During periods of economic uncertainty, a measured IT cost reduction strategy can help a company navigate through unexpected difficulties.
It’s become important for modern organizations to develop a variety of IT cost-reduction strategies, especially during periods of economic uncertainty. When faced with the challenge of reducing costs quickly, IT architects need to examine what areas can be quickly and efficiently cut to immediately relieve pressure on the overall company.
Cost reduction is different from long-term cost optimization – which is the ongoing evaluation of IT processes to eliminate waste and reduce spending. IT cost reduction reduces IT spending quickly and is usually a one-time measure introduced to protect the medium to short-term health of the company.
IT cost reduction is a set of measures introduced to cut IT costs immediately with the least amount of damage. It is done to save or benefit the mid-to-long-term health of the company. This usually happens during difficult economic periods such as inflation and recession. It is not a strategy used for the long-term growth and health of the business.
A strong IT cost reduction framework is not something that can be introduced arbitrarily. Gartner explains that there are rules IT architects need to consider before introducing IT cost savings.
A structured and measured approach to the process will make sure the business achieves its cost-saving goals with limited damage.
Follow the rules below:
If companies don't cut deeply or efficiently enough the first time, they may need to repeat the process more than once. This drives uncertainty, loss of productivity, and could lead to other more serious problems down the line. This may include loss of morale and possible insecurity.
IT cost optimization will evaluate expenditure throughout the entire IT landscape – which means you need to track the inventory 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 tech stack optimization.
The LeanIX Enterprise Architecture Management (EAM) and SaaS Management Platform (SMP) are two of the tools which provide visual maps for organizations to evaluate their IT environments. That way, leaders can make informed decisions about where value can be maximized.
The SMP and Application Portfolio Management (APM) allow businesses to discover which On-Prem and SaaS applications already exist within the IT landscape and what business units they are part of. From here, architects can visualize where money is being spent. They can also quickly rationalize based on the respective lifecycle stage, usage, business value, and risk.
Before making any cost-saving decisions, a baseline needs to be defined. This involves collaborating with stakeholders and business leaders to establish a clear and structured approach to what cost-saving strategies are necessary. Questions IT architects need to establish with stakeholders before cost-cutting include:
Fast IT cost reduction involves targeting areas of instant impact. This means eliminating, reducing, or suspending items that will deliver the results in days, weeks, or months rather than years. You can do this by eliminating services, rationalizing assets, projects, personnel, and renegotiating contracts.
The goal of IT cost reduction is to release cash quickly in a way that affects the profit and loss statement, rather than non-cash items. Reexamining cloud services is a great opportunity to release money, as there are many strategies you can use to negotiate or evaluate cloud systems so that they are better aligned with the monetary and functional needs of the company.
Make sure you reduce or eliminate costs right away, rather than freeze them. This is important because frozen costs may return to haunt the balance sheet down the line. In this way, it’s beneficial to take a more determined approach to IT cost cutting.
Once the need for IT cost reduction has become pressing, working with the right framework, complete visibility and real insight is vital for elimination and rationalization efforts.
Data needs to be gathered effectively so the health of the company can be evaluated post-cut. This will also show whether the process has been successful. These IT cost reduction strategies should bring impact 1-6 months in the future; thus, have almost an immediate effect on a company’s profit/loss balance sheet.
The three main strategies are eliminate, rationalize and renegotiate.
The first and fastest way to release cash is to eliminate IT assets. By visualizing your IT landscape, it is easy to see which IT assets no longer add value to the company.
Examples of assets that can be eliminated are application licenses, end-user computing, services and service levels, and infrastructure assets.
The second strategy to reduce IT costs quickly is to rationalize infrastructure assets, subscriptions, IT projects, and personnel. Rationalization is the process of evaluating the application portfolio, ongoing projects, and other areas of the IT landscape to determine which assets should be eliminated, retained, or reimaged to help the company save money.
This is done by examining the IT landscape to discover where the most value lies. Once this has been established, IT architects can make informed decisions on where best to cut costs for immediate benefit.
The third cost reduction strategy IT architects and business leaders can use is to negotiate contracts with SaaS products and other IT suppliers. By working with vendors to eliminate unnecessary spend and services, businesses can negotiate contracts to reduce costs.
IT vendor management is beneficial both as a cost reduction strategy, but also as a way to optimize and streamline SaaS, IaaS, and other services to better suit company needs.
IT cost reduction can be the thing that makes or breaks a business in times of economic uncertainty. Having a mapped-out strategy in place – such as managing an application portfolio – eases the pressure of rapid cost reduction.
This helps IT architects and business leaders mitigate damage and make sure it’s deep enough to only need to be performed once.
Get more insights on how to get yourself on the right IT cost-saving path.
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How can IT departments reduce costs?
There are several ways IT departments can reduce costs, either through short-term cost-cutting strategies or through ongoing IT cost optimization. Both examine which IT assets bring the most value and which can be removed to reduce spend.
What is information technology cost?
Information technology costs are the costs incurred through a company’s IT landscape – these costs can cover anything from IT personnel to servers to SaaS.
How do I reduce server costs?
You can reduce server costs by consolidating and optimizing your database, classifying your data, choosing software with a long-term strategy in mind, and rationalizing hardware.
What are the challenges of IT cost reduction?
Challenges to IT cost reduction include a lack of alignment between stakeholders and business leaders, an unclear strategy, a lack of collaboration, and bad tracking of whether or not cost-cutting measures have been successful.
What is an IT cost reduction example?
An example of IT cost reduction would be to eliminate unnecessary applications and services, reduce overheads by reducing staff numbers, and renegotiating contracts with SaaS services and other IT suppliers.
What are the ways to reduce IT cost?
You can reduce IT costs by eliminating, rationalizing and renegotiating various assets and services within the IT landscape. This is done by carefully mapping and examining where the most money is spent and deciding whether it can be removed or changed to the benefit of the company.
How can an IT department save money?
IT departments can save money through rapid IT cost reduction or through a long-term, IT cost optimization strategy.