IT Cost Optimization. George Ambler. Cost Cutting Reactive Short -term results Across the board Decisions often made in haste. Cost Optimization Strategic Decisions tied to business value Cuts made selectively Longer -term initiatives and longer-term results. - PowerPoint PPT Presentation
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Self-Service Web Sites Low Moderate Moderate Low Moderate
Reassess Internal IT Staffing Needs Moderate Low High Moderate Low
No Pain — No Gain
Benefits
Costs, Time & Risks
Low
High
High
Mainframe Consolidation
Portfolio Management
Procurement
ArchitectureStandardization
Shared Services
Enterprise PMO
Deferral of Spending
Mergers
Application Standardization
Automate Software
DistributionNetwork
Consolidation
Server Consolidation
Audit Device Utilization Call Center
Consolidation
Leading Practice: Treat IT Cost Optimization As An On-going IT DisciplineSuccessful IT cost optimization programs have common characteristics that deliver sustained results as compared to typical cost cutting programs
Characteristics of IT Cost Optimization Programs
1. Have a clear definition of short- and long-term success
2. Operate from a basis of fact rather than speculation
3. Look at the Demand side of IT as well as Supply side
4. Prioritize cost savings opportunities taking into account risk to implement in addition to financial payback
5. Align IT Cost Optimization management disciplines with business alignment objectives
6. Focus on successful execution, including a program in place for benefits realization to hold people accountable through measured performance
7. Use working capital from IT savings to self-fund improvements towards business
Our services constantly evolve
with clients' changing needs, but our focus on results never changes
Evaluate
Strategize
Execute
Optimize
ManageStrategize
Create Cost Optimization Team Assign some of your best staff Include a financially qualified professional Strengthen relationship management roles Define cost-cutting goals and project timelines Establish rapid go/no go approval process Meet weekly
Market-Based IT Chart of Accounts (COA)Hardware Software Outsourcing Personnel
Procurement Commodity Taxonomy UNSPSC NIGP eCl@ss RUS Etc.
IT Asset Management/CMDB
IT Service Portfolio and Catalog
IT Performance Management
IT Portfolio Management
Benchmarking and Measurement
Chargeback/Cost Allocation
Finding Opportunities and New Ideas for Cost Cuts: IT Cost Transparency Elements
After You Leave Here …Immediately…• Assess which of the tactical cost opportunities are still worth trying.• Determine how best to get executive engagement in your IT governance process
to ensure the right decisions are being made.• Evaluate your IT optimization decisions across all of the dimensions listed.• Argue for pursuing cost optimization that can be done and has appropriate
organizational support that will not do long-term damage to the enterprise.
In the Next 90 days….• Determine if your IT demand governance process is working and, if not, create a
plan to fix it• Create an ongoing IT optimization program to ensure long-term efficiency.• Evaluate how your IT organization is structured to determine if it is appropriate
for maximum productivity.• Evaluate with your senior management whether there is alignment of
expectations for the role of IT in the strategic leadership of your enterprise.
