CIOs who understand their IT cost structure and cost drivers have a solid base for developing plans that can deliver ongoing cost savings. These plans draw on 25 commonly used cost containment techniques, many of which can also improve service and agility and reduce risk because they reduce complexity. The first step in cutting costs is to understand your cost structure and potential for savings. CIOs use activity-based costing, total cost of ownership, benchmarking and other techniques to identify where and how to contain costs. Step two is to link costs to demand. Step three is to reduce resource costs, and step four is to change operating practices.
- Understand your cost structure and potential for savings
- Link costs to demand
- Reduce resource costs
- Change operating practices
Understand your cost structure and potential for savings
- IT cost containment means doing more with less
- Use cost containment techniques not just to save money
- Understand your costs at the macro and micro levels
- Analyze IT costs from multiple perspectives
- Focus on large expenses first
- Compare your costs to peers
- To make accurate peer comparisons, benchmark
- Use these 25 common techniques to determine your savings potential
Link costs to demand
- Manage demand
- Technique 1. Chargeback: Use chargeback so the business can make cost-versus-value trade-offs
- Technique 2. IT PMO: Create an IT PMO to improve project, program and portfolio performance
- Technique 3. IT governance: Establish IT governance councils to improve prioritization and investment decisions
- Shift to variable cost
- Technique 4. Contingent workers: Contract with them to fulfill variable demand and special expertise needs
- Technique 5. Software as a service (SaaS): Use SaaS to avoid capital investments, to vary costs with usage and to achieve benefits sooner
- Technique 6. Capacity-on-demand (CoD): Use CoD to flex processing capacity and costs with fluctuating workloads
Reduce resource costs
- Reduce labor cost
- Technique 7. Staff reconfiguration: Reconfigure your staff for higher performance
- Technique 8. Selective outsourcing: Selectively outsource non-core IS functions for cost and service advantages
- Technique 9. Offshore outsourcing: Move selected work to lower-labor-cost locations
- Technique 10. Automated software distribution: Automate electronic distribution to reduce support labor
- Reduce technology cost
- Technique 11. Server/storage virtualization: Pool resources for efficiency and flexibility
- Technique 12. Voice/data network re-engineering: Move toward an IP-based converged network for greater bandwidth at lower cost
- Technique 13. Voice over Internet protocol (VoIP): Transition to VoIP telephony to reduce costs and to position for unified communications
- Technique 14. Open-source software (OSS): Selectively adopt OSS to reduce software costs
Change operating practices
- Change your IS operating model
- Technique 15. Data center consolidation/automation: Consolidate, standardize and automate for economies of scale and resilience
- Technique 16. Standard operating environment: Standardize to reduce complexity
- Technique 17. Teleworking: Increase employee productivity while reducing occupancy costs
- Technique 18. Refresh/upgrade delay: Extend the useful life of existing IT assets to defer buying new ones
- Improve IS business practices
- Technique 19. Asset/license management: Tighten management to reduce overspending
- Technique 20. Print fleet rationalization: Gain control over the office output explosion
- Technique 21. Telephone expense management: Gain control over the device explosion
- Technique 22. Telephone bill audit: Audit to find overcharges
- Technique 23. Contract renegotiation: Renegotiate maintenance and service contracts for better terms and prices
- Technique 24. IT operations process improvement: Increase process rigor for numerous benefits
- Technique 25. Application development process improvement: Professionalize processes to reduce costs and risks
- Develop a multiyear cost containment plan that achieves additional business benefits
Appendix A: Checklist of cost containment ideas
Appendix B: SERPRO open-source software savings and expenses
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