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IT Cost Optimization. George Ambler. Cost Cutting Reactive Short -term results Across the board Decisions often made in haste. Cost Optimization Strategic Decisions tied to business value Cuts made selectively Longer -term initiatives and longer-term results.
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IT Cost Optimization George Ambler
Cost Cutting Reactive Short-term results Across the board Decisions often made in haste Cost Optimization Strategic Decisions tied to business value Cuts made selectively Longer-term initiatives and longer-term results Cutting Costs Versus Cost Optimization
Gartner Framework for IT Cost Reduction Business Restructuring and Innovation Process improvement, reorganization, new methods Joint Business and IT Cost Savings Implement cost-saving technologies with the business Cost Savings Within IT Identify opportunities to reduce IT costs IT Procurement Get the best pricing and terms for your IT purchases Difficulty Value Different types of cost optimization involve different parts of the organization and varying IT department decision rights
Common Cost-Reduction Opportunities Manage Demand 1. Chargeback 2. IT PMO 3. IT Governance Demand Shift to Variable Cost 4. Contingent Workers 5. Software as a Service 6. Capacity on Demand Reduce Labor Cost 7. Staff Reconfiguration 8. Selective Outsourcing 9. Offshore Outsourcing 10. Automated Software Distribution Supply IT Cost Containment Reduce Technology Cost 11. Server/Storage Virtualization 12. Voice/Data Network Re-engineering 13. Voice over Internet Protocol 14. Open-Source Software 15. Data Center Consolidation/Automation 16. Standard Operating Environment 17. Teleworking 18. Refresh/Upgrade Delay Change IT Operating Model Control 19. Asset/License Management 20. Print Fleet Rationalization 21. Telephone Expense Management 22. Telephone Bill Audit Improve IT Business Practices 23. Contract Renegotiation 24. IT Operations Process Improvement 25. Apps. Dev Process Improvement
Potential Benefit How big is the saving if the action is implemented? ? Decision Framework For each initiative to cut costs: • What's the upside? • Is it worth the effort? Costs, Time and Risks Benefits Benefits A relatively large $ number here A relatively small or (-) $ number here A $ number here Customer Impact • What impact will this have on customers? None Negative Positive Time Requirement • Can you capture the savings in this fiscal year? >18 months 6-18 months <6 months Staff redundancies,and re-engineering of processes and structures Limited changes in roles, structures and processes No staff reduction, nor changes in organization and processes Degree of Organizational Risk • Will your leaders ensure the changes are made? Is your organization capable of adapting to the changes? Impacts OS, DB, middleware and applications Moderate impact on few components of the architecture Little more than "moving boxes" Degree of Technical Risk • Is there a risk that the change will undermine the ability of your systems to deliver? Investment Requirement • Does the change require a large upfront investment before savings can be captured? Is the organization willing to make an investment at all? High Moderate Low/None
IT Procurement Contract renegotiation — the first line of offense in saving money.Large enterprises have huge buying power. Act like it. Organize to achieve it. Source: Gartner Research.
Application Standardization Mainframe Consolidation Automate Software Distribution Shared Services Server Consolidation Portfolio Management ArchitectureStandardization Call Center Consolidation Network Consolidation Mergers Procurement Enterprise PMO Audit Device Utilization Deferral of Spending No Pain — No Gain High Costs, Time & Risks Low High Benefits
Leading Practice: Treat IT Cost Optimization As An On-going IT Discipline Successful IT cost optimization programs have common characteristics that deliver sustained results as compared to typical cost cutting programs Characteristics of IT Cost Optimization Programs Have a clear definition of short- and long-term success Operate from a basis of fact rather than speculation Look at the Demand side of IT as well as Supply side Prioritize cost savings opportunities taking into account risk to implement in addition to financial payback Align IT Cost Optimization management disciplines with business alignment objectives Focus on successful execution, including a program in place for benefits realization to hold people accountable through measured performance Use working capital from IT savings to self-fund improvements towards business Manage Strategize Strategize Our services constantly evolve with clients' changing needs, but our focus on results never changes Optimize Evaluate Execute
Create Cost Optimization Team • Assign some of your best staff • Include a financially qualified professional • Strengthen relationship management roles • Define cost-cutting goals and project timelines • Establish rapid go/no go approval process • Meet weekly
Finding Opportunities and New Ideas for Cost Cuts: IT Cost Transparency Elements IT Service Portfolio and Catalog Benchmarking and Measurement IT Performance Management IT Portfolio Management Chargeback/Cost Allocation IT Asset Management/CMDB • Market-Based IT Chart of Accounts (COA) • Hardware Software Outsourcing Personnel • Procurement Commodity Taxonomy • UNSPSC NIGP eCl@ss RUS Etc.
