Telecommunications Cost Management: 2012

Leveraging the Organization

During times of cost reduction, it is an excellent time to look at the IT resources across the company to determine if IT is organized properly and leveraged. There may be IT resources in the business units or they may be decentralized. Ensure there is a valid business reason for this structure. Consider if you can leverage resources across the organization to reduce overall costs. Ensure you do not have duplicate functions in other parts of the organization. By leveraging enterprise-wide competencies and skills, you can reduce staff who are unnecessarily embedded in the business units.

Top Tip 1: Span of control

"To reduce costs, flatten your management team and increase the span of control of managers. Ideally I like to see 6-8:1, but 15:1 is possible for one to two years if necessary."

—Dave Brady
Starkey Laboratories

Top Tip 2: Shared services

"Although it can save money, creating a shared service environment is a tremendous culture change for an organization. If you are coming from a distributed environment with organizations geographically dispersed, proceed with extreme caution. The obstacles in both IT and the business are huge."

—Lina Shurslep
Navarre Corporation

You can also leverage skills in the business. For example, during an implementation the business often develops super users, or individuals with a knack for technology and the business. You maybe able to leverage these valuable resources and it may save you from hiring a business analyst. In another example, a company uses a pull system rather than a push system for report generation to reduce IT labor. The users were instructed to get reports and information on the Intranet rather than sending reports and clogging up e-mail in-boxes.

Evaluate if a shared services model would save costs. Bringing IT resources under a single point of control reduces waste created by policy differences and nonstandard operations. However, proceed with caution because moving resources out of the business units can be a political challenge. You have to guarantee service will improve rather than become less than the current level.

Delayering and Streamlining | ORGANIZATION STRUCTURE

Management streamlining or delayering of the organization can be a rich vein to tap when it is time to reduce costs, especially in large IT organizations that have not been changed in awhile. Consider changes to flatten the organization. Rather than having one person manage six or seven individuals, have them manage 10 to 20 individuals. This change is easier and more viable with a senior experienced group. If you attempt this with less experienced individuals, or in an environment with a lack of procedures, you could actually lose productivity by increasing the number of individuals under a supervisor.

Top Tip 1: Hire and keep good resources

"We save money in how we hire people. It is always cheaper to hire one really good resource rather that two mediocre individuals. We are careful in who we hire and hire smart business people first and good technical people second. The soft skills are important when looking for quality people. Low turnover is important to keep costs down."

—David Kaiser
SFM Mutual Insurance

Top Tip 2: Manage people at all levels

"We reviewed the organization. Instead of two managers, we had one with broader responsibility so we didn't give up coverage. We took out some redundant skills and used contractors to cover the risk if needed. We also reduced some staff due to project cancelations."

—Greg Hayhurst
Tennant Company

Make sure the management structure is not too deep or redundant with leads reporting to supervisors, managers, senior managers, directors, and vice presidents, unless the organizations size warrants it. Consider moving to more collaborative, team-based models rather than inflexible hierarchies.

Roles and Responsibilities | Roles and ResponsibilitiesORGANIZATION STRUCTURE

Make sure roles and responsibilities are clear and that time or labor is not wasted in handoffs or duplication. For example, doing a better job on requirement definitions can save time in programming and reprogramming. Review the roles and responsibilities of employees as well as where they spend their time. Determine if you can shift any tasks to a lower skilled and less-expensive employee. For example, a company has four systems administrators that each spends 25 percent of their time doing security-related administration. By moving security administration to the help desk and having it done by a lower cost individual, the company is able to either eliminate one system administrator position or assign other respon sibilities to them. Providing additional responsibilities for a lower level person also provides an opportunity for career growth.

Top Tip 1: Core competencies

"We identified six or seven skills or functions that we wanted as core competencies. We benchmarked the skill set with job families. We standardized the work with repeatable functions, tiers of work, and cross trained. We created centers of expertise that leveraged best practices across teams rather than trying to centralize everything."

