10 Ways to Cut IT Costs

By David Kapfhammer  |  Posted 02-09-2009

10 Ways to Cut IT Costs

Reduce, rationalize, cutback, justify. In other words, get more out of less. Executives everywhere are looking for ways to cut their fiscal outlay associated with technology services. 

IT service providers are being asked by C-level executives, "How can you help me cut my IT spend?".  These service providers need to have not only practical, but actionable answers to that single question.  

For those IT service providers that can deliver globally from offshore, the answer is typically single-threaded: Offshoring IT services (typically to India) can save organizations upwards of 60% of their current IT spend. 

But this cannot be the only answer to the question if service providers want to partner with industry and work with clients to solve today's most pervasive business problem: managing in a terrible economic climate. 

Cost savings can be realized in two different fashions or in combination, by reducing the actual outlay of capital expense or by improving the efficiency of the existing spend.  Here are ten techniques for reducing the cost of IT or making it more efficient.

Techniques and Tactics

1.    Move work offshore or nearshore

2.    Use managed services and offshore staff augmentation models

3.    Use remote infrastructure management

4.    License consolidation of productivity tools

5.    Consolidate headcount around business functions

6.    Refocus the most costly resources

7.    Defer projects

8.    Renegotiate rates to drive out unnecessary overhead

9.    Engage the business side of the house to take on additional testing

10.  Consider environment consolidation and virtualization

After the jump, more detail on each technique.

Offshore and More

  1.    Move work offshore or nearshore

This is probably the most common answer. It is the theme of the entire IT services industry, and while it still has numerous challenges, there is no denying the cost-cutting results it can deliver.  Putting aside possible delivery challenges, results associated with reduced cost alone have been displayed in literature both quantitatively and anecdotally. 

2.    Managed Services and Offshore Staff Augmentation Models

Software development services are multi-dimensional, but the basics can be boiled down to management, execution, and reporting. These three disciplines, or legs of the software development lifecycle, are being successfully offshored in today's market. 

This approach allows a client to effectively "outsource" testing activity to an IT vendor, and manage through the use of Service Level Agreements (SLAs). Applying a managed service approach with an IT services vendor allows the client to achieve its cost reduction goal while empowering the vendor to design a delivery model that can help it achieve it's required margins.  

Managed services are not the only option when it comes to reducing project costs.  Another, more basic, approach is to offshore work in a staff augmentation mode.  While this is more difficult to manage on a day-to-day basis, it can most certainly deliver the lower cost alternative.

3.    Remote Infrastructure Management

Another aspect to software development services is management of the computing environment.  It takes people, time and projects to manage software environments.  There is no reason why this type of "transactional" work can't be done from an offshore location. 

The nature of the work involves building environments, resetting or "ghosting" platforms and helping to effectively manage data repositories.  This work, which is highly technical, is very well suited for offshore due to its non-business related aspects. 

This is often referred to as "Remote Infrastructure Management (RIM)", and is another opportunity for an organization to shift expenses associated with that work to a lower cost region of the globe. 

Tools and Team Size

4.    License consolidation of Productivity Tools

The truth about productivity tools is that organizations typically over-buy.  Not only do the tools not get used to their full potential, and for some companies it never leaves the shrink-wrap.  For many, it is no fault of their own.  But it is, what it is.  So take this opportunity to make some changes in this arena. 

Evaluate just how often your team members are actively using their license(s).  Consolidation here is a real and actionable opportunity. Be certain to canvass all of the users and share with them your attempts at reducing cost.  Attempt to determine real "usage" time.  This measure will help in making a good decision on consolidation.

Lastly, don't rule out Open Source.  There are many good tools that are part of the Open Source community.  Relieving your product vendor of their license fees and instead directing a small portion of those funds toward an IT service team that can deploy and manage an Open Source solution for you, may just be the right cost cutting measure.

5.    Headcount consolidation around business functions

One of the "least common denominators" is the presence of similar business functions across multiple software applications.  Take equity trading systems or claims processing, for example.  The systems that support this business function are, on many occasions, siloed throughout an IT organization. 

