How to Prioritize Your IT Cost Optimization Efforts
Weigh costs and benefits to determine which ideas are worth the effort.
Contributor: Jo Bennett
It’s a law of physics that for every action there’s an equal and opposite reaction. That principle also often holds true with IT cost optimization.
Say your organization determines that it could save money by migrating to online customer service. There’s a quantifiable cost savings in such an initiative. But there’s risk, too, such as the possibility that you might compromise relationships with customers who prefer to speak with live representatives.
You might have an extensive list of potential cost optimization ideas. However, “Not all cost optimization ideas are worth the effort,” said John Roberts, vice president and distinguished analyst, Gartner.
You also need a clear understanding of your organization’s baseline metrics for cost optimization success.
“The potential impact on customers, organizational and technical risk, time to implement and the financial investment required may be so severe as to diminish the likelihood of ever achieving any of the desired benefits.” he said.
Establish baseline metrics
To decide which cost optimization ideas are worth the effort, start with the facts, said Mr. Roberts. Research IT spending benchmarks for organizations in your industry with a goal of identifying areas where you might be overspending, as well as areas that might be best left alone.
You also need a clear understanding of your organization’s baseline metrics for cost optimization success. For example, are you limited to initiatives that will deliver results within one year? How much is your organization willing to spend? In challenging times, organizations are sometimes limited to a demand management approach (“What will we stop doing?”).
Assess risks alongside benefits
With these guidelines in hand, you can assess and prioritize cost optimization ideas. On a grid, evaluate each idea against the following criteria:
- Potential benefit: How big is the cash savings if the action is implemented?
- Customer impact: What impact will this have on customers?
- Time requirement: Can we capture the savings in this fiscal year?
- Degree of organizational risk: Will our leaders ensure the changes are made? Are we capable of these changes?
- Degree of technical risk: Is there a risk that the change will undermine the ability of systems to deliver?
- Investment requirement: Does this require a large upfront investment? Is the organization willing to make any investment?
Assign a single value to each idea. For example, for customer impact, “negative,” “none” or “positive,” rather than two overlapping values.
Map multiple ideas to a grid
To get a picture of how initiatives compare to each other, you can map each idea to a grid that has “benefits” on its horizontal axis, and “costs, time and risks” on the vertical axis. This will provide business leadership with a snapshot comparison of the level of effort and benefits involved with each initiative.
For example, call center consolidation and mainframe consolidation both offer high benefits, but more costs, time and risk are involved in mainframe consolidation projects.
Look beyond IT costs
On average, IT spending represents just 4.3% of organizations’ operating expenses, noted Mr. Roberts. His advice: “Don’t stop optimization by focusing just on that 4.3%, but rather, extend your horizons to focus on how IT can contribute to business cost optimization across that other 96% of enterprise spend.”
Visit Gartner’s Cost Optimization hub for complimentary webinars and research.
Gartner clients can read more analysis and recommendations in Best Practices to Drive Cost and Value Optimization in IT Management and Decision Framework for Prioritizing Cost Optimization Ideas.
Cost optimization strategies will be further discussed at the Gartner IT Operations Strategies & Solutions Summit 2016 taking place May 10 – 12 in National Harbor, Maryland and at the Gartner IT Infrastructure & Operations Management Summit 2016, June 14 – 15 in Berlin. Follow news and updates from these events on Twitter using #GartnerIOM.
For more visit Smarter With Gartner website.