5 easy ways to manage IT costs
Monday, March 28, 2016
My older son was a high school wrestler. In one of his matches, he ended up in a pretzel-like hold that appeared inescapable. After the match, I asked, "What do you do in a situation like that?" He responded, "Do what the coach tells us — don't get into it."
When it comes to your IT costs, don't wait until you are in a pretzel hold.
Why is IT cost management important? Let's start with a corporate responsibility to spend your budget wisely. "Spend it like it was your own money," was sage advice from a former boss. It is, quite simply, the right thing to do.
IT credibility is another reason to manage costs. If you cannot manage your own budget, it will likely limit what you are asked to do and what additional funding you can ask for. By doing a reasonable job of managing my budget, I was asked to lead an expense-saving project for the entire organization.
Lastly, managing your budget provides reaction time. If you ignore budget control and cost savings, you may be asked to cut costs and cut them quickly. Time works against you and limits the quality of your cost-cutting actions.
Here are five key cost strategies to employ:
1. Attack mode
Whether times are good or bad, attack costs. It is one of the variables over which you have some control. If you wait to be asked to cut costs, it will be too late. You may not be able to react quickly enough or with precision. Under time pressure, I have seen colleagues use a meat ax to reduce budgets, versus using a scalpel. Work hard to minimize downstream budget surprises.
Be sure to leverage competition. When vendors compete for your business, prices typically go down. In one competition, I saw a vendor desperately trying to retain market share, while a competing vendor was trying to gain market share. After some fierce price-cutting, we ended up with an 80 percent discount on the software. If we didn't have to make a decision and move forward with the project, we might have negotiated an even greater reduction.
Review and negotiate technology contracts to avoid surprises in your IT budget. Look for longer-term price protections. Avoid "then-current" wording on future pricing and on renewals. Year-to-year, fewer surprises will enable greater control over your IT budget.
2. Lean staffing
One of your biggest costs is staff. While it may be easy to hire staff in good times, I liked to avoid layoffs of these same individuals when times turn bad. Having been laid off early in my career, I can empathize with the pain of job loss, family disruption and potential relocation.
I worked hard to avoid inflicting this pain on my staff by advocating a continuously lean staffing model. My staff might have argued the model was bordering on anorexic, but my goal was to be lean and to stay lean.
I would try to broaden a manager's span of control, which may have also broadened their skill set and horizons. I advocated for technical staff to wear multiple hats, like a PC specialist learning to also support networks. These staffing measures can be aligned with the individual's personal development plan, making it a win-win for the individual and the IT department.
3. Low-cost local education
While some IT managers are willing to cut education, we held firm on the value of learning — to the growth of the individual, to team morale, to keeping up with technology changes.
So how do you promote education, while keeping costs under control? Look for free or low-cost educational opportunities. Vendors may offer free lunch-and-learns. Conferences may offer free registration in return for making a presentation. The Web offers an abundance of technology material.
And often the big cost of education is in the travel costs, so leverage local and online opportunities. These methods can keep costs down, while spreading the opportunities across the department.
4. Assess technology components
The following diagram is my personal adaptation of the work of Geoffrey Moore in his book, "Crossing the Chasm." It takes his bell curve of the various stages of a technology product's evolution and adds an inverse, dotted line representing cost and risks.
- If you are using a mature technology with high adoption, costs and risks will tend to be low. If you are looking to save IT budget money, this is the place you would want to be. For example, this is the place we wanted to be with our infrastructure — low cost and reliable.
- Early adoption may be worthwhile for customer-facing technology or competitive edge opportunities, but it brings with it higher cost and less reliability.
- Using a technology nearing obsolescence, similarly brings higher costs, usually in the form of higher maintenance and the risks of the vendor sun-setting the product. Beware of being forced to implement a disruptive conversion because you waited too long.
Assess every technology component (business systems, office systems, connectivity, infrastructure software, and hardware) twice a year. Assign a red/yellow/green color to each component to indicate the level of risk:
- Red: Danger, must be addressed or bad things will happen.
- Yellow: Danger, but not immediate or severe. Address if the budget allows.
- Green: OK. Need not be addressed.
This assessment tool became a vehicle to communicate IT priorities to senior management at budget time. The colors indicated the priorities of IT spending, and demonstrated a thorough due diligence process around the technology portfolio being managed.
5. Rigorously negotiate contracts
Over the years, our IT salaries rose and we continued to invest in new technologies, but we were able to offset these budget increases. Using the strategies above, we were able to achieve a level IT budget for five consecutive years.
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