The Definitive Guide to

IT Cost Optimization

IT cost optimization is a set of steps implemented to improve operations, reduce costs and streamline activities. Read more to maintain the competitive edge and become more agile in your processes and resource management.

What is IT cost optimization?

IT cost optimization is the process of continuously evaluating an organization’s business technology processes to discover cost-saving opportunities. These areas include cloud services, infrastructure, and applications amongst others.

Both IT optimization and IT cost optimization initiatives are similar as they are key parts of maximizing business value. The former aims toward overall modernization and improving efficiency, while IT cost optimization is purely a financial decision.

Ever since the dot com boom in the early 2000s, and more recently through the COVID-19 pandemic, IT optimization has become key to business success.

Changing the working landscape has made it important for companies to continuously evaluate and improve their IT infrastructure and landscape.

As a result, IT cost reduction processes should be at the center of an enterprise’s IT business optimization strategy. 

Examples of IT assets that can be optimized to reduce costs include:

  • Hardware (computers, printers)
  • Infrastructure (servers, networks, storage)
  • Cloud services
  • Shared services
  • Applications
  • End-user computing

Benefits and challenges

The main benefit of IT cost optimization is that it helps organizations keep IT costs low. However, there are other benefits of implementing a continuous cost optimization strategy that should not be overlooked.

  • Increase profitability: as a result of cost savings over time, the organization as a whole will become more profitable.
  • Reduce complexity: Continuously reevaluating and reconfiguring resources will result in less complexity. Making processes automatic will also reduce costs.
  • Reduce risk: The risk of shadow IT and paying for unused applications and services is reduced by examining where money is being spent.
  • Increased budget for innovation: Saving money through IT cost optimizations means that it can be funneled back into the organization. Money can be used in research and modernization to help the business maintain its competitive edge.

Information technology optimization challenges include:

  • Lack of resources: Building and maintaining cost optimization within an IT business strategy takes time and resources. Organizations must realize that this is an investment in the ongoing success of the company.
  • Repeating optimization processes: IT infrastructure that runs lean will only need to optimize every few years.
  • Remote work: The shift to remote work has made cost optimization more complex as it’s less obvious which assets are being used outside of an office environment.
  • Lack of visibility: Gaining financial transparency across departments is vital to IT cost optimization efforts.

IT cost-cutting vs. IT cost optimization

Cost-cutting initiatives and cost optimization are sometimes used interchangeably, but in actuality, they are two very different things that are done for different purposes. 

Cost-cutting is the process of enacting one-time direct actions to reduce expenses with immediate effect.

Cost optimization, on the other hand, is the process of continually evaluating and configuring resources through an overarching IT strategy to save money through increased efficiency.

  Cost-cutting Cost optimization
Process Rapidly cutting costs across infrastructure, personnel, and resources to save money quickly. Continually evaluating tech processes to discover areas where to reduce costs and maximize value.
Purpose To quickly cut expenses to save money. Save money and increase value on applications, services, etc. over time
Outcome Short-term cost saving. Long-term, strategic financial management.
Time In times of crisis / financial difficulty / economic downturn. On-going over time.

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IT cost optimization framework

The following 5 steps create the foundation for your IT cost optimization effort. The framework will evaluate how IT costs impact IT services and their effect on business costs and revenue.

Continuously monitor these costs to eliminate wasteful spending and maximize the value of all IT resources.

Collaborate with business stakeholders

The first step of successful IT cost optimization is to collaborate with the appropriate stakeholders. Establishing clear and structured communication with CFOs and business owners will make sure the desired outcome can be realized, as well as the required time frame and best approach.

Such relationships enable faster, better, and more structured optimization efforts going forward.

Items that need to be discussed with stakeholders include:

  • Determining the desired result: What does the organization wish to achieve through its IT cost optimization project? 
  • Following this, stakeholders and project managers will want to determine the time frame: How long will it take to establish processes to continually monitor IT expenditure?
  • Lastly, teams will need to determine the best approach and cost optimization processes: How will the organization approach the issue? What steps must be taken to ensure the project’s success?

Map IT landscape

IT cost optimization will evaluate expenditure throughout the entire IT landscape – which means you need to take stock of IT resources. IT visibility is a key part of cost optimization.

A thorough, accurate inventory of your IT landscape and visually mapping it are essential to any potential optimization.

