One way to cut costs in IT is to reign in projects and initiatives. However, you do more harm than good cutting blind without having insight into the overall strategic plan, the scope of planned efforts, and the impact on the business. The IT governance process provides this perspective. In interviews, many companies indicated that they used their governance process during times of cost reduction in order to increase the review of projects and the rigor of project justification and approvals.
The governance process is where all stakeholders, executives, and business leaders have input into the decision-making process, which includes cost reduction measures. The governance group is extremely valuable in making sure IT cost reductions are made in the right areas and communicating the changes in expectations. Without proper governance, cost reduction activities are haphazard guesswork and have a high probability of failure. Governance ensures you are working on the right things to be effective, whether or not you are in a cost reduction mode.
As one CIO stated, "A lot of IT work is based on what people want rather than what they need." Use the governance process to distinguish wants from needs based on true business value and business return. Even if a project is a need and if the return is significant enough, the earlier the business completes the project, the
earlier it will realize the benefit. One company kept hearing a key project had to be done by the end of the year. When pressed during IT steering committee discussions on prioritization, the executive was asked several times why the project had to be done by the end of the year. It was revealed that he just wanted it by then, but there was not a valid business need for the deadline. The governance discussions need to focus on business value for proper prioritization.
Top Tip: Governance council
"We have an active governance council with senior leaders talking about priorities and we have a process between meetings. Budgets are not a surprise, as we keep stakeholders in the loop and they have their say. It is important to work out the big issues offline and beforehand so when we are in a room together everyone knows and supports what is going to happen."
—Hank Zupnick
GE Com Real Estate
IT organizations are faced with an increasing backlog and demand of new technology and services. This makes the prioritization and governance process more important than ever. It is possible for an organization to cut costs while retaining, or even improving, its competitive advantage through a well-planned portfolio of initiatives that are properly managed by the governance process. Project portfolio management (PPM) is a discipline and process that provides a decision-making framework to help prioritize projects and deliver value. PPM is beyond project management, linking projects, objectives, and goals with the business. It also helps to provide visibility of demand, resources, benefits, costs, risks, and the business value garnered by requested project efforts.
It is important that the governance process not only considers the limited capacity of IT resources but also the limited capacity of the business resources to participate and implement new projects. As business resources are primarily focused on key business activities, it is important not to schedule more projects than the business can efficiently staff. If the business and IT have only enough people to staff three projects at any one time, then taking projects three at a time will result in more business benefit earlier than taking on nine projects at once. An even more significant aspect is that all nine projects will be finished earlier if they are executed three at a time rather than having project participants shift gears and multi-task.
The following are specific suggestions for the governance and portfolio management processes of a company in a cost reduction mode:
Involve the governance process group in the identification of cost reduction goals. Make sure they agree
that the cuts are necessary. There also should be agreement on the timing of the cuts and the general areas in which to make them. Do not address the cost reduction goals in a vacuum. When leading IT, it is paramount to consider the needs and opinions of other executives which is particularly important when deciding cost reduction measures.
Top Tip: Focus on what is needed
"Many companies can improve and reduce costs by doing a better job distinguishing between what the corporation needs versus what they want. A lot of IT work tends to be based on what people want."
—Vice President, IT
Energy Company
Carefully review and understand the costs spent and the remaining forecasted costs of each project.
Make sure that you identify and include all projects in the project portfolio and governance process. Many times organizations spend time reviewing the visible projects but find there are actually many more projects in progress that, in total, have a significant cost. Give visibility to all the projects and initiatives in progress along with their associated costs. Creating an accurate and complete list of projects is the first step in making intelligent cost-cutting decisions.
Assess the overall portfolio of projects in progress and projects planned. Look for obvious places to reduce costs. Focus on projects that the company truly needs rather than completing projects the company simply wants. Be aware of projects or efforts that have a significant impact on reducing costs in the business. Also, be aware of projects that increase revenue or improve customer service. These projects are not always the best places to look for cuts. Ensure all projects are clearly necessary and tied to business goals and objectives. As efficiencies are lost and costs increase when stopping and starting projects, make sure that any project stopped or delayed is worth the impact.
Many organizations place a minimum threshold of hours or costs on a project before it is reviewed in the governance process. Review this criterion to see if you should decrease it so the governance process reviews a larger percent of the expenditures in light of cost reduction goals.
Know and track the costs of projects that are outside the governance process as an indicator of whether you should change criteria for review and prioritization.
Look for opportunities to merge projects or activities to gain efficiencies. There may be projects in different parts of the organization that have similar goals and objectives. An enterprise solution serving multiple needs may be more cost-effective than different solutions meeting narrow objectives.
Review the allocation of resources. It actually may be prudent to shift resources in order to more quickly complete projects that provide a greater cost reduction.
If it reduces costs, consider making schedule changes in projects to deliver more slowly.
Consider making scope changes in projects if it reduces costs. Perhaps you can deliver a portion of the project that provides 80 percent of the benefit.
Have clear project priorities so if additional cuts are necessary, it is clear what projects to review. Priorities and the prioritization process should be consistent and understood by both IT and the business.
Carefully scrutinize projected project benefits and return on investment. After a project is implemented, audit savings to ensure they were realized.
Identify all projected costs when initiating and prioritizing projects.
Consider using a project portfolio management tool as it is extremely useful in managing projects and priorities in addition to management of costs and effort.
Continue to re-evaluate your decisions, monitor progress, and make adjustments as necessary.
During times of cost reduction, one company changed their governance process to approve only projects that met the following criteria:
The project had started and was near completion
The project was required to keep the lights on and/or required to be compliant
The project had one year or shorter return on investment and/or a positive impact on cash flow in the current year
The project provided longer-term strategic benefits or is a key foundational enabler
Top Tip: IT steering committee decisions
"It took nine months to get the steering committee really working and to get IT to partner status. IT needs to show information and options to the steering committee so they can make decisions. We had to begin by getting the basics in place, such as information on costs, time tracking, what we had, and help desk tickets."
—Joe Jansen
AmeriPride Services, Inc
By raising the criteria to approve projects and increasing the rigor for project justification, the process resulted in a $15 million reduction in necessary capital for the year.