—Malcolm McRoberts
Deluxe Corporation

Consider focusing the most expensive resources. For example, one company initially had developers doing development and testing. As developers cost more than testers, they centralized testing within a quality group and reduced overall costs. As shown in Figure 1, among the tasks within a typical IT department are a few tasks that require a high level of expertise. Many more tasks require lower expertise. By reviewing your jobs and job definitions, you may be able to reconfigure responsibilities to ensure the higher paid employees are focusing on the high-expertise tasks and leaving the lower expertise tasks to lower paid employees.

Figure 1: Tasks in an IT department

Alternatively, it also may be less expensive to eliminate lower salary administration individuals if a higher level person can complete the work much faster and at a lower cost. For example, one company eliminated two lower salary administration individuals and had one higher-level person do the work of two people. This was accomplished by automating some functions and performing the tasks more efficiently.

Top Tip 2: Broader, more experienced roles

"We need to reduce staff to address budget cuts, while increasing competencies. We need individuals with multiple, broad, and high-level skill. This will improve service delivery and reduce overall costs."

—Lynn Willenbring
City of Minneapolis

Top Tip 3: Outsource PC configuration

"When implementing new PCs in 500 centers, we contracted with the vendor to configure the PCs rather than configuring them ourselves. The vendor ghosted the image on the PC before delivering. We outsourced the legwork to the vendor and saved time."

—Sara Braziller
Jenny Craig (former)

Another alternative to consider is to have roles defined for broader and more experienced individuals. For example, you may be able to have three higher level people with broad skill sets do the work of five lower level, more specialized resources.

Look for work to eliminate. Determine if you can automate any roles and responsibilities with technology. Although an initial investment is required, it saves on long-term costs and labor. As mentioned in Chapter 6, software for password resets can automate a time-consuming and nonvalue-added function.

Right size the organization and job definitions to fit the size organization. For example, one company has a small IT group but has several functions sized for a large IT shop, as they had three QA testers.

Unpaid Time Off | ORGANIZATION SIZE

If supported by the company, enforcing a policy requiring unpaid time off provides short-term cost reduction. Although it has an impact on employee morale, recognizing that the alternative is layoffs helps gain employees’ acceptance. It can be a scheduling challenge, as IT provides coverage for the business, so you will need to rotate unpaid days off so that key employees are not gone at the same time. Alternatively, you could set a time frame for the number of days off that each employee must take as long as you approve and stagger the requests. Due to their unique skill sets, many employees in IT are often on call for off-hour problems and it can get dicey if you need to contact them on their forced, unpaid day off. This would be a good detail to communicate in advance. Project schedules and deadlines are also impacted and would need to be revisited. Of course, delaying projects would delay benefit realization as well, so even this option has ramifications. Employees that cannot afford the day off may also look for other employment options and a negative impact to morale is a distinct possibility.

Consider temporary staff reductions by offering sabbaticals, long-term time off, or vacations without pay. IT employees who have been working extra hours, those wanting to go back to school, or those starting a family may find this to be an attractive option. You can negotiate items such as keeping benefits and health coverage in exchange for occasional support, if needed. The employee often returns with increased energy, motivation, and productivity for a win-win solution.

Top Tip 1: Primary and secondary responsibilities

"You need to have a primary and a secondary person for every application. Make sure the secondary person is as knowledgeable as the primary. You need to plan now for the eventuality of future layoffs or reductions."

—Colleen Mlecoch
Amherst H. Wilder Foundation

Layoffs | ORGANIZATION SIZE

In many companies, personnel reduction is the first area to come up for consideration in order to address cost reduction goals. Layoffs are an emotional process. Substantial layoffs should be one of the last places you look for cost reduction as it can have long-term detrimental effects when you cut your intellectual capital— particularly your best and most experienced people. Individuals that know your IT environment and your business are extremely valuable and you should treat them as such. Before diving into layoffs, consider all the short-term and long-term consequences and costs, such as:

Top Tip 1: Efficiency of experienced staff

"An area we would not look to cut is senior staff. We appreciate the efficiency of having solid experienced staff."

—Joe Jansen
AmeriPride Services, Inc.

