset
 

As businesses cut their IT budgets, it's important to find creative ways to cut costs without compromising quality.
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In today’s economy, no entity is exempt from cost cutting initiatives, particularly corporate IT departments. This comes as no surprise to CIOs, who are aware of the costly nature of IT. But before your organization begins slashing budgets, remember: your IT department supports virtually every aspect of your business. Reactive, misguided cost-cutting decisions can harm your ability to emerge stronger following tough economic times, rendering you ill-prepared when the upturn comes. With careful planning, you can successfully optimize IT expenses while preserving liquidity and performance today.

What’s the solution? Creative and carefully executed plans for an IT Cost Reset. Keep in mind that IT operating expenses and capital expenses go hand in hand, making them two of the most critical components of protecting business liquidity. In a world of tighter money, that means planning projects effectively and looking for ways to optimize and reduce IT costs. It also means never losing sight of the future -- creating an environment that fosters growth and innovation.

The following steps can help you protect liquidity and identify areas to optimize and reduce costs and capital consumption.

Step 1 -- Know where you’re going

An important part of developing a plan is having an idea of what the outcome should be. One way to accomplish this is to produce an outline of the deliverable before starting the project, so the end goal is always in sight. This outline should include a detailed analysis of the various cost cutting measures along with the ramifications of each.

Step 2 -- Conduct an honest assessment

Can a company be truly honest in assessing its own spending habits? It’s a difficult task for anyone -- personal biases inevitably enter the equation, along with defense of colleagues and particular applications and pet projects. This is where an independent assessment can be invaluable.

While an internal group, such as an internal audit function or a performance team, could be used to conduct such an assessment, they must have no vested interest in the technology base or the people base. There would also have to be a declaration that there would be no resizing of the workforce. An independent assessment could eliminate these hurdles. Because they are uninvolved, a third party could clearly and quickly determine where you are and where you are spending money.

Step 3 -- Virtualize, consolidate and rationalize

As you begin assessing your IT costs, first review your portfolio of technology, including hardware and software. Look at how they could be rationalized and simplified into a more cohesive set of applications to facilitate integration and support of new processes.

On the hardware side, it’s likely you have servers dedicated to particular applications. Review how many servers you have, what their capacities are, and how they are being used. Many servers today can support multiple applications, so if you find yours are underutilized, consider consolidating servers and eliminating excess hardware that is not necessary to support business needs or protect against disasters. This not only reduces your hardware footprint but also reduces costly energy consumption.

The same approach applies to your network and your software. By consolidating and reducing your total number of network servers and routers, you reduce the size of your network without sacrificing efficiency or performance. In terms of software, which extends into every functional area of your business, rationalize your applications portfolio by reviewing variables such as the number of users and the number and type of reports they generate.

Very often, people forget the costs of maintaining applications. For example, let’s say you identify an application used only to generate reports several times per year. Compare that usage with the cost of renewing the software license, which can be steep, and the cost of maintenance, including updating IT skills to keep the application running and integrated to others. With careful rationalization, you can identify other applications in your current portfolio that could perform the same role.

Once you have reviewed these technological areas, the next logical area to analyze is your staff. If your rationalization process results in scaled down servers and applications, you may not require as many staff to maintain IT operations.

Step 4 -- Keep cleaning house

While tough economic conditions or impending crises are often the impetus for companies to launch cost cutting initiatives, they really shouldn’t be. An IT cost reset should be conducted on a regular basis as a part of your regular IT strategy refresh. Think of it like cleaning out your closets -- if you haven’t worn it in years, you can probably throw it away.

With detailed planning and thoughtful analysis of every major area of IT, your organization can protect its liquidity, reduce operating expenses and minimize your capital consumption. It’s a reliable formula that can help you through the downturn and position you to seize the opportunities that are sure to come.

Mike Gorsage is the National Technology Practice Leader for Tatum LLC. Tatum is the nation’s largest executive services firm, providing financial and technology leadership to businesses of any size.

Last updated: May 1, 2009




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