The LeanIX Enterprise Architecture (EAM) and SaaS Management (SMP) visualize your IT architecture. With detailed insights, they allow informed decisions about where to maximize value.

Application llifecycle management within LeanIX Enterprise Architecture Management solution.

Both help organizations discover which On-Prem and SaaS applications exist in their IT landscape and what business units applications are part of. 

They also identify which applications can be rationalized based on their lifecycle stage, usage, business value, or risk.

These tools can also map future state architecture, which allows stakeholders to see inventory and what data flows will look like in the future, and which areas need improvement.

Map business capabilities

Once IT transparency has been established, IT assets need to be mapped to business capabilities and processes. Doing this helps identify any redundancies or gaps and reveals business value based on the business function.

Business capability map templates can help you uncover what a business does and what needs to happen to meet current and future challenges.

EN-map_bcs

Business capabilities optimization is a positive outcome of IT cost optimization efforts because so much of the day-to-day operations depend on efficient use of the IT infrastructure.

Ensure financial transparency

IT cost optimization is a financial strategy, and stakeholders need to understand how IT spending affects business value. Financial transparency in IT is an important part of communicating this and serves as the foundation of your cost optimization strategy. If not, poor decisions will be made and the entire reason for IT cost optimization can be undermined and ineffective.

IT financial transparency can be achieved when all stakeholders have a single source of truth of their IT landscape. Business capabilities maps show applications, data flows, and business value for each business unit. And at the same time, it reveals optimization opportunities and required costs.

IT optimization is an ongoing discipline – not a one-time effort. Once a strategy is established, IT visibility and optimization allow for continuous analysis of IT project investments and their benefits. This creates a lean and financially efficient process from the get-go.

Monitor continuously 

As previously mentioned, IT cost optimization is a continuous process of evaluating and reevaluating resources, processes, and assets. Through this IT strategy, business processes and relationships are established between the right stakeholders and IT can become a business enabler.

Collaborative tools such as the LeanIX EAM and SMP allow organizations to become more transparent and agile. Ongoing IT visibility is crucial because it uncovers all the wasted spend and inefficiencies that can easily go unnoticed in a complex IT and business landscape. 

An example of this waste spend is shadow IT – unmanaged and undocumented applications or cloud SaaS/IaaS services installed without the explicit permission or knowledge of the company. Non-IT team members represent 85% of all cloud app purchases which are most often not optimized for efficiency or value.

These can be installed at any time, which is why continuous IT monitoring is important for discovering shadow IT.

All technology comes with an expiration date and needs to be updated. By decommissioning old tech, upgrading current systems, and staying on top of expired contracts, organizations can make sure money isn’t wasted.

Costs saved through this ongoing process of reevaluation can be invested in innovation and business growth.

IT cost optimization techniques

Once a framework has been established and approved between stakeholders and project managers, optimization techniques can then be implemented to enact the IT optimization strategy.

1. Optimize and rationalize applications

Application rationalization and SaaS optimization are the quickest ways to reduce IT costs. By mapping a comprehensive overview of the IT landscape and business capabilities, it will uncover areas that can be optimized. 

LeanIX offers EAM with application portfolio management modules and SMP with a SaaS discovery feature. As a complete business technology cockpit, it allows organizations to create an optimized IT landscape based solely on the effect they have on the business.

If it’s a positive effect, the apps can be kept or optimized. Apps that do not provide value can be canceled or removed. Application rationalization is a process that will highlight redundant and overlapping applications, and non-compliant applications, and shadow IT.

With the LeanIX EAM and SMP, businesses can manage the entire IT landscape, discover SaaS, track its costs and usage, and forecast future costs based on the IT roadmap.

2. Consolidate data centers

Data center consolidation is another cost optimization technique that will reduce spending in the long run. Data consolidation is the process of gathering data from all across the organization and keeping it in one location for easy access and monitoring.

As businesses grow, the cost of maintaining data centers will increase which drives some organizations to move to data-center switching architecture. 

Benefits of data consolidation include enhanced operations and flexibility, improved data transparency between departments, and greater energy efficiency. Plus, organizations can save between 10% and 20% of their overall data center budget.

3. Align with DevOps

As software development becomes a critical business capability, enterprise architects and project managers need to support DevOps. A collective effort is needed to continuously improve software engineering efficiency and keep an eye on cost optimization strategy. 

This can be done in two ways. First, the development tech stack must be reflected in the overall organizational tech stack—a collaboration with the head of development and software architects is crucial.