The company may have to pay severance packages and unemployment costs which can be significant.
If the downturn or cost reduction need is only over the short term, the costs of recruiting and training new hires when the company rebounds can be more than the savings realized in the layoffs. In many areas of IT, the costs to get fully productive in complex custom environments can be substantial.
It is difficult to replace the talent of senior experienced staff that has both technical and business knowledge. Do not underestimate the value of these individuals.
If a company begins to cut current employees, the remaining employees start worrying about their future. It can cause productivity issues and the loss of some good people as they begin to look for work elsewhere.
Consider union rules and constraints as well as company policies.
Comply with all federal and state rules and regulations, such as the Worker Adjustment Retraining Notification Act (WARN) and the COBRA requirements for separated employees. Check with state laws regarding payment of wages, insurance continuation, severance benefits, recommendation letters, and access to personnel records.
Make sure you have proper backup of knowledge and skills. It is critical to avoid deficits of key skills and knowledge. One company offered a laid off employee a $50,000 incentive to train another employee that would be taking over, but you typically do not have an opportunity for knowledge transfer.

Top Tip 2: Get the right people on the bus

"Right-size your organization to align with business conditions. Make sure you have the right people on the bus, in the right seats and have a high-performing organization. Similar to coaching a sports team, you need to field the most effective team you can. Trade players if you must. There is nothing wrong with asking people to do more, especially in bad times. You can run at 130% utilization or higher for a period of time."

—Dave Brady
Starkey Laboratories
Prepare to respond to inquiries or complaints regarding how you decide or handle layoffs, how the layoffs will affect other employees, and questions on additional layoff plans.

Layoffs can be useful to realign the skill set of your organization. For example, you could choose to eliminate areas of older technology such as mainframe programmers and then when able to, hire a skill-set to match your project needs.

Layoffs can also be helpful to eliminate the lower performers. This could be due to work ethic or work output, attitude, absenteeism, or history of performance. Every organization has a few employees that are at the bottom. By eliminating them and hiring better performers, you are able to do more with less. Your exceptional employees can be ten times more effective than low performing ones, yet they do not cost ten times the money. They are a bargain from a financial perspective^[1]. By hiring high-performing employees, you may be able to actually cut your budget. The trick is to know how to spot potentially top-notch employees in an interview as they can be difficult to discover and, of course, there are no guarantees.

Top Tip 3: Relationship management and project management

"I would not cut in the areas of relationship management and project management. These areas drive efficiencies."

—Larry Bonfante
USTA

Top Tip 4: Real backup

"To mitigate the risk of any potential layoff, we need to make sure that everyone has a true backup. This is not a theoretic backup, but someone that can pick up the work, knows the passwords, and is familiar with the environment."

—Bruce McIntosh
Graco Inc.

You should not need a cost reduction layoff to take care of the low performers in your organization. Have a defined process to deal with them on a regular basis with sound management practices. However, the reality is that often in good times and with busy agendas, managers do not always address performance issues with employees. A cost reduction effort can be a good time if you are not performing this management discipline on an on-going basis. Particularly in large IT organizations, the low performing employees can often hide. In a small IT organization, even if you have one bad employee among ten, that is 10 percent of your workforce. You can achieve up to a 10 percent increase in productivity by replacing the bad employee with a high-performing productive one. The increase could be even greater if the bad employee affects the productivity of others. Customers and other IT employees notice low performers so dealing with them improves customer service as well as employee morale. A forced-ranking process can be helpful to identify low performers in an organization.

Top Tip 5: Temporary assignments

"Consider offering employees temporary assignments in other parts of the business instead of making staff reductions. This is a win-win as they learn a new area, get training and exposure to the company, and you are able to reduce costs."

—Peter Bellavance
Tastefully Simple

Top Tip 6: Layoffs

"You will experience strong emotions when doing layoffs, you don't have anguish with it, you have gotten too immune and look at people as objects. You need to recognize that it will be difficult."

