Cutting costs in IT - Lean and mean, or thin and angry?

The pressure is on IT departments to cut costs. But if you came to me with a cost-cutting plan which includes suggestions from various IT experts of: “virtualisation, removing data duplication, WAN optimisation, installing air economisers, and using open source management tools, among others”, I would save the company some money right now by giving firing you. You should have done this stuff already, and if not, you should get on with it without advertising that you haven’t been earning your keep.

The pressure is on IT departments to cut costs. But if you came to me with a cost-cutting plan which includes suggestions from various IT experts of: “virtualisation, removing data duplication, WAN optimisation, installing air economisers, and using open source management tools, among others”, I would save the company some money right now by giving firing you. You should have done this stuff already, and if not, you should get on with it without advertising that you haven’t been earning your keep.


A cost cutting plan for IT is both an opportunity and a threat for you and your organisation: The opportunity lies in linking IT to real business benefits, and the threat is if you take a wild slash through your IT operational costs could threaten your ongoing business. Remember there are three areas in which costs can be cut – each of which presents different challenges to yourself and your organisation, and all of which need business buy-in. This is the line you have to tread between creating an organisation that is lean and mean, or just plain thin and angry.


Let’s take the first area: IT Operations. There is a concept that IT operations exist to help the business maintain its momentum – its transaction volumes in the areas in which it operates. If you’ve tied IT operations directly to business operations as you should have, you need to make people aware that what you do in IT will have a direct effect on business. So if your business is closing down branches or operations, or is mothballing business lines in its efforts to rationalise, this represents an opportunity for IT cost savings. But you need to manage expectations, as sunk costs in IT infrastructures skew what you can actually save.


One special element of cost cutting in operations is what I call “should-do” IT spend. In the same way you should service your car regularly, you can choose not to. Likewise, you should refresh your infrastructure, upgrade that application or renew your licences. But you can choose not to. Many IT departments make these choices in tough times. Just be aware that you are delaying the risks, not mitigating them. And you are probably adding to future costs.


The second area of cost savings represents your best bet in IT cost cutting – project costs. You and I know that there are often a number of “ego-projects” active; projects where a senior executive has dictated that this will be done, whether there’s a real business case for it or not. This is tough work for you. I suggest you start with the business cases then – look at all your existing projects and evaluate their business benefits given the new difficult economy. Stop those that are marginal or un-motivated. Or if you want to do a real “jack-the-ripper” job, stop all projects, and let the business re-justify them according to new, tougher criteria. You’ll need the backing of your CEO here, because this is not going to be popular.


The final cost cutting area is IT leadership projects. One Managing Director explained IT leadership as: “New products, new markets, new channels. Full stop”. If you have any such projects, then look to see what strategic risk you are putting the company at if you stop them. Strategic risk being those risks that will smack you in three to five years time if you don’t act now.


The cost-cutting challenge for IT is to establish causality. Cut costs here, and this will happen there. It’s your opportunity to have the discussion.


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Posted on 06/24/2010 by


Cutting costs in IT - Lean and mean, or thin and angry? author TerryWhite

TerryWhite

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