Costs & Benefits
Optimise IT costs in a sensible way
by Karsten Tampier
The economic situation reinforces the reflex to optimise IT costs quickly. A systematic approach would make more sense and be more sustainable: IT cost reduction must lower expenditure in the right places.
In an economic crisis, people like to fall back on standard recipes which are easy to implement and have supposedly proven themselves. So what could be more obvious than to determine all costs and simply treat them as a lump sum? This approach is particularly dangerous when it comes to IT expenditure, because organisations lose focus on the strategic dimension.
A rigorous cut may be appreciated in the next balance sheet, but it can endanger survival in the medium term. After all, a large part of IT expenditure is spent on the ongoing operation of software and systems. If you start in the wrong place, you run the risk of damaging your competitiveness and future viability. After all, the value-added share of IT in central business processes of many organisations is mission-critical today.
Reduce IT costs with a sense of proportion
The goal of cost-cutting measures must therefore be to protect economically necessary IT expenditure and to reduce the expendable part. To determine these two areas, (internal or external) consultants are often hired to review the status quo and find approaches for optimisation. Usually, they target areas which are already under criticism. Candidates for this are, for example, workplace costs, the cost of servers on-premises or special groups of applications. The procedure has become established, but this does not mean it makes sense in every case.
Costs per user for applications
An example: Traditionally, the "cost per user" is used to determine the actual expenditure of an application - however, this reference value is subject to immense volatility depending on the system landscape. Real transparency of software costs cannot be achieved with this, on the contrary: a standard financial software can come to 2,000 euros per year and user, while business intelligence platforms can cost more than 8,000 euros per user and year. A direct comparison between two different software systems on this basis is dangerous and may lead to false conclusions. Neither value on its own says anything about how efficiently a software is run and how business-critical it is for the company.
IT strategy meets business strategy
In many optimisation efforts, corporate strategy is all too often neglected. Consultants like to point to obvious levers in IT operations and a well-known selection of strategic initiatives, such as public cloud, to leverage improvement opportunities. After these possibilities have been utilised, there are no opportunities for further improvements. If additional savings are to be achieved, this will inevitably have an impact on the substance.
Analysing strategic data
According to our experience, an integrated approach which combines sound data analysis and the company's strategy opens up far greater opportunities to reduce IT costs effectively. The approach combines three phases of strategy, analysis and implementation. Before starting a data assessment and defining a project portfolio, the IT strategy is reviewed in relation to the corporate strategy. This allows issues to be derived which have sustainable effects. The analysis of data and the portfolio review then focus specifically on these areas.
Data, actions, implementation
The results of the analysis are transferred into a catalogue of actions, including an implementation roadmap, which is reflected back to all stakeholders and coordinated with them. In this way, IT can optimally contribute its value as a strategic enabler. Due to the consistent implementation of this approach, IT costs can be optimised in a targeted manner according to the company's goals. A binding agreement on objectives, the cooperation of IT and business units as well as the involvement of stakeholders are also critical success factors. In order to be able to implement the derived actions, it is imperative milestones are included in a system with joint targets. This ensures the identified savings potentials are addressed consistently.