5 Steps to Effective IT Cost Optimization
Initiating and maintaining cost-optimization efforts is a challenge for most IT organizations and the focus of a new report from Deloitte, which advises companies to assess the maturity of their cost-optimization practices by reviewing how they meet the following five principles.
Higher maturity IT transparency practices are a prerequisite for better supply and demand decisions, and they enable many enterprises to optimize and cut costs the right way, while preserving what is most important to the enterprise. In order for transparency and cost optimization to occur, the business must define and validate IT business services.
One of the most significant factors on the path to continuous optimization depends on the ability of the organization to become more rapidly adaptable to internal goals and external conditions. A common problem occurs when an organization has been reducing costs, but then finds the majority of its costs are fixed and on long-term contracts with vendors and service providers. The organization then could be required to pay penalties to exit those deals if the demand for IT declines or increases. Sourcing IT on a variable basis is a good platform for continual optimization.
In order to optimize IT fully, both the supply and demand sides must be reviewed. Too often, organizations see optimization as how to best supply the demand for IT. This can create a culture where IT becomes reactive to the business needs and not proactive enough to influence demand. In order to optimize IT continually, leaders must take ownership of the futures of their departments.
IT systems are inherently complex, but a lack of standard platforms, inconsistent business processes and poorly defined IT services and service levels drive up IT costs. While Deloitte posits that the same IT unit of work could cost 25 percent more in a complex environment than in a streamlined environment, the report also notes that, depending on an insurer's specific circumstances, there are good reasons for tolerating complexity in IT, such as developing in-house apps and software as well as supporting heterogeneous computing environments.
Organizations that demonstrate continuous improvement and deliver on planned initiatives see cost optimization as a discipline, and not as a one-off or discrete project. The principle of discipline ensures that cost optimization has an accountable owner and is led from the top, normally by the CIO. It's essential to actively manage cost optimization and consider longer-term cost targets, with dashboards and metrics to measure improvement, instead of waiting for targets to be handed down from the management.