Penny Wise, Pound Foolish

1. Penny Wise, Pound Foolish GovTech 2013 George Ambler

2. Can You Be Smart About Cost Cutting? From the Executive Management Team: Given current circumstances known to all, the board requires that all managers cut at least 10% off their budgets in the next 30 days, preferably for nonessential items.

3. Intelligent Cost Optimization Is Required Jenga Make sure you don't topple the business by removing the wrong costs!

4. Key Issues • What is Cost Optimization and how should IT leaders use this to make cost savings decisions? • How should the organization evaluate cost optimization options? • What are the best practices for implementing a cost optimization discipline?

5. 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

6. Six Pillars of Running IT as a Business From a Financial Perspective IT Budget Mult Views Investment Planning Chargeback/Showback Benchmark IT Costs Cost Optimization Performance Metrics • Opexversus Capex • Region/BU • Fixed vs. Variable • Projects • Services • Resource Type • Run vs Change • IT vs Business • TCO and Business Case • Funding • Tracking Project Cost • Benefits Realization • Post Project Audits • Investment Prioritization • Hard vs Soft Benefits • Choices • Allocation Methods • Fairness • Visibility • Demand Mgmt. • Cost Trans-parency • Appl TCO • IT Service Pricing • Account-ability • Defend or Justify • Highlight Areas to Improve • Per Unit Costs • Trust • Visibility • Internal vs External • Cost vs Price • Business Value • Run as a Discipline • Frameworks • Procurement • Cost Savings Within IT • Joint Business & IT Savings • Process & Innovation • Detailed Analytics • Strategy • Business Value of IT • Balanced Scorecard • Reporting • Operations • Financial Impact • User Satisfaction • Communi-cations • Visualiza-tion Running IT as a Business Requires IT Cost Transparency

7. 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

8. Government Cost Optimization Initiatives — Meager Offerings Considering Big Goals N = 70, 2Q 2009, Federal, State, Local Respondents. 20% Are Federal Govt. N = 13 to 30 for Savings; Anecdotal 7

9. Biggest Opportunities for IT Budget Reduction by IT Domain

10. Barriers to Savings — There Are Many • Politics and Silos • Poor IT Cost Transparency • Lack of Accountability • Money • Low Tolerance for Risk • Lack of IT Credibility • Legal Constraints • Resource Availability • Technical Complexity

11. Treat IT Cost Optimization As An On-going IT Discipline Traits of best-in-class companies: • Create a culture of continuous improvement • Operate from a basis of fact • Look at the Demand side of IT as well as Supply side • Alignment of the IT and business strategy • Present a long-term vision, not short term • 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 Strategize Manage Strategize Our services constantly evolve with clients' changing needs, but our focus on results never changes Optimize Evaluate Execute

12. 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

13. IT Cost Optimization Program Formulation • Capture all IT service delivery costs — current year and five year forecast • Categorize by asset class — HW, SW, personnel, services,occupancy costs, and so on • Allocate into services — establish unit cost baseline for market and business tests 1 Establish Baseline 2 • Analyze spend gaps against market peers • Identify high-value opportunities for cost reduction, service improvement, and business enablement • Assess benefit against risk to change (as well as time, investment) IdentifyOpportunities 3 • Develop strategy and road map for most viable opportunities • Analyze organizational change needs to manage people impact • Create communications plan Develop Strategy 4 Track Benefits • Create an IT cost optimization (ITCO) program office • Monitor, measure, and report • Identify opportunities to accelerate while managing out risk

14. 1. Establish Baseline Complete the Gartner IT budget tool to help establish an initial baseline (view at left). Such views (options below) help form insights from which to better manage IT spend and set context for IT cost optimization efforts. Business Consumption View Chargeback/Showback • Productivity Measures Complement IT Budget Analysis: • Infrastructure: • OS Instances per FTE • TB Storage per FTE • Handled Contacts per Client Service Rep. • Applications: • Function Points per Developer • Defects per Thousand Function Points

15. ? 2. Identify Opportunities & Assess Viability For each opportunity generated: • What's the upside? • Is it worth the effort? Costs, Time, and Risks Benefits Benefits Potential Benefit: • How big is the saving if the action is implemented and how does it affect cash flow? Small Medium Large Business Impact: • What impact will this have on the business? Negative None Positive Time Requirement: • Can you capture the savings in this fiscal year? >18 months 6 to 18 months <6 months High; staff redundancies,and re-engineering of processes and structures Moderate; limited changes in roles, structures, and processes Low; 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? Degree of IT Technical Risk: • Is there a risk that the change will undermine the ability of your systems to deliver? High; impacts OS, DB, middleware, and applications Moderate; impacts few components of the architecture Low; little more than "moving boxes" 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

16. 3. Develop Strategy & Ready Change Program Application Portfolio Optimization Is the risk worth the reward? $8.0M Improve Application Delivery • Outsource Application Development and Support $10.5M $5.7M Reform IT Governance and Demand Mgmt. Implementation Risk/Time $6.0M Improve ILM and Data Optimize Infrastructure Service Delivery $1.5M $8.0M Optimize End User Support $1.5M $2.0M Re-compete Data and Voice Networks Opportunities likely taken as natural part of business Benefits/Cost Savings Note: All figures are in millions of dollars

17. 4. Track Benefits & Watch for Lower Yields Large Program Benefits Predicted • Mature S/W Asset Mgmt. Practices • RationalizeApplications • Increase Virtual-ization Lack of Org. Change Mgmt. • Deploy Info. Life Cycle Mgmt. UnanticipatedBusiness Changes • Mature Key ITIL Processes • Re-negotiate S/W Poor Estimation(Benefit Size, Investment) Complex Technical Solution • Often Smaller Than Predicted Program Benefits Realized

18. 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.

19. Penny Wise, Pound Foolish GovTech 2013 George Ambler

20. 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)

21. 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.

22. Cost Savings Within IT

23. Joint Business and IT Cost Savings

24. Shared Services Opportunities