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Three Levers of IT Cost Control

By CIOinsight on 2009-05-14


A new survey of IT spending, the Hackett Cost Control Study, says business outlays will remain flat over the next two years. At the same time, demand for IT services within the enterprise will increase by some 17 %, creating a gap between needs and resources that departments will have to address.

Hackett Group analysts suggest improvements in IT efficiencies and processes via what the firm calls the “three levers of cost control.”

Those levers are IT cost control strategies, IT demand management, and discretionary cuts.


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1. IT Spend FlatOver next two years, Hackett found that companies expect to grow IT budgets by only about 1 % annually, down from 5.3 % over the last three years.

2. The Need for IT GrowsMeanwhile, the same organizations project demand for IT services will drop to 8.6 % per year, from 15%, creating a total growth demand of 17 % by the end of 2010.

3. Three LeversHackett identifies three levers for cost control: IT cost control strategies, IT demand management, and discretionary cuts.

4. IT Cost Control StrategiesOf the three levers, Hackett calls IT Cost Control Strategies the most mature and the tactic with the most potential to reduce costs without harming the business.

5. IT Cost Control StrategiesHackett puts the following activities within this category:Offshoring/OutsourcingIT reorganizationArchitecture RationalizationProcess ImprovementSupplier/Contract Management

6. IT Cost Control StrategiesHackett suggests that an across the board goal of 10% cost reductions in this area is both realistic and achievable.

7. IT Demand Management TechniquesIn the past, most companies have focused IT Demand Management activities on simply meeting demand for IT, but Hackett says this technique can also be used to curb demand and better prioritize work.

8. IT Demand Management TechniquesHackett puts the following activities within this category:Chargebacks/Cost AllocationsService CatalogProject Portfolio Management

9. IT Demand Management TechniquesThis is the most underutilized category, with only about 36 % of companies charging back or allocating IT cost. Yet IT Demand Management typically realized savings that slightly exceeded planned savings, with a net impact similar to IT Cost Control.

10. Discretionary CutsDiscretionary Cuts are what many organizations think of as ‘cuts’ during downturns—basically, blunt force staff and budget reductions without any kind of underlying process improvement.

11. Discretionary CutsDiscretionary Cuts include cuts to :Project budgetsInternal and external staffOutsourcing contractsTechnology spend

12. Discretionary CutsHackett cautions on the sustainability of discretionary cuts; even though they offer similar or better savings impact as the other two pillars, they do nothing to address increasing demand for IT services.

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