—Anonymous CIO

Downsizing is never pleasant. If layoffs are necessary, do it carefully and plan well with the following recommendations:

Spend time on honest and open communication to both those who are laid off as well as those remaining.
Work with human resources and the legal department in order to ensure the process is complete. Follow proper communication policies and laws.
Work with human resources to plan support for the employee's departure. This may include a transition packet that helps the employee navigate these difficult times. It can address topics like COBRA, 40IK rollover, and job search sources. Even paying a few thousand dollars on job coaching will ease the transition and show others that you took care of the employee.
Document your discussions and reasons for your decisions.
Determine the best process that treats employees with respect and dignity.
Make sure you do not target any particular ethnic group, gender, age, or protected class as lawsuits can cost more than the money saved in a layoff. Comply with the Older Worker Benefit Protection Act (OWBPA) and the Age Discrimination in Employment Act (ADEA).
If a layoff is necessary, do it once and move on. Do not have layoffs on a frequent basis as they significantly affect morale, employee stress, and overall productivity.
If a layoff is necessary, do it quickly as it does not get better by delaying it. Every month you delay is money lost.

ORGANIZATION SIZE

Eliminate Open Positions

The quickest and easiest action to take to impact short-term cost reductions is to freeze hiring and eliminate open positions. Of course, this will only be a cost reduction if the positions were included in the budget. To cover the business need that probably does not go away as easily, you may need to reassign the employees, make organizational changes, re-prioritize through the governance process, change project schedules, or train employees. Therefore, even eliminating open positions has some costs or productivity hits associated with it.

Early Retirement

To avoid layoffs, many companies ask employees to consider retiring early with an additional monetary incentive. The advantages of this are that you do not need to pay unemployment costs and the cost of the incentive package is short term. There are difficulties when offering early retirement. The number of employees accepting the offer could be a drain on your pension plan and long-term individuals that take the offer and whose IT and business knowledge are valuable are difficult to replace. Today, many organizations are facing major training issues and turnover costs as the baby-boomer generation is leaving the work force. Additionally, employees with years of experience are not always willing to pass their knowledge on to a young replacement.

Schedule Changes

Investigate reducing the hours that you provide services in order to reduce wages. For example, if you have a 24/7 help desk, you could discuss options with the business to reduce costs and provide less coverage.

Consider shifting workers from full-time to part-time. This could be accomplished by either targeting job functions or by asking for volunteers. This option can be helpful as you retain the trained employees and re-engage them full-time, if necessary

Outsourcing and Off-shoring | WORKFORCE OPTIONS

In the past, it was the latest trend to outsource IT services with the hope that it would reduce costs and improve service. Many organizations that raced to implement the outsourcing or off-shoring model quickly realized that it did not save money and did not improve service. The companies then brought IT back in-house. This change in direction and the transition cost organizations a significant amount of money and a loss of IT credibility. As stated by one CIO interviewed, "Off-shoring is grossly overrated. Some claim a 70 percent savings when in actuality it is 20 percent savings, if that. Do not expect that type of savings."

There are many studies and opinions on the question if outsourcing and off-shoring actually lower costs. However, if done properly, you typically can save money with outsourcing and off-shoring. For example, one company found offshore rates of $22-$24 per hour, while on-shore the rate was $50 per hour and internal rates were $60 per hour. With pressures of cloud computing and software-as-a-service as well as increasing competition, the costs of outsourcing are declining. Outsourcing also supplies resources in a constrained market.

Top Tip 1: Get help for negotiating outsourcing

"To negotiate an outsourcing agreement, get industry expertise at the table with you. Even if you have negotiated contracts in the past, it is helpful to understand where the industry has gone since last time you negotiated and use industry best practices. We used an expert and the ROI was six months in a five-year contract."

—Lynn Willenbring
City of Minneapolis

Top Tip 2: Off-shore savings

"The use of third party off-shoring has reduced our consulting costs overall, and in addition, it provides us flexibility to scale up or down as the business demands change. Although the off-shore hourly rates are approximately 60 to 75% less, the total project savings are more realistically between 25 to 50% due to increased management needed to support the off-shore model."