Consolidating a team that has similar business background may ultimately save some cost in headcount and effort.  For example, instead of having two separate testing teams, which operate independently of each other, why not consolidate? 

6.    Refocus most the costly resources

There is an interesting opportunity here and a scenario that may not be applicable to all organizations.  But for those where it is applicable, this can be a good opportunity for savings.  When I use the term refocus, I'm referring to a situation where there are single resources doing multiple jobs and filling multiple roles. 

For example, an organization can quite plausibly have its developer staff doing testing as well as development.  The scenario might have developer roles doing application development 75% of the time and doing testing 25% of the time. 

The incompatibility of those roles and that scenario aside, one might normally applaud this approach to leveraging a multi-talented workforce.  The problem is that the developers, who typically cost more than testers, are spending 25% of their time doing "lower cost" work. 

A cost reduction technique in this scenario would be to replace 1 out of every 4 developers with a tester.  The presence of the tester would relieve the development staff of needing to spend 25% of their time on testing activity, thereby allowing them to work on development tasks; covering for the lost productivity of the one developer that was removed. 

By removing one developer and replacing that role with one tester, actual cash outlay is reduced; assuming of course that the tester costs less than a developer.   This technique can be scaled across an entire organization to leverage the cost savings that it holds.

Timing and Costs

7.    Defer Projects

For most IT organizations, this is not a realistic alternative.  The business that IT supports quite often simply cannot defer projects, as the viability of the overall organization would be in jeopardy if it did. The Triangle of Quality is bounded on three sides by schedule, scope and resources. 

By changing any one of the three sides, without a corresponding change to the others, quality is compromised.  Reducing the outlay for resources implies that scope and/or schedule need to be changed.  While this isn't always possible, a conversation on cost reduction in IT simply cannot be complete without mention of this technique.

8.    Renegotiate rates to drive out unnecessary overhead

Talk to your IT services vendor.  They are as acutely aware of the current economic environment as you are.  Renegotiating rates is not an uncommon occurrence.  And for those vendors that do operate in the spirit of partnership with their clients, recognition of this degree of relationship should be realized. 

Resistance to reasonable rate reduction in the current economic environment is an illustration of a lack of partnership.  Let your IT vendor come up with some creative options for you.

Vendor rates consist of many components.  Sometimes they contain small additions related to client management activity.  While this is an important task, some organizations do not need that extra layer of non project-oriented vendor expense.  Work to negotiate this out.

9.    Engage the business side of the house to take on additional testing

Testing is the advocate of the business teams within the IT department.  When an organization needs to reduce IT resources, it must cover those tasks somewhere else.  In the case of testing, sometimes it can be covered by business analysts. Tabling the discussion on how different business analysts are from testers, there are some instances where the business can take over a small percentage of the testing tasks. 

Admittedly, the overall approach to testing would need to change.  However this might be a viable cost reduction technique for some organizations.

Consolidation and Conclusion

10.    Environment consolidation and virtualization

Environment consolidation is yet another opportunity to reduce technology expenses.  Managing release schedules in a manner that would take advantage of environment 'down time' can result in a consolidation of environments that are used more productively.  Note that this consolidation does not propose the mixing of development and testing environments; those still need to be separate.

Virtualization is also an excellent mechanism for consolidating hardware expense, yet still allows the organization the ability to use several environments.  A possible cost challenge on this front, though, is that the virtualization software can be costly.  A cost-benefit analysis will need to be conducted to ensure that the software expense associated with virtualization offsets the current environment's hardware expense.

Conclusion

We are in a business environment whereby the bottom line needs to change; not necessarily the effectiveness of the existing spend.  The most ideal end to our current challenges would be an application of both cost reduction and increased efficiency.   But as mentioned earlier, there is a need to reduce cost in the short term.  These techniques can help organizations achieve that end and provide businesses' with more alternatives from their global IT services provider outside of the obvious offshoring solution.
 
David Kapfhammer is a Global Director with Keane, Inc.