Intelligent IT Response to Tough Times
This is the first installment in this three part series discussing the streamlining of operating costs, and methods of improving IT efficiency.
These times are tough, and there seems to be no sign of relief on the horizon. The “easy” response to these challenges is to cut all non-essential IT costs, up to, and including, non-essential IT personnel. This “easy” response could lead to undesirable consequences. Your operation needs a base point: What assets are IT using? What do they cost today? What will they cost tomorrow? And what value are they delivering? When times were not quite as tough, it was all too easy to retain assets and costs, even after they stopped delivering their full value. Businesses can no longer enjoy the luxury of such neglect.
Through the course of years of experience, Gilmore has seen that a careful review of all IT assets, their costs, and their delivered value will uncover an “easy” 10% to 25% of IT spending that can be cut with no bottom line pain; IT will continue to do the job it has always done. However, that is only the first step. This IT asset review will uncover opportunities to improve the value delivered by IT significantly, and rapidly improve IT return on investment. This process is commonly referred to as an ITAR.
An IT Asset Review (ITAR) will examine all software, hardware, and services used by IT This will include licensing and purchase costs for all software or hardware. It will also include the cost of support, whether internally or externally provided. This asset review will include the loaded cost of renewal, replenishment or retirement and, critically, will assess the value delivered by each, and every, IT asset.
Here is the multi-stage process:
- we uncover the IT assets that are not delivering any value to the organization. They can be easily, and safely, eliminated; with a typical saving 5% to 10% of the IT budget.
- highlight the IT assets that are no longer delivering value large enough to justify their cost. They can be renegotiated, or replaced, typically saving another 5% to 15% of the IT budget. That’s the easy 10% to 25% savings.
- quickly review the value IT is delivering. The results will then be compared to what IT might deliver using cloud services (shared or proprietary), and the insight that will be obtained by taking advantage of Big Data. The return on such IT investments can be large and are almost instantaneous.
It does not have to be an all or nothing approach. A review of all software licenses will almost certainly uncover grossly underutilized licenses. This will likely uncover a pattern of purchase agreements that awards the vendors support services fees that are far too generous. The fact that software is not a hard tangible asset makes it all too likely that excessive and unnecessary fees are being paid.
Similar issues can happen with hardware, especially with the new smart devices that have experienced a dramatic rise in popularity. It is easy, and simple, to renew contracts for all of these devices, but this simple renewal may be a bad business decision. Much better deals may be available, with significantly more cost-effective devices that may be available. You may even have one or two servers that are no longer delivering the value that justifies their cost.
Much of this is “low hanging fruit” and can be relatively easy to discover with an ITAR. The service line items will also need review. Given the rapidly changing nature of the services that are now provided, there are often large opportunities for savings, and even larger opportunities for new, highly cost effective services. This may not seem to align well with the request to cut costs; but very high rate of return opportunities should not be ignored, even in tough times.
Robert Fabian is an Associate at Gilmore & Associates Inc. in Toronto, Steve Williams is a Principal, George Rafael a Senior Principal at Gilmore & Associates Inc. in Calgary. Combined the authors have 120 years of Management and IT consulting experience.
Part Two of the series will be Top 5 Impact Areas of an IT Asset Review.