—Ursuline Foley
XL Global Services

Outsourcing is not a panacea. In general, companies seem moderately successful with outsourcing, but you need to do it carefully and manage it well. Ongoing maintenance and management of supplier relationships are critical. The following are recommendations relative to outsourcing, off-shoring, and on-shoring from companies that have tried it and have learned many lessons:

Do a complete and detailed cost-benefit analysis of outsourcing. Obtain external assistance to validate the model. Remove the emotion and determine if an outside party can truly do it cheaper or better. Do not assume outsourcing or off-shoring is less expensive. Be sure to consider all the costs in transitioning. Include the soft costs, such as quality, service improvements, and productivity, which can affect project costs and schedules.
Expect costs savings from off-shoring or outsourcing to be longer term. The initial attraction of huge labor savings and hourly rates of off-shoring can be very attractive. However, when considering all costs, the cost savings are usually not huge and definitely not immediate. Although some projects eventually achieve savings through outsourcing, they may cost more in the first year or two of the transition. Typically, there is a significant investment in time and money to build and manage the outsourcing relationship.
Have a single point of contact on both sides of the outsourcing relationship with a formal combined governance structure. Ensure you have a defined process for communication and escalation of issues. Make sure there is a good channel for honest feedback on both sides. Document all responsibilities, including ownership and clear role definition. When determining work processes, consider cultural issues, time differences, country demographics, quality, and maturity differences. Identify metrics that measure whether the relationship is working properly.
Consider off-shoring services from expensive countries such as Europe and the United States to countries with cheaper labor such as India, the Philippines, and Indonesia.
Consider in-sourcing to your own facilities in other countries with cheaper labor.
Consider on-shoring using resources in less expensive areas within the same country. For example, one company in Silicon Valley established an on-shore programming facility in Portland, Oregon, and had 30 percent less labor costs and less turnover. A Minneapolis company obtained similar results by having an on-shore facility in rural Minnesota cities.
Outsourcing does not make problems go away; it just removes them one level, which actually could make problems even worse. Do not take a bad process and try to outsource it. Improve the process, and when it is working, consider outsourcing as an option.
Consider outsourcing targeted functions rather than the entire IT organization. For example, one company looked at outsourcing only the help desk. Many companies treat off-shore and local sourcing as either/or whether it is at a company-wide or project-wide level. You are most successful when you combine these two and use the strengths of one to offset the other's weaknesses. Some areas are terrific outsourcing candidates, while others are too high risk. For example, do not try to move the development of a unique mission-critical business system to an off-shore model as it can be high risk and maybe difficult to transfer the business knowledge necessary.

Top Tip 3: In-sourcing using internal locations in other countries

"We also looked at outsourcing to internal organizations, using locations of our company in other countries. This is more of an in-sourcing off-shoring model which was more palatable to some people."

—Gail Farnsley
Purdue University
(former Cummins CIO)
Carefully consider what you outsource. Although it may work to outsource some functions, such as coding or upgrading software to a new technology, do not outsource areas that require business knowledge or creativity when there is a lack of specificity.
Make sure your project is large enough to warrant outsourcing. You need size and length of time to warrant the investment and effort of outsourcing.
Consider outsourcing the entire business function, not just the IT portion. For example, outsource the payroll function and the supporting IT systems.
Consider off-shore work in a staff-augmentation mode rather than full outsourcing. This can be particularly useful to test the model and reduce risk in a phased approach.
Do not consider outsourcing for areas that are core to the business or mission critical. Do not consider outsourcing areas influenced by relationships or where high touch is necessary. For example, trying to outsource the business-analyst function would be challenging. Do not try to outsource or off-shore the development of a system with complex and evolving requirements as it can result in more waste and rework.
Off-shoring works only if you put the controls and structures in place to make it work. If your plans and design are wrong, your system will be wrong.

Top Tip 4: Know what to off-shore

"The key to using off-shoring successfully is knowing what projects and roles are good candidates for off-shoring and which are not. For example, we would not consider off-shoring projects that are affiliated to providing us a competitive advantage, such as business modeling techniques and projects associated with the revenue stream. Good projects for off-shoring include platform re-engineering, report creation, testing, maintenance releases or software upgrades. The roles we employ include project management, application architecture, design, and technical leadership. We use off-shoring for the roles of coding and quality assurance."

