The advances in enterprise IT solutions have unlocked substantial efficiency gains in organizations across the world whilst lending an undeniable competitive edge.
At the same time, however, the increased digitization of systems and processes comes with an ever-growing price tag that weighs on margins before eventually reaching a point when they are no longer worth it.
This is further aggravated by the shift towards a software-as-a-service and subscription-based pricing model, which means that businesses don’t own the tools they purchase and will incur expenses for using them, either on a monthly or yearly basis.
All of this necessitates an IT cost optimization strategy for organizations big and small to ensure costs don’t escalate uncontrollably and that all IT spends deliver value. This article covers a few tips and best practices for effectively conducting the same.
1. Conduct A Comprehensive IT Audit
Any cost optimization initiative begins with a clear understanding of the subject matter at hand and its various factors. In the case of an organization’s tech infrastructure, getting started with a comprehensive IT audit is recommended.
This includes assessing the hardware, software licenses, and maintenance expenses, along with identifying any underutilized or redundant resources, to best guide the cost optimization process.
Such audits should preferably be undertaken by an experienced IT professional or an external agency for unbiased and objective reporting of relevant facts and insights.
It is worth noting that there is often more to IT cost optimization than the prices of different applications, and questions such as how much does training cost? Or how the learning curve looks is valid and should be part of the broader equation.
2. Optimize Software Licenses
Following a thorough audit, an organization should have a clear map of its broader IT infrastructure, including its top cost drivers. For most businesses, software licenses and keys are likely to lead the way in this regard, making it the right place to start the optimization process.
The audit report should provide a slew of insights about utilization rates, idle times, and more pertaining to each software license, which can unveil cost-saving opportunities, either by surrendering certain licenses or putting off the acquisition of additional licenses.
This can also spur exploration into alternative solutions at a cheaper price or one that is completely open-source and thus free. All in all, this is an area that can drive significant cost savings for organizations when done right.
3. Centralize IT Procurement
The benefits of consolidating purchasing power seem fairly obvious in almost all settings, and in the case of IT products and solutions, it mainly helps businesses better negotiate with vendors and sales teams, backed by higher order quantities and purchasing power.
In addition, a centralized team in charge of procurement can institute various workflows to ensure the company’s dollars go the extra mile. It further reduces duplication, resulting in impossible standardization and economies of scale, with individual teams striking out on their own.
There is no denying that centralized procurement saves time and money, with many other benefits, but it is not without its share of drawbacks.
The main one is that it is more akin to centralized planning, as opposed to a free market, where individual teams and their managers choose the tools that best suit their requirements. Strictly speaking from a cost perspective, however, centralization works the best.
4. Practice Effective IT Asset Management
In recent years, as IT started playing an increasingly crucial role in businesses and made up a significant chunk of costs, a new body of knowledge has since emerged aimed at effectively managing IT assets with ITAM Software and deriving the most from them.
There are plenty of tried-and-tested best practices in this regard, enough to cover an entire textbook.
For the sake of this article, we’re just going to leave it at maintaining an up-to-date inventory of all software and hardware assets, tracking their life cycles, and ensuring their prompt retirement, renewal, or disposal, as required.
5. Regularly Review & Optimize IT Costs
IT cost optimization is an ongoing process that requires regular tracking, assessment, and audits to aid in informed decision-making. The goal is to show continuous improvements in regard to reducing costs, adapting to changing technologies, and aligning IT investments with business objectives.
A slew of objectives, key results, and key performance indicators have since emerged for this very purpose. This includes the likes of price reductions / hard savings, cost avoidance / soft savings, total cost of ownership, and return on investment (ROI), among others.
For example, if the goal is to achieve maximum efficiency with your Zoom licenses, the optimization metrics would include the price reductions won by the procurement team while negotiating with Zoom’s sales team, followed by eliminating wastage by tracking usage metrics on a regular basis.
In the end, the goal of IT cost optimization is to reduce variances between planned and actual expenses on IT infrastructure within an organization. Using KPIs and OKRs helps take a broader view than mere variances, helping better identify problem areas so that corrective actions can be taken accordingly.
More Tips To Get IT Cost Optimization Right
Organizations can do several other things to keep IT expenses within budget while hitting other goals and objectives such as strategic alignment, return on investment, and driving efficiency through technology.
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Embrace Cloud Computing - Although it is already the norm today, plenty of legacy applications are still hosted on-site. Many businesses even falsely assume that hosting on-site is better for them and more secure, but this is far from the reality today.
With cloud computing, customers have plenty of flexibility and the ability to pay for only what they use, resulting in substantial cost savings in the long run.
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Implement Virtualization - For large organizations that consume plenty of resources, it makes sense to consolidate multiple servers and applications onto a single physical server.
Done via the process of virtualization, organizations stand to achieve better resource utilization and energy savings as a result.
As a result, IT cost optimization undertakings should involve evaluating the broader infrastructure for virtualization opportunities and using technologies such as hypervisors.
- Consider Open Source Alternatives - Even the most sophisticated software applications today have open-source alternatives that can be adopted for free and customized to an organization’s requirements with little effort.
For example, Blender is just as good, if not better than premium solutions such as AutoDesk Maya and Wings 3D. Similarly, MySQL and MariaDB do a fairly robust job when compared to the likes of Oracle Database.
Final Words
IT cost optimization is a relatively new field that continues to evolve as new challenges and requirements surface. As of now, it entails an interdisciplinary understanding of IT, management, and accounting to add value to a business, but is quickly turning into a specialized field in its own right.
In this article, we’ve aimed at providing a brief primer on this topic, but as discussed above, in order to cover the true length and breadth of this topic, even a large textbook is barely enough. This, however, should set the stage for most small businesses to optimize their IT expenses going forward.