Change the Game
Technology continues to advance. Oftentimes, implementing new technologies saves a considerable amount of money. Keep abreast of technology trends and objectively evaluate the true financial impact that each trend will have on your environment. Frequently, new technology in the infrastructure gives you the ability to do more with significantly less money. However, implementing new technologies will only save money if IT uses them to replace older, less cost-effective applications or if the technologies provide new functions. It is often challenging to retire older technologies. Without the elimination of older technologies, the net result is additional complexity and costs.
Advances in disk technology or CPU processing provide many times the storage or processing at significantly lower costs. Trends like cloud computing, virtualization, voice-over IP (VoIP), open source, software-as-a-service (SaaS), and business process outsourcing are all examples of current technology trends that, when implemented, hold potential cost savings. In times of pressure, changing the game and the technologies you use is an effective way to reduce costs. Think beyond what is familiar to what is possible.
Know the Impact of Business Changes
Any change in a business can have an impact on IT requirements and IT services. It is important to know the business, the cost drivers, and the applications, and to understand the impact of the changes. If a company changes its product and service mix, it could have a significant change on IT transactions, software requirements, or hardware requirements. For example, due to a change in customer needs, a company shifting from a few orders with large quantities to many small orders with smaller quantities cause havoc on master scheduling, production processing, wave distribution processing, and transportation costs. Other companies choose to focus on intensifying its sales efforts in a down economy. This drives an increase in lead management and overloads the Customer Relationship Management (CRM) system. What impact, if any, would this have on the IT processing requirements? A CIO needs to be involved with business discussions on how the business model will change and communicate the impact it has on the IT environment and costs to minimize surprises down the road. A turbulent time is not a good time for surprises. It is, nevertheless, the time when surprises are most likely to appear.
Delay Costs If You Can
Although you must look at the long-term strategic ramifications, it is often possible to delay or defer some costs without substantial strategic impact. For example, you need to replace the tires on your car, but if your budget is tight, you might be able to push it a few more months without substantially increasing your risk or causing danger. However, at a certain point, you must get new tires or cause significant risk to yourself and others, which could create significantly more costs in the future. Finding that point of necessary investment is tricky when it comes to IT investments. Business management must support the CIO when informed that this time has arrived. You can delay costs somewhat; just make sure you do not delay them too long.
A common example of delaying costs is putting off desktop hardware and software upgrades. Many experts advise organizations that it is a best practice to have a planned replacement refresh cycle for hardware. A reasonable rule of thumb has been three years for notebook PCs and four years for desktop PCs and that requires an organization to budget sufficient capital to replace 30 to 40 percent of its desktop hardware each year. Many companies have purposely decided not to follow this practice to save money and stretch more life out of PC hardware inventory. After all, the systems in place do the job they need to do, and the company may not feel the need to move to the most current generation of technology.
A company is able to stretch the replacement cycle only so far before it starts costing money. Manufacturers specify a particular life of equipment or warranty since components are designed to last a set amount of time. As component failure rates increase, the cost of maintenance and support rises along with the cost of lost productivity while the employee is without a PC. Old equipment has security vulnerabilities as hackers become more sophisticated. Additionally, older equipment is not always able to run new software, which is necessary to communicate with customers and vendors, solve business problems, or even handle basic chores like running a new printer or scanner. After years of delaying equipment upgrades, the company is facing the need to upgrade the entire environment within one year, which is very expensive compared to spreading the cost incrementally over three to four years. If you are upgrading several versions, the costs will be higher due to licensing and a greater need for user training.
Match Spending to Risk Appetite
For many companies, the cost of security is increasing as threats and vulnerabilities become more advanced. Security investments in data protection, endpoint security, threat management, external and internal data thefts, and vulnerability assessments are mounting. September 11, floods, hurricanes, and other natural disasters seem to have finally captured executives' and shareholders' attentions on disaster recovery and business continuance plans. Because many companies have been lacking in these areas for years, they are not able to cut back and must actually increase spending. However, it is an option for a company that has done a lot in this area in the past to dial back the attention in order to meet budget constraints. Continually review risk management, probabilities, and investments to ensure they match the risk profile your company is willing to assume.