—Ursuline Foley
XL Global Services
Have specific quality metrics and SLAs built into the contract.
Be aware of features that technically met the specification, but were not usable. Make sure your process does not just throw things over the fence but includes levels of oversight, reviews, and communication.
Do training on both sides of the relationship. Train the outsourcing company in business, IT, and process functions. Train IT individuals in how to work with the outsourcer in areas of documentation and communication.
Off-shore resources require more detailed specifications than what was needed previously. Make sure you account for these costs and times in project schedules and plans. The lack of business knowledge requires identifying the how, what, and why.
Off-shoring can be a challenge with language and location differences. Make sure you have provisions and processes to accommodate the differences, risks, and communication challenges.
An option to consider is to bring off-shore resources local. One manager was determined to make off-shore resources work and brought them locally for six months to manage them closely and train them in the business and IT. The manager treated them as part of the team, and the endeavor was very successful. Based on the number of off-shore resources, consider requiring at least one resource to stay onsite to interact and coordinate between both locations.
Consider getting outside assistance when negotiating an outsourcing arrangement and contract. It typically involves large, very complex expenses, and terms and conditions are critical. For example, one firm specializes in negotiating outsourcing arrangements for government entities.
Make sure the contract includes provisions for training and the necessary processes and procedures with which they must comply. Outline how and when problems will be fixed, any financial penalties for errors, and penalties for disruption of company operations. Outline security, compliance, insurance, and privacy requirements. Structure the contract for mergers and acquisitions on both sides. Include provisions for terminating the relationship and transitioning to in-house or another supplier at no cost.

Top Tip 5: Outsourcing must be an economical fit

"We had outsourced to a partner that was not a great fit for us economically. We went from complete outsourcing to more of a staff augmentation model with shorter term contracts, which was a better economic fit for us."

—Steven John
H.B. Fuller

Top Tip 6: Negotiate flexibility in outsourcing

"With outsourcing arrangements, negotiate flexibility so you are not locked in for a fixed price amount. If you need to discontinue one service, you want to extract it without opening up the entire contract. Be aware of the inflationary increase rate. Hardware costs are stable or drop. If personnel costs stabilize you should not be tied to a predetermined inflationary rate."

—Lynn Willenbring
City of Minneapolis
Ensure you have executive support for outsourcing.
Obtain multiple competitive bids. Have a cross-functional team assess options. Identify clear selection criteria, such as experience, cultural match, quality, scalability, and costs. Lowest price should not be the most important criteria. Include contract terms in the request for proposal.
Watch out for hidden costs, both implementation and on-going.
Evaluate various financing options.
Include a clause in the contract for benchmarking costs on a regular basis with the right to evaluate and renegotiate based on current mar ket prices. In times of cost pressure, do not be afraid to ask your outsourcing partner for concessions and reductions. Prices in outsourcing contracts often drop because the outsourcer gets better at managing systems and requires less people once the systems and relationship is familiar. To get lower prices, you may need to be flexible in the terms of the contract or you can make other concessions.

Top Tip 7: Off-shore model is complex

"An off-shore model can be complex. You typically spend more for the first six to nine months. It is important to bring them on-shore to learn your business practices. Then, in six months or so, you start to see advantages as they go off-shore. You need to be willing to make the up-front investment to be successful."

—Paul Kay
Long Term Care Group

Top Tip 8: Goal alignment with outsourcer

"It is important that your goals are aligned with the outsourcer. Behavior is driven by objectives in the contract. For example, we changed the reward from revenue to margin to incent process improvements."

—Malcolm McRoberts
Deluxe Corporation
Re-evaluate your outsource partner on a regular basis and complete an updated cost benefit analysis and audit. Ensure the cost savings are continuously verifiable. Regularly visit off-shore or outsourcing locations to identify process improvements. Also, have off-shore resources come on-site on a regular basis. Obtain competitive bids to ensure prices remain attractive. Objective third-party audits of the processes and relationship can be useful.

Contract Resources | WORKFORCE OPTIONS

Carefully review the use of contract resources in your environment as in some cases the cost of contractors is higher than the cost of a salaried employee. However, in some cases temporary labor costs less than employees do. There are obvious benefits to using contractors, such as fewer employment liabilities and costs and a more variable cost structure. To determine if you should use contract resources, look at the role. Assess the relative costs of contracting out the work versus retaining full-time, in-house staff. If it is a permanent role and long-term need, do not pay the premium for a contractor and hire an employee. If the need is temporary or part-time, contract resources are more cost-effective. Reduce costs by reviewing your use of contractors and make adjustments as necessary. If it is more cost-effective, reduce your reliance on contract resources. In light of cost reduction needs, consider reducing contracting hours.