After You Leave Here … Immediately… • Assess which of the tactical cost opportunities are still worth trying. • Determine how best to get executive engagement in your IT governance process to ensure the right decisions are being made. • Evaluate your IT optimization decisions across all of the dimensions listed. • Argue for pursuing cost optimization that can be done and has appropriate organizational support that will not do long-term damage to the enterprise. In the Next 90 days…. • Determine if your IT demand governance process is working and, if not, create a plan to fix it • Create an ongoing IT optimization program to ensure long-term efficiency. • Evaluate how your IT organization is structured to determine if it is appropriate for maximum productivity. • Evaluate with your senior management whether there is alignment of expectations for the role of IT in the strategic leadership of your enterprise.
Related Gartner Research • "Decision Framework for Prioritizing Cost Optimization Ideas"G00166206, Barbara Gomolski, John Kost, 13 May 2009 • "Cost Cutting in IT: Findings and Recommendations, October 2008 to March 2009"G00166849, Ken McGee, 2 April 2009 • "Method to the Madness: Applying a Methodological Approach to Cost Optimization"G00168120, David W. McCoy, Barbara Gomolski, 13 May 2009 • "How the IT Organization Handles the Three Stages of a Downturn" G00165396, Jorge Lopez, 17 February 2009 • “IT Cost Optimization Round 2: Strategic Shifts and Doing Less With Less”Kurt Potter (G00205937) • “CFO Advisory: Enterprise Cost Optimization; Overview”Barbara Gomolski, Kurt Potter (G00173955) • “The Four Levels of Cost Optimization”Barbara Gomolski, Kurt Potter, Mark Raskino (G00164219)
IT Cost Optimization George Ambler
Link Costs to Demand Manage Demand 1. Chargeback 2. IT PMO 3. IT Governance Demand Shift to Variable Cost 4. Contingent Workers 5. Software as a Service 6. Capacity on Demand Use chargeback so the business can make cost-vs.-value trade-offs Create an IT PMO to improve project, program and portfolio performance Establish IT governance councils to improve prioritization and investment decisions Contract with contingent workers to fulfil variable demand and special expertise needs Use software as a service (SaaS) to avoid capital costs, to vary costs with usage and to achieve benefits sooner Use capacity-on-demand (CoD) to vary processing costs with workload changes
Reduce Resource Costs Reduce Labor Cost 7. Staff Reconfiguration 8. Selective Outsourcing 9. Offshore Outsourcing 10. Automated Software Distribution Supply Reduce Technology Cost 11. Server/Storage Virtualization 12. Voice/Data Network Re-engineering 13. Voice over Internet Protocol 14. Open-Source Software Reconfigure your staff for higher performance Outsource noncore IT functions for cost and service advantages Move selected work offshore to lower-cost labor locations Automate electronic software distribution to reduce support labor Pool server and storage resources for efficiency and flexibility Move toward IP-based converged networks for greater bandwidth at lower cost Transition to VoIP telephony to reduce cost and to position for unified communications Selectively adopt open-source software to reduce software costs