Companies also face increasing costs for compliance mandates that are not optional, but there is flexibility in how you address the needs. Areas such as Sarbanes-Oxley (SOX), Payment Card Industry (PCI) compliance, data protection, data archiving, Health Insurance Portability and Accountability (HIPAA), and many industry-specific regulations require an increase in IT spending that necessitates even more of a decrease in other areas to meet budget constraints. Some IT projects are getting attention because of the claim that they are required for compliance. Be sure to examine what you are doing with regards to spending on compliance and reporting, and trim down on excess reporting processes in order to do what is truly necessary. Do not over invest in compliance-related programs.
Consider IT Investments
It is often said that the shoemaker's kids are often the last to get shoes. A plethora of tools is available to improve efficiency and effectiveness in IT. These tools reduce operational IT costs. Examples include tools to automate the testing process, capacity-modeling tools to forecast demand on equipment, prototyping tools to help define requirements, and systems management tools to proactively detect problems. Just like having the right tool when building a house is critical; having the right tool when working in IT helps you to be more efficient. Technology is continually improving and advancing, enabling IT to increase efficiencies. However, implementing IT tools typically require projects, resources, and money just like business-focused investments and projects. Business and steering committees comprised of executives often prioritize IT investments and projects according to those individuals who want their projects implemented. IT investments and projects are often given a lower priority when compared to business initiatives and do not get funding.
CIOs need to balance priorities and resources to ensure they implement critical IT-focused projects and investments. One way to do this is to reserve a portion of resources for IT-related improvement projects. Subtract these resources from the available pool of resources before a steering committee prioritizes projects and allocates resources. Another answer is to recognize and prioritize these IT-focused projects just like business-focused projects based on return and value to the firm.
Simplify, Standardize, and Consolidate
Over time, IT processes and environments can become too complicated. Typically, a company accumulates a mix of hardware and software types and vendors over the years for a variety of reasons. The more variety you have, the more it costs to support. Whether it is multiple databases, releases of databases, operating systems, operating system releases, brands of PCs, brands of servers, number of vendor packages, or multiple data centers, variety costs money. Maintenance processes for each server type are different, each piece of software can react differently to different conditions, replacement parts are unique and more costly, and the list continues.
In some cases, this variety is very necessary and worth the additional money, but in many cases, the variety grows over time and is not necessary or even desired. The scale and depth of issues and costs resulting from today's complex distributed infrastructures clearly require optimization and consolidation efforts. Many companies tackle major projects to standardize and consolidate the network, server, data center, applications, and application instances. These projects are typically well worth the time and money when comparing the total cost of ownership. Take a step back, take inventory, and evaluate your complete environment. Determine if the variety is adding business value. It pays to simplify and minimize the diversity of technologies that are supported.
In an environment with a lot of mergers and acquisitions, it is particularly challenging to simplify, standardize, and consolidate, but it is worth the effort. As companies merge or acquire, have a general strategy on what technology you will replace for the sake of standardization and simplification. If you are not able to do wholesale changes immediately, acknowledge the planned changes.
Only Pay for what You Use
It is amazing how many organizations pay for services or products that they do not use. A few examples are phone lines, maintenance for software that is not implemented, excess capacity on hardware because the business thought it would grow, and extra software licenses to support overestimated user counts. One company had virtually a room full of software tools that had never been installed, but it was paying maintenance fees for support. It does take a commitment of resources to understand what you have and to make sure that you align invoices and agreements, but it is worth the effort. You have an obligation to your organization to ensure that you spend funds appropriately.
Consider Green Initiatives
Green IT initiatives are good for environmental and cost-saving reasons because of reduced energy consumption. Automatically shutting down machines saves on power. Right-sizing power in a data center improves efficiencies. For example, instead of using air conditioners or chillers, one company found that by using an air economizer, which expelled hot air to the outdoors and drew outside air in, they were able to improve air quality and significantly reduce power consumption.
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