Top Tip 1: Staff augmentation

"We do not use the really large, high-cost consulting companies. We bring in staff augmentation to do certain things for a short duration, use small boutique firms, and our own staff. We are very selective about outsourcing as we must prove it is more cost effective than doing it internally."

—Beth Nordin
CHS Inc.

Renegotiate contract agreements and labor rates. Ask for vendors supplying your contract labor for assistance in meeting cost reduction goals. Evaluate if you can get by with less experienced and less expensive resources for some needs. Consider negotiating single source agreements if you can get a lower rate while still guaranteeing the quality of resources. If contract labor is out-of-town and is charging travel and expenses, consider locating a more cost-effective local resource.

Top Tip 2: Master services agreements

"We have changed our hiring practices by using master service agreements with local firms. This allows us to quickly flex up and down as the business needs change. We rely on the partners to supply highly specialized and experienced people. We emphasize local to reduce travel costs."

—Anonymous CIO

Carefully manage the use of contractors and consultants with the following tactics:

Have a specific, defined need. It can be common for managers to know they need additional help on a project and send a request out for it. That request for help many times contains few details; for example, it may state, "need Java developers." Ambiguous and general requests will create many questions or produce a large number of unqualified candidates.
Work with a few partner organizations for contract resources. Get to know the companies that supply your contractors and let them get to know you. The way vendors get to know their clients is usually an indication of how they will work with you. If they see no need to meet and understand your organization, then it is likely they will see no need to truly understand your project, which means they may send you unqualified candidates. If you are working with good vendors, they will have qualified the candidates in the areas of skills, communication, organizational fit, and role match. This should help in minimizing the amount of time that you would spend reviewing and interviewing candidates.
Consider using a contracting consolidator or broker. While there is an overhead charge, the consolidated contracting company knows every position available and obtains competitive bids to offer the best rates.
Have clear roles and responsibilities. Many organizations will want to bring on only very experienced consultants to their project. This can create problems in that everyone wants to be the leader and very few want to be the workers. Knowing the roles that need to be filled and setting expectations ahead of time can help resolve this confusion.
Manage and ensure that contractors meet the objectives.
Terminate contract resources when the defined need is complete.

Top Tip 3: Consultants bench rate

"We get better rates on consultants by purchasing a block of time rather than standard hourly rate. We also get a reduced rate by being flexible in timing and getting a bench rate when consultants are between projects."

—Haseen Alam
Johnson Brothers Liquor Company
Make sure you have an appropriate amount of work to keep the consultant fully utilized. This will require on-going interaction with the consultants to understand their workload. Many times the work expands to fill the contractor's time. Periodically ensure the contractor and work are still necessary and that the work has not expanded inappropriately. If you know that the workload will be light for a period, discuss this with the consultant and his or her company so you only pay for the time needed. An underutilized person will likely create issues down the road affecting others’ productivity levels, or they may become bored and quit.
Manage consultant travel costs which can be significant for out-of-town consultants. Have them use your travel agency, stay in discounted hotels, and place caps on meal expenses.

Less Expensive Labor

Consider hiring less expensive labor. The following are some methods that companies have used to reduce labor costs:

Use interns for entry-level positions.
Hire new graduates instead of experienced resources.
Explore part-time resources if you can address the needs with less than full-time work.
Consider retired workers, particularly for older technologies because their cost is less.
Think about hiring IT resources from the business and then training them in IT. Their business skills can be extremely valuable and it can cost less than hiring people with expensive IT skills.
Consider hiring independent consultants rather than a large firm of consultants.

Top Tip 4: Independent contractors

"Rather than using companies for temporary consulting resources, consider creating your own temp service with HR. By hiring independent contractors, consulting costs can be cut significantly."

