Controlling costs is a constant strain on IT teams. The business wants enterprise-grade IT, but it also wants to execute big goals with a lean budget. Add to that the global disruption that has touched both lives and livelihoods around the world. The cost of adapting can bring with it even more budget turmoil.
Making massive, real-time moves to stand up remote workforces, quickly adopt SaaS and IaaS frameworks to keep the lights on, and leverage IT solutions to support new ways of working, schooling, and shopping may also add costs that will linger long after the current crisis is over. Pre-COVID-19, Gartner produced two reports that directly speak to cost management. Their advice and takeaways are even more relevant now as organizations re-evaluate spend and resources to survive and thrive in the new normal.
Organizations may find themselves in a position to cut programs or launches to quickly shift spend into reacting to COVID-19-related needs, like adding bandwidth or deploying immediate teleconferencing and remote workspace needs, alongside maintaining keep-the-lights-on operations to remain competitive and stay afloat. Gartner's Cost Challenge Response Framework recommends a four-step plan to avoid making cuts that seem appropriate given the disruptive environment, but that could cause lasting damage to the business. These steps will not only enable cost management in the short-term, but also evolve into always-on optimization that drives business value into the future. The framework includes the following steps:
Define Scope: Understand the Question
CIOs need to first understand the driving factors of a budget cut to make the right cuts in the right places. Gartner recommends that CIOs ask the following questions:
- What is the rationale behind the cost reduction?
- What is the target? Against which baseline?
- What is in/out of scope?
- Over what time frame are the reductions expected?
Organize and Baseline: Create Transparency in the Cost Base, Provide Multiple Views of the IT Budget
According to Gartner, "In order to objectively and rationally assess cost opportunities, CIOs should work with their finance teams to gain as much transparency as possible on their current cost base." CIOs need a complete picture of existing spend to formulate a credible plan to cut costs.
Identify Opportunities: Expose and Evaluate Actionable Cost Saving Options
"Toolkit: Gartner's Top 100 IT Cost Optimization Ideas" offers a list "gathered from surveying IT organizations on how they have successfully optimized cost." Used in conjunction with Gartner's Cost Savings Ideation framework and Opportunity Appraisal criteria, CIOs can determine which optimization activities drive maximum value. They recommend narrowing the idea list down "to an actionable plan of 10 to 15 ideas."
Plan and Communicate: Create an Action Plan and Ensure Stakeholder Buy-In
We believe, Gartner supplies a concise template to communicate, based on the due diligence above, the areas where cuts make sense, guidance on plan rollout, and advice on gaining buy-in from stakeholders. The template also includes space to record details on cost-cutting activities and completion estimates, alongside organizational and technical risks.
Download a complimentary copy of the Gartner report, "How to Respond to Mandatory IT Budget Cuts" to learn more, including specific methods and resources, on reacting to required IT spending cuts.
Many organizations have had no choice but to make deep, strategic cuts in a very short time amid the current crisis. Without a thoughtful approach to cutting applications and programs, short-sighted cuts could further burden the organization with negative ROI and wasted resources. Faced with the challenge of reducing IT spend, Gartner lays out a three-tiered approach to cost cutting:
- The Outcome/Need
"Define as precisely and concisely as possible the outcome that is required in terms of the annual, ongoing or budgetary savings in hard currency figures.
"Time given to planning the cost-cutting exercise is often dictated by time pressures. However, planning should be prioritized, as it will drive the strategy, approach and timing of execution."
"The combination of the need and the time available to realize it determines the approach. As time is usually of the essence in these situations, concentrate in the first instance on following the money. Establish where the biggest opportunity lies from a cash-flow perspective and focus the attention and time here."
Gartner suggests 10 rules to follow for rapid IT cost cutting with guidance on building your strategy. Download a complimentary copy of the Gartner report, "10 Rules for Rapid IT Spend Reduction" to view the rules and how to carry them out.
Reducing Spend with Independent, Third-party Support
The reports name "Services and Service Levels" as a Rapid Spend Reduction category with "Eliminate services and/or scale back service levels and maintenance" as an action item in this category. Independent, third-party support can help reduce spend on maintenance and support costs. An experienced, independent service provider supports the following rules surfaced in Gartner's "10 rules for Rapid IT Spend Reduction":
- Target Immediate Impact
Businesses can expect to achieve an immediate 50% savings on annual support fees and up to 90% on total maintenance costs with independent, third-party support.
- Reduce Don't Freeze
Independent support providers deliver lasting savings so that businesses don't have to cut valuable programs to pay vendor support and maintenance fees.
- Cash is King
Major system migrations, like to SAP S/4HANA or Oracle Cloud ERP, can rob businesses of cash value and underdeliver on business value. Independent, third-party support eliminates wasteful spending on costly, unnecessary updates.
CIOs are under pressure to approach cost cutting in the least damaging way to the medium- and long-term health of the business. Use independent, third-party support as a strategic tool for cutting costs without losing the valuable services and support needed to grow through uncertain times.
Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
Gartner "How to Respond to Mandatory IT Budget Cuts" - Bryan Hayes , Jim McGittigan , November 2019
Gartner "10 Rules for Rapid IT Spend Reduction" - Chris Ganly, Galliopi Demetriou, November 2019
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Pat Phelan, VP, Market Research
Pat Phelan is VP of Market Research at Rimini Street. Prior to Rimini Street, she spent 18 years at Gartner providing CIOs and IT leaders with research and advice on strategies for managing the ERP/business application life cycle.