Managing IT Costs during a Recession Part II: Improve Asset Utilization
Although the economic tide may seem to be turning, a solid recovery could take years to come to pass. What does this mean for your organization? As we discussed in Part 1 of this series, your organization’s survival and ultimate success depend on your ability to implement new strategies for managing IT costs.
Though most organizations have made numerous changes and sacrifices in the past year, you likely have more room than you think to bump up savings and streamline processes. Think of this ongoing crisis as an opportunity to innovate. To get the most from your IT dollars, turn your sites toward developing comprehensive strategies for improving the way you utilize IT assets and manage demand for IT services.
IT assets: use them or lose them
How does your organization currently utilize its IT assets? Answering this question honestly can yield surprising cost cutting opportunities. Improving asset utilization is all about identifying and acting on opportunities to cut projects, more tightly managing demand, and reducing service levels without impairing the business. It also involves virtualizing, consolidating, and reducing IT assets to improve processes and efficiencies, rebuild profit margins, reduce costs, and alleviate near-term debt compliance issues.
Begin with a thorough assessment of your IT components (hardware, software, and processes), identifying those with the highest cost. Compare those with the potential savings from proven new technologies and processes, considering associated costs, risks, and dependencies. This approach can help you explore ways to reduce spending on or eliminate outdated technology.
As you review your use of IT assets, explore new strategies, such as converting telecom and data transmission services to the Web and utilizing virtualization software to reduce the servers needed to run existing applications. Also consider using transaction software delivered as a service or outsourcing hardware operations and maintenance.
Assess people and projects
The next step is addressing issues of underutilized staff and excess capacity. Identify ways to cut staffing on routine support functions. When it comes to projects, create stringent criteria for project funding, review in-flight and planned projects, then eliminate or consolidate redundant projects and those that can’t produce sufficient value. Capture as much value from interim deliverables as possible and avoid threatening key capabilities or creating undue risk.
Another strategy is to tighten management of demand for IT services. Compare your current service level agreements with the priorities of various user groups and create new types of services, such as lower cost response for non-critical fixes and help desk calls. Also assign IT costs to business group budgets to encourage appropriate funding and cost reduction.
Unravel IT costs
This critical step involves revamping your company’s planning and budgeting processes to create transparency and business-driven management of IT demand. An important part of this process is changing how IT is perceived in your organization. There must be a shift toward the idea that IT is in business to produce products and services, not merely to carry out tasks and responsibilities.
First, build a catalog of products and services that IT currently delivers, identifying near-term opportunities to rationalize and simplify them. Next, forecast the quantity of these services that the business is willing to “buy” and determine resources to produce them and rates to be charged. Then create a business plan that includes revenues and funding sources. The plan should define service levels, assign direct and indirect costs to each product or service and scrutinize costs intensely.
An exercise such as this is rarely easy. When done properly, a brutally honest self-assessment often uncovers long standing inefficiencies and long wasted funds. Its benefits can be invaluable: greater spending discipline and a clear illustration of services and their costs. With the cost transparency you create, your business users better understand what IT provides. You also create a market for internal services that can be compared to external providers -- in short, you begin running IT like a business.
Until a true recovery occurs, remain in survival mode. When you know exactly how your IT assets are being used and how to better manage demand, you are at a distinct advantage. You will be better equipped to develop strategies to lead your organization successfully through this next phase of the recession and prepare for future growth.
Mike Gorsage is a Partner and Technology Practice Leader for Tatum LLC. Tatum is the nation’s largest executive services firm, providing financial and technology leadership nationwide.