5 Practical Ways for CIOs to Reduce IT Costs Amidst Crisis
We share practical ways for IT executives to reduce costs without compromising skills and talent. Learn how to control IT spending in volatile market conditions.
Crisis conditions can hit a business at any time. Being agile enough to reduce costs without compromising service is essential for navigating them. Recently we’ve seen the effects of lockdowns, rapid inflation, and the impact of war on costs and supply chains.
Of course, we can’t predict conditions like these as they’re outside our control. Yet, if you know your cost base and plan where to make staged reductions as needed, you can reduce the impact on your operations from changing market conditions.
What Are the Primary Costs for IT?
As a CIO, this means analyzing your IT costs, both internally and for third-party services. The main areas that will drive costs in your IT budget are:
- Staffing costs
- Hardware & overheads
- Third-party services
- Discretionary costs
- Demand-based costs
You can save in any of these areas, though some will be harder to cut without affecting your service levels. Discretionary costs and third-party services are the easiest to change, as you’ll often make payments based on usage rates anyway.
Why Is It Important to Reduce Costs?
There are many reasons you might want to cut costs. It’s worth analyzing your motivation for cost reduction before you begin. Having a clear objective will help you make savings in the right areas.
For example, if you’re trying to weather short-term adverse conditions, you want to return to normal operating capacity quickly. Changes like cutting team sizes or compromising on infrastructure would be difficult to reverse, so you’d need to consider other options.
Not all cost reductions have to be massive up-front savings. Small changes can add up over time. If you do a lot of international calling from Canada, for example, then the right business phone plan could make all the difference to your costs.
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Five Practical Ways CIOs Can Reduce IT Costs
As a CIO, you need to know where you can reduce IT costs and still deliver positive business outcomes. While this isn’t easy to do in practice, the first step is to define your cost base. Figure out how much you’re spending in each area, where exactly the money is going, and what you’re receiving in return. Then, you can categorize your cost reduction measures in each area by their impact on the business.
1. Define a Cost-Reduction Roadmap
Once you’ve made that first step, you’re on the way to creating a cost-reduction roadmap. This roadmap will guide how your cost reduction measures are implemented based on the crisis conditions you encounter.
Assess your cost-cutting measures for each IT area by how easy they are to reverse, their short-term impact, long-term impact, and potential total saving. Then you can define a roadmap showing which measures are appropriate for short, mid, and long-term adverse conditions.
Here’s an example from McKinsey of a typical IT cost reduction map. You can see how cost-saving methods are blocked out by the severity of the business scenario and the business impact & length of the technique. You can use a similar template with your own business data.
2. Task Automation & Productivity
Reducing staffing costs isn’t so much about reducing staff numbers as utilizing your skilled staff in the most efficient way possible. Sure, you could cut team sizes to save come salary costs, but you’re losing talent and capacity at the same time.
Instead, maximizing productivity will increase business efficiency and profit. That means you reduce your staffing costs as a percentage of revenue. The way to do this is with task automation.
Often, IT service desks that could be used in business-critical operations are bogged down by password resets, access requests, and account setups. These kinds of simple, repetitive processes are easily automated without compromising security.
That’s only one example. The key here is to understand your employees’ unique skills and how much time they spend actually using them. If you reduce the number of generic tasks through automation, you can increase your ROI on each employee.
3. Evaluate Cloud Services
Look at this both in terms of the scalability of your cloud-native services and the potential for moving legacy systems to the cloud. If you have existing on-premises data infrastructure or data warehouse, you could make huge cost savings by migrating to cloud data storage.
Cloud phone systems that integrate with your IT services can minimize your communications costs. There are a number of providers you can use who offer toll-free numbers Canada, US, or worldwide-based so that you don’t have to pass the cost onto customers.
On the other hand, if you’ve been using cloud services for some time, you might know your overall spending but have little visibility of cost breakdowns. In this case, analyze your current service costs, any excess capacity that isn’t being used, and so on.
4. Outsourced vs. In-House Functions
Whether to outsource or develop services in-house can be a tricky question. You can save money on up-front investments in staff or equipment. Yet, many third-party services come with subscription fees that can leave you paying for redundant functions.
Consider the model that your contractors or third-party partners (TPPs) operate on. There’s much less risk to pay-on-demand services. If you need to reduce your costs in a hurry, you can simply reduce your consumption.
SaaS services like these are common in the current marketplace. You can outsource anything from backups and disaster recovery to automated on demand testing. Consider the following cost reduction levers for in/outsourcing.
5. Revisit ITIL
If you’re a CIO, you’ve probably heard of ITIL. For those that don’t know, the IT Infrastructure Library is an IT management framework designed to standardize ITM best practices. Among other goals, ITIL aims to optimize IT processes, reduce costs, and increase employee retention.
This framework often goes through revisions as technology and IT management evolve. If you’re struggling with cost reduction, then it’s certainly worth revisiting ITIL to ensure you’re following its seven guiding principles. These were updated as part of ITIL 4 in 2019.
- Focus on value
- Start where you are
- Progress iteratively with feedback
- Collaborate and promote visibility
- Think and work holistically
- Keep it simple and practical
- Optimize and automate
These might not look like cost-saving measures. Yet, aligning your ITM processes with these principles will help you reduce IT costs.
Final Thoughts: Reduce Costs, Retain Revenue
In a time of crisis, protecting your business comes down to guaranteeing cash flow. If your revenue is going down due to outside forces, then the only way to do that is by reducing costs.
Of course, you don’t want to drive that revenue down further, so you need to proceed with caution. Crisis conditions could be short or long-term, but they never last forever. That means you need to plan for growth and recovery, as well as downturns.
About the Writer
Grace Lau is the Director of Growth Content at Dialpad, an AI-powered cloud communication platform for better and easier team collaboration with the help of Dialpad’s virtual phone number in Canada. She has over 10 years of experience in content writing and strategy. Currently, she is responsible for leading branded and editorial content strategies, partnering with SEO and Ops teams to build and nurture content. Here is her LinkedIn.
Disclaimer: The author is completely responsible for the content of this article. The opinions expressed are their own and do not represent IEEE’s position nor that of the Computer Society nor its Leadership.