—Peter Bellavance
Tastefully Simple

Top Tip 5: People are critical

"Whether you are doing work on-shore or off-shore, people are critical. You don't get work done with countries or companies, but with people. Getting the right people on staff is critical, you can't just throw things over the wall and expect to be successful. You need to use the same strategy for an engaged off-shore employee as you would in the U.S."

—Mike Degeneffe
Ceridian

Metrics Management | MANAGE BUSINESS RELATIONSHIP

Metrics are important for an IT organization to manage and control costs while ensuring the quality and value of service increases. Metrics are a key part of a managed process environment enabling cost reduction. Many organizations have great intentions when selecting and implementing metrics, but often fail for the following reasons:

The metrics and data are not actionable. For example, many organizations report the number of incidents they solved during the month. If the number of incidents was 100, or 200, what is the meaning of the number, and what are you able to do about it? If you change the metric to report the percent of incidents that were caused by changes, or the percent of changes that caused an incident, now you have a quality and resulting cost measure to impact. For any metric ask yourself if it is good or bad, and if you are able to do anything to affect it. If you cannot answer these questions, it is not a good metric to use.

The metrics are not meaningful. Metrics drive behavior. The problem is the wrong metrics drive the wrong behavior. Avoid this by making sure the business drivers are the foundation for your IT guiding principles and that you use the guiding principles to drive the metrics. Do this by asking how you will know when you have that attribute. One company identified a list of possible metrics based on the business drivers as shown in Figure 1. Metrics facilitate the realization and vision of a plan if you ask yourself, "How will we know when we achieve that?" For example, if a guiding principle is flexible systems, how will you know when you have achieved that? A good metric may be to measure the average time to make a modification to the system. Even better than measuring how fast IT completes requests, measure how many requests the business completes themselves. This would be flexible systems at their best.

Key business drivers	IT principle	Resulting key metrics	Implementation priority
Growth Acquisitions, divestures Agressive Global potential	Scalable	Performance (monthly) % of service level agreements met (annual) IT steering committee meetings (annual)	High Low Low
Customer focused Cross selling Varied stakeholders Desire for paperless Remote offices and dispersed workers Driven by key metrics	Accessible	% of applications Web enabled (annual) # of duplicate data groups (annual) # batch interfaces (annual)	Low Low Low
Breadth of business Innovative New products Need to be nimble	Flexible	# reusable components (annual) Average time to complete requests (monthly)	Low High
Competition Price pressures Business process improvement Changing profitability curve Capital constraint Economic fluctuations	Efficient and effective	% projects on time (qtrly) % projects on budget (qtrly) Internal client satisfaction (annual) Help desk request satisfaction (monthly) Post project review satisfaction (qtrly) % of IT costs for maintenance (annual) % maintenance as a percent of revenue (annual) % of applications custom (annual) # improved/paperless business processes (annual) Average IT satisfaction rating (annual)	High High High High High Medium Medium Low Low Medium
Regulatory Privacy issues Industry forces	Reliable	Overall availability % (qtrly) # audit findings (annual) # disruptions by severity (monthly) % abandon calls (monthly) % calls resolved on first call (monthly)	High Medium High Medium Medium

Figure 1: Metrics example

Make sure the business executives and governance process are involved in selecting metrics that are meaningful to them so that you do not have to report endless amounts of meaningless data. If your goal is cost reduction, make sure that you reflect that in your metrics. However, in addition to efficiency, metrics that measure whether you are doing it well can also include effectiveness metrics that measure if you are doing the right things. This will ensure you do not cut costs or decrease value or service to the organization.
Make sure you do not have too many metrics. There is an endless amount of data that you are able to measure in IT. Keep in mind the 80/20 rule and focus on the data that is critical and meaningful. Work with the business to agree on what is meaningful to them. Less is more and fewer metrics drive focus. Too many metrics confuse employees on what is important. As the organization evolves and matures, you can add more metrics, but start small.
Publish and communicate the metrics. Some organizations make the mistake of using metrics at the management level but not communicating them to the entire organization. Make sure targets are attainable. Trend metrics to ensure you are heading in the right direction. Communicating the metrics on a regular basis will tell others it is important. Celebrate success.

Telecommunications Cost Management