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.
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:
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.
Information technology optimization challenges include:
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.
|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.|
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.
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:
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.
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.
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.
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.
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.
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.
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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.
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.
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.
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.
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.
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:
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:
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.
Get more insights on how to get yourself on the right IT cost-saving path.
Context and visuals to support each of your cost reduction initiatives
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