While IT costs are just one element of business budgets, technology now underpins the effective function of almost every organisation. At the same time, budgeting for technology costs has become more complex than ever as business units that sit outside of the jurisdiction of IT have started spending more on tech.
The uncertainty surrounding the impact of the coronavirus has meant that many have looked immediately to kill projects and cut costs. In fact, according to a recent survey, 72 percent of CIOs say the disruption caused by the coronavirus has changed their business priorities. But if changes are made in a purely reactive manner rather than a strategic one that uses a holistic understanding of all the costs in play, businesses risk stifling growth and ultimately putting themselves at a competitive disadvantage in the long run.
A good framework for taking back oversight of this ever-growing spend is Technology Business Management (TBM), which includes best practices around communicating the cost, quality and value of IT investments to business partners. This also means charging back technology spend to the business units using it, and implementing tools and processes that help the wider business fully understand technology costs.
Here are some key areas where businesses can make strategic savings via the discipline of TBM.
As a variable spend, the impact of making proper adjustments to cloud expenditure can be realised almost instantly. For example, there are times when a specific cloud instance has been run up to manage a spike in demand, but then never scaled back down to reflect a subsequent return to normal – wasting valuable dollars. With appropriate management and optimisation, around 25 to 30 percent of this wasted cloud spend can be trimmed back, which can make a significant difference to an organisation’s bottom line. Yet many businesses, to their detriment, do not have an operational system designed to effectively manage the complexities of cloud costs – a key part of a good TBM practice.
In accordance with TBM, the first step towards reducing cloud spend is properly understanding it. Cloud bills can run to many thousands of lines long and formats differ across providers, making it complex to make accurate comparisons between vendors. Laborious manual, spreadsheet-based approaches to managing those costs unfortunately just don’t cut it in times where rapid decisions need to be made.
Businesses need to instead deploy automated tools that will help them gain quick insight into their cloud costs, grounded by utilisation and spend data, which can then quickly highlight areas of spend to be rightsized or cut back.
While the purchase of a tool to manage this may involve an initial outlay, the potential savings in wasted cloud spend can run to millions.
Within a business, multiple vendors are often engaged to provide similar services, especially where there is no central oversight for the licensing of software-based tools like Customer Relationship Management (CRM). Using TBM practices to ensure holistic understanding of all costs in play, a quick win can be made through consolidating duplicate licenses for similar vendors and ensuring uniform deployment across business departments and billing the relevant business unit for their usage of this product or service.
Another tactic to rightsize vendor spend is to use tools to identify and redeploy unused purchase orders, making sure that budgets are effectively kept updated to reflect the current state of play.
It’s straightforward actions like these, driven by holistic understanding of often disjointed cost items, that can help rapidly trim back unnecessary spend.
Labour costs are often not appropriately tied into technology spend, yet they can run up a significant chunk of a project or department’s budget. Accurate calculations of labour spend allow an organisation to maximise their use of labour, including third-party resources, which is extremely helpful in times of tightened, scrutinised budgets.
That’s why it’s important to have TBM systems and tools in place in order to better assign these ‘shadow IT’ costs to a particular business unit, team, project or other owner. Without this kind of structured oversight, it can be unclear what value labour costs are actually driving.
Instead, businesses should implement processes that factor in these associated costs up front. This helps to present a holistic picture of every product, service or project, and empowers business units to better prioritise in trying times.
Finally, CIOs and IT leaders must continue to re-evaluate their current investments to align with the available resources and shifting strategic priorities – which may call for some difficult decisions.
Despite the pandemic, IT is still being asked to do more with less. In the same survey mentioned above, though the majority of organisations were under pressure to reduce IT spend, 63 percent reported a concurrent increase in demand for new IT capabilities. Cost optimisation has naturally surged in priority under the influence of the pandemic, but once again without foundational principles and strategies in place to enable the fully-costed weighing up of one investment versus another, it can be difficult to do so.
Under the guidance of TBM, CIOs and their teams can look to reallocate spend to prioritise mission-critical projects, divert resources away from projects that are now on hold or cancelled. They can do so by looking at the full picture of the technology estate and only pursuing those projects that directly benefit the bottom line, and most closely align with current business priorities – which may also have changed over the past six months.
Ultimately, the ability to adapt to change and remain resilient is always going to be crucial in times of disaster. Now more than ever, such qualities need to be built into IT cost management processes, and by folding TBM practices into the model of operation, technology costs will no longer be a ‘black box’ and can instead become a source of useful insight empowering strategic change across the business. All of this will help to negate the impact of this time of significant upheaval, with many organisations forced to uproot and reimagine their technology practices and spending.
However, those responding decisively and strategically to the challenge will do best longer-term. This time of disruption is in a lot of ways a pressure test for the “fitness” of IT organisations. Those who can take it on board will come out at the other end more efficient, leaner, stronger.