Cost Reduction Approaches

There are several approaches to reducing IT costs and looking for opportunities. You may choose to use one or more of the approaches as shown in Figure 1:
  • Expense. This is reducing spending on discretionary items such as training, meetings, and travel. This is typically the first and fastest way that companies reduce spending. Frugal expense management must be an on-going activity. Ensure guidelines for expenses are in place, communicated fully, and monitored by management.
  • Investment. This is reducing or deferring spending by re-prioritizing or reducing how you make investments. These reductions are typically capital spending related to projects. These changes typically involve business management in the governance process to re-prioritize projects.
  • Asset. This is reducing operating expenses by simplifying, standardizing, consolidating, or reducing assets. This could be hardware, software, or any IT-related asset. For example, make sure that departments are not carrying assets on the books and incurring depreciation charges for assets that have been in the company for years. Although it is accounting money, there are often huge dollar savings involved in cleaning up old assets and removing them from the books. Also consider selling or donating old equipment (after a thorough security review and clean), as it is better than scrapping the items and paying to have them removed. Talk to vendors about trade-in credit, as some vendors are concerned about their equipment ending up in the used market. For example, one company sold an AS/400 disk drive back to IBM that had never been used but had been owned for four to five years. The company received about $10,000. If you are able, separate the asset management function from the groups that support and maintain the equipment as it is more difficult to hide or overlook unusual equipment.
  • Services. This is eliminating, reducing, or changing the services and capabilities that IT provides. It could be changing the support provided to a line of business, a particular business process, a particular business goal, or an application area. This involves both capital and expense spending including projects and on-going expenses.

Figure 1: Cost reduction approaches