EA can also use their tools and expertise to assist dev teams in managing their individual IT landscapes, particularly when it comes to microservices and cloud resources.

Business capability maps and other visual tools can be used to align processes and goals across departments – including dev teams. 

4. Plan technology roadmap and budget

Planning your technology roadmap and anticipating the budget prior to activation is important to understand how IT services will be delivered and anticipate associated costs. Roadmaps provide a comprehensive overview of your IT landscape and help plan life cycles, discover optimization opportunities, and improve resource planning and allocation.

Roadmaps also help organizations evaluate business resources and uncover IT overlaps. Modern and collaborative tools such as LeanIX EAM allow project managers, stakeholders, and CIOs to plan target architecture and compare various scenarios.

This allows businesses to accelerate planning cycles, forecast outcomes, and allocate spend effectively.

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5. Actively manage vendors

Making efficient use of cloud computing is a large part of IT cost optimization due to organizations relying heavily on SaaS, IaaS, and PaaS for day-to-day operations.

Tools such as LeanIX SMP allow organizations to look into cloud usage and their licenses, and how they are being used by different business units and users.

By actively managing vendors, companies can:

  • Negotiate better pricing: Only paying for areas of service the business actually uses.
  • Get better terms of service: Avoid long-term subscriptions with expensive exit costs or non-competes that hinder the optimization process.
  • Implement license recycling mentality: Instead of purchasing new licenses, reuse individual licenses for use by others. 

6. Continuously transform

Continuous transformation is the cornerstone of IT optimization and cost optimization. Adaptation and flexibility allow organizations to maximize value from their IT infrastructure. Benefits of continuous transformation include:

  1. Adopt cloud services if necessary
    Cloud services provide many benefits but also come with caveats that must be considered to make them worthwhile; including licensing, the threat of unnecessary costs, and a lack of in-house expertise.

    However, cloud computing allows companies to spend less on maintaining technical equipment or hiring large IT teams. They also help organizations retain the competitive edge through regular upgrades and developments.

  2. Implement automation
    Automating processes means less work for IT teams. Enterprise architecture leverages application portfolio management and business capability mapping to highlight areas of improvement or automation potential.

    Modern tools such as robotic process automation mimic the workforce and free up time and resources which can be used elsewhere.

  3. Research business transformation ideas
    For organizations to remain competitive they need to invest in digital business transformation. This means researching and evaluating the current business IT infrastructure and using data-driven insights to plan and execute transformation projects. Money saved through IT cost optimization can be put towards this effort.

  4. Evaluate the workforce
    Optimizing the workforce through performance management, setting realistic goals, time tracking, and adopting a “customer-first” perspective all help organizations keep overheads low.

    This way, you’ll also ensure that employee skill sets and tasks contribute to an efficient and cost-saving workflow.

 

Conclusion

As businesses scale and take on more expenses, IT cost optimization becomes an increasingly valuable part of an effective IT business strategy.

By implementing cost optimization, businesses can achieve financial value over time – unlike immediate, one-time cost-cutting measures.

The LeanIX EAM and SMP assist in this process. These tools help create a lean application inventory which can be used to develop an ongoing, successful cost optimization strategy. 

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Answers to frequently asked questions on IT cost optimization

What is IT cost optimization in information technology?

IT cost optimization continuously evaluates and configures an organization’s business technology processes and IT infrastructure to uncover cost-saving opportunities.

How do you reduce your IT costs?

You can reduce your IT costs in various ways; either through one-time cost cutting, cost optimization, or value optimization. It is beneficial for organizations to implement a continuous cost optimization strategy that’s structured and maximizes cost savings and value over time.

What is the use of IT optimization?

IT optimization is a set of steps implemented by a company to improve operations, reduce costs and streamline activities. It is done to help companies maintain the competitive edge and become more agile in their processes and resource management.

How do you implement IT cost optimization?

IT cost optimization can be implemented by evaluating cloud services, managing applications, consolidating data, and reducing or upgrading unnecessary IT assets.

Why is IT cost optimization important?

IT cost optimization is important because it helps businesses make more informed decisions on budgeting and spending. It can also directly impact an organization’s ability to grow and modernize.

How can technology reduce costs in a business?

Technology can be used to evaluate IT infrastructure, increase transparency, and map processes across businesses IT landscape. These processes highlight important areas of optimization; maximizing value and reducing costs.

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