Build Your IT Cost Optimization Roadmap

Improve cost-to-value in a sustainable manner.

Analyst Perspective

Optimize your cost sustainably.

Whether the industry is in an economic downturn, or your business is facing headwinds in the market, pressure to reduce spending across organizations is inevitable. When it comes to the IT organization, it is often handled as a onetime event. Cost optimization is an industry standard term, but it usually translates into cost cutting. How do you manage this challenge given the day-to-day demands placed on IT? Do you apply cost reduction equally across the IT landscape, or do you apply reductions using a targeted approach? How do you balance the business demands regarding innovation with keeping the lights on? What is the best path forward?

While the situation isn't unique, all too often the IT organization response is too shortsighted.

By using the Info-Tech methodology and tools, you will be able to develop an IT cost optimization roadmap based on your specific circumstances and timeline.

A well-thought-out strategy should help you achieve three objectives:

1. Reduce your unwarranted IT spending.
2. Optimize your cost-to-value.
3. Sustain your cost optimization.

This blueprint will guide you to understand your mandate, identify your cost optimization journey (reactive, proactive, or strategic), and assess your IT spend across four levers (assets, vendors, project portfolio, and workforce).

Finally, keep in mind that cost optimization is not a project to be completed, but an ongoing process to be exercised.

Bilal Alberto Saab
Research Director, IT Financial Management
Info-Tech Research Group

Executive Summary

Info-Tech Insight
Cost optimization is not just about reducing costs. In fact, you should aim to achieve three objectives: (1) reduce your unwarranted IT spending, (2) optimize your cost-to-value, and (3) sustain your cost optimization.

Your challenge

IT leaders are often asked to cut costs.

• Cost management is a long-term challenge. Businesses and IT departments look to have a flexible cost structure focused on maximizing business value while maintaining the ability to adapt to market pressure. However, businesses must also be able to respond to unexpected events.
• In times of economic downturn, many CEOs and CFOs shift their thinking from growth to value protection. This can force a round of cost cutting across all departments focused on short-term, immediate, and measurable objectives.
• Many IT departments are then faced with the challenge of meeting cost cutting targets. No one knows exactly how markets will behave, but the effects of rising inflation and increasing interest rates, for example, can manifest very quickly.

When crisis hits, does IT's hard-won gains around being seen as a partner to the business suddenly disappear and IT becomes just a cost center all over again?

In times of economic slowdown or downturn, the key challenge of IT leaders is to optimize costs without jeopardizing their strategic and innovative contribution.

Common obstacles

The 90% of the budget you keep is more important than the 10% of the budget you cut.

• While the business responds to fluctuating economic conditions, IT must ensure that its budget remains fully aligned with business strategy and expected business value.
• However, in the face of sudden pressures, a common tendency is to make quick decisions without fully considering their long-term implications.
• Avoid costly mistakes with a proactive and strategic mindset. Put in place a well-communicated cost optimization strategy rather than hastily cutting back the biggest line items in your budget.

How can IT optimize costs to achieve a corporate impact, but not cut so deep that the organization can't take advantage of opportunities to recover and thrive?

Know how you will strategically optimize IT costs before you are forced to cut cost aggressively in a reactive fashion.