Related Gartner Research "Decision Framework for Prioritizing Cost Optimization Ideas"
G00166206, Barbara Gomolski, John Kost, 13 May 2009
"Cost Cutting in IT: Findings and Recommendations, October 2008 to March 2009" G00166849, Ken McGee, 2 April 2009
"Method to the Madness: Applying a Methodological Approach to Cost Optimization" G00168120, David W. McCoy, Barbara Gomolski, 13 May 2009
"How the IT Organization Handles the Three Stages of a Downturn" G00165396, Jorge Lopez, 17 February 2009
“IT Cost Optimization Round 2: Strategic Shifts and Doing Less With Less” Kurt Potter (G00205937)
“CFO Advisory: Enterprise Cost Optimization; Overview”Barbara Gomolski, Kurt Potter (G00173955)
“The Four Levels of Cost Optimization”Barbara Gomolski, Kurt Potter, Mark Raskino (G00164219)
1. Use chargeback so the business can make cost-vs.-value trade-offs2. Create an IT PMO to improve project, program and portfolio
performance3. Establish IT governance councils to improve prioritization and
investment decisions4. Contract with contingent workers to fulfil variable demand and special
expertise needs5. Use software as a service (SaaS) to avoid capital costs, to vary costs
with usage and to achieve benefits sooner6. Use capacity-on-demand (CoD) to vary processing costs with workload
changes
Demand
Manage Demand 1. Chargeback 2. IT PMO 3. IT Governance
Shift to Variable Cost
4. Contingent Workers
5. Software as a Service
6. Capacity on Demand
Reduce Resource Costs
7. Reconfigure your staff for higher performance8. Outsource noncore IT functions for cost and service advantages9. Move selected work offshore to lower-cost labor locations10. Automate electronic software distribution to reduce support labor11. Pool server and storage resources for efficiency and flexibility12. Move toward IP-based converged networks for greater bandwidth at
lower cost13. Transition to VoIP telephony to reduce cost and to position for unified
communications14. Selectively adopt open-source software to reduce software costs
Supply
Reduce Labor Cost
7. Staff Reconfiguration
8. Selective Outsourcing
9. Offshore Outsourcing
10. Automated Software Distribution
Reduce Technology
Cost
11. Server/Storage Virtualization
12. Voice/Data Network
Re-engineering
13. Voice over Internet Protocol
14. Open-Source Software
Change Operating Practices
15. Consolidate, standardize and automate data centers for economies of scale and resilience
16. Implement a standard operating environment to reduce complexity17. Implement teleworking to increase employee productivity while reducing occupancy costs18. Extend the useful life of established IT assets to defer buying new ones19. Tighten software asset/license management to reduce overspending20. Rationalize copy and print services to control the output explosion21. Manage telephone expenses to gain control of the device explosion22. Audit telephone bills to find overcharges23. Renegotiate maintenance/service contracts for better prices and terms24. Increase IT operations process rigor for many benefits25. Professionalize application development processes to reduce costs and risks
Change IT Operating
Model
15. Data Center Consolidation/Autom
ation
16. Standard Operating
Environment17. Teleworking 18. Refresh/Upgrade
Delay
Improve IT Business Practices
23. Contract Renegotiation
24. IT Operations Process
Improvement
25. Apps. Dev Process
Improvement
19. Asset/License Management
20. Print Fleet Rationalization
21. Telephone Expense
Management
22. Telephone Bill AuditControl
Common Cost-Reduction Opportunities, Continued
33. Manage Technology Portfolio 34. Lean IT
31. Financial Engineering 32. BPO
30. Manage Apps Spec.(Mandatory,
Useful, Nice to Have)
26. Stop Low Business Value
Project
27. Reduce Apps Maintenance
28. Manage Apps Portfolio
29. Reduce Service Level
35. Grouped Maintenance
36. Reduce Project Length
37. Retire non-use Code/Module in Apps
38. Adopt Layered Model
39. Fiscal Optimization
40. Improve IT Financial Knowledge 41. ZBB for opex 42. Increase Span of
Control in IT Org.
IT C
ost C
onta
inm
ent
Demand
Manage Demand
Shift to Variable Cost
Supply
Reduce Labor Cost
Reduce Technology
Cost
Change IT Operating
Model
Improve IT Business Practices
Control
Savings Depends on Time Since Last Optimization Exercise, Implementation or Major Project/Program
• Apps. Portfolio Reduction: 50% for 20% Savings• Cancel Projects: Reduce Discretionary Spend by 75%• Teleworking: 20% Reduction in Net Occupancy Costs• PMO: 5-20% Productivity Improvement
• Virtualization & Consolidation: 20% Less Workload• IT Asset Mgt.: 8-10% Per Managed Asset Per Year• PC Power Mgt: 43% Per Year vs. Non-Best Practice• Apps. Dev. Reuse: 18% Over Five Years
• Open-source Software: 75% Savings in Maint./License• Software as a Service (SaaS): 80%• Enterprise SW Agreement: 20-50% Dropping Maint.• IT Outsourcing Offshore: 10-40%
Process Improvement, Business Restructuring &
Innovation
• Business Process Mgt. Technology: 18% Avoidance• Shared IT Services: 15-20% is Typical, 40% Maximum• Territory Mgt. Software: Increase Sales 1-3%• Online Marketing & Lead Mgt: Increasing Revenue 20%
IT Procurement
Cost Savings Within IT
Joint Business &IT Savings
22
Most Frequent Med.-Term Cuts • Server storage virtualization• Automated software