4 Steps to Cost Optimization

CIOs must establish a culture of proactive IT cost optimization to strengthen their position with their CEO and stakeholders.

We need to reduce the IT budget” is a sentence that CIOs despise, but hear too often. When they try to defend the cost in front of the CEO and other non-IT executives, all they see is blank expressions, followed by the request to “just make it happen” and ensure that all services are nevertheless running smoothly.

To effectively communicate their IT cost optimization vision and strategy to non-IT decision makers, CIOs must showcase that they have evidence of a proactive strategy of continued cost optimization. This can be done in several steps and should be adapted accordingly with business and stakeholder priorities.

Below are four easy steps to get started on cost optimization within your organization.

Step 1: Establish a baseline

Split the organization’s IT spending and costs to a granular level and compare the data points with those of companies within the vertical industry for valuable insights. Operational expenses much higher than the industry average means that there could be room for cost optimization. On the other hand, comparatively low spending for functions, such as the IT service desk, mean that cuts in this area might impact service quality.

Step 2: Identify opportunities

Establish a baseline for the IT organization. It is difficult to demonstrate progress without a fixed starting point. Work with the CFO and CEO and decide where IT needs to effectively allocate resources to initiatives that will show the best value for the organization. Without data, there are only opinions to base a strategic advantage or disadvantage of IT investment.

Step 3: Establish governance

In general, CIOs have likely been engaged in several cost optimization initiative discussions. The most important task is to manage all ideas proactively via a cost optimization government team and evaluate the potential.

Some ideas might result in modest savings, because they only reduce IT costs, while others will impact business spending and revenue. “When IT introduces a new payment model that is easier to maintain and improves customer experience at the same time, it is not only cost-effective, but also enables possible new business models,” Gartner expert says.

Step 4: Start with quick wins

Team up with a trusted business-unit leader, communicate expectations for what is to be accomplished and explain how IT can support the goals of the business unit. The best way to ensure organizational buy-in for a proactive cost optimization strategy is to showcase a portfolio of quick wins — projects or changes that achieve immediate cash savings without costing anything or are entirely cash-positive without requiring much spending.

After completing a few of the projects, present the portfolio to the CEO and other stakeholders.

“The portfolio is very important. It clearly showcases the vision and strategy of the CIO regarding cost reduction and its results within the business,” Gartner expert says. “It moves the CIO and IT from speculating what the savings could be to demonstrating a foundation of real savings. In the end, this vision matters to many stakeholders, including the CEO and the CFO.”

Join us at Gartner IT Symposium/Xpo™ on the Gold Coast this October as we explore Cost Optimization in more detail. The agenda has recently be released and you can view it here