Change Operating Practices 15. Data Center Consolidation/Automation 16. Standard Operating Environment 17. Teleworking 18. Refresh/Upgrade Delay Change IT Operating Model Control 19. Asset/License Management 20. Print Fleet Rationalization 21. Telephone Expense Management 22. Telephone Bill Audit Improve IT Business Practices 23. Contract Renegotiation 24. IT Operations Process Improvement 25. Apps. Dev Process Improvement Consolidate, standardize and automate data centers for economies of scale and resilience Implement a standard operating environment to reduce complexity Implement teleworking to increase employee productivity while reducing occupancy costs Extend the useful life of established IT assets to defer buying new ones Tighten software asset/license management to reduce overspending Rationalize copy and print services to control the output explosion Manage telephone expenses to gain control of the device explosion Audit telephone bills to find overcharges Renegotiate maintenance/service contracts for better prices and terms Increase IT operations process rigor for many benefits Professionalize application development processes to reduce costs and risks
Common Cost-Reduction Opportunities, Continued Manage Demand 26. Stop Low Business Value Project 27. Reduce Apps Maintenance 28. Manage Apps Portfolio 29. Reduce Service Level Demand Shift to Variable Cost 31. Financial Engineering 32. BPO 30. Manage Apps Spec.(Mandatory, Useful, Nice to Have) Reduce Labor Cost Supply 33. Manage Technology Portfolio 34. Lean IT IT Cost Containment Reduce Technology Cost Change IT Operating Model 35. Grouped Maintenance 36. Reduce Project Length 37. Retire non-use Code/Module in Apps 38. Adopt Layered Model Control Improve IT Business Practices 39. Fiscal Optimization 40. Improve IT Financial Knowledge 41. ZBB for opex 42. Increase Span of Control in IT Org.
Savings Depends on Time Since Last Optimization Exercise, Implementation or Major Project/Program IT Procurement • Open-source Software: 75% Savings in Maint./License • Software as a Service (SaaS): 80% • Enterprise SW Agreement: 20-50% Dropping Maint. • IT Outsourcing Offshore: 10-40% Cost Savings Within IT • Virtualization & Consolidation: 20% Less Workload • IT Asset Mgt.: 8-10% Per Managed Asset Per Year • PC Power Mgt: 43% Per Year vs. Non-Best Practice • Apps. Dev. Reuse: 18% Over Five Years Joint Business &IT Savings • Apps. Portfolio Reduction: 50% for 20% Savings • Cancel Projects: Reduce Discretionary Spend by 75% • Teleworking: 20% Reduction in Net Occupancy Costs • PMO: 5-20% Productivity Improvement Process Improvement, Business Restructuring & Innovation • Business Process Mgt. Technology: 18% Avoidance • Shared IT Services: 15-20% is Typical, 40% Maximum • Territory Mgt. Software: Increase Sales 1-3% • Online Marketing & Lead Mgt: Increasing Revenue 20% 21
Use a mix of short- and long-term techniques to ensure an on-going stream of benefits • Most Frequent Short-Term Cuts • PMO and IT governance working jointly • Staff reconfiguration • Refresh/upgrade delay if scheduled for current period • Asset/License management • Contract renegotiation • Most Frequent Long-Term Cuts • Selective outsourcing • VoIP • Network re-engineering • SOE • Offshore outsourcing • IT operations process improvement • Most Frequent Med.-Term Cuts • Server storage virtualization • Automated software distribution • Print fleet rationalization • Contract renegotiation • Asset/License management • Across the Enterprise Cuts • VoIP • Teleworking • Telephone expense management • Telephone bill audit • Cuts With Business Benefits • Server storage virtualization • Automated software distribution • Print fleet rationalization • Contract renegotiation • Asset/License management • Most Frequent Ease of Use • Telephone bill audit • Refresh/upgrade delay • Contract renegotiation • Print fleet rationalization • Telephone expense management