I must find a way to cut our IT budget by 10% per annum over the next three years to save the department from being completely outsourced.
I can't see the wood for the trees. Has anyone got any ideas to help me find the answer to what seems like an impossible demand?
Cutting costs may not be the answer
If cutting costs seems impossible, the first thing you should do is establish whether cost is the real reason for the proposed outsourcing. It might be due to issues of service, for which a different approach may be necessary.
Consider your costs against the current market. To do this, you need to know how much your IT provision costs. If you are cheaper than the market and provide an adequate service you can defend your position. If you are more expensive and cannot justify the value-add for your service you may be in difficulty. Question what is causing this cost and consider rationalisation.
Think about the structure of your department. Is everything you do necessary? Are you offering unnecessary support to unsupported applications? Could elements of the provision be outsourced, leaving the rest to be run internally? Identify your position and a strategy will follow.
Consider starting from scratch
Consider the following areas and if necessary challenge every aspect of the present department and services against it.
Finally, work with the CEO to understand what he wants/needs to pay for.
Don't place a cost on the value of IT
Cranfield School of Management
Business management always looks to improve "value for money" from IT. They usually have great difficulty measuring "value" and tend to focus upon the "money".
First, highlight the value delivered by IT. For each new system introduced, work with the management to produce a "benefits" chart that explicitly links the IT investment with the objectives of the organisation. If the linkages are unclear try to clarify them, or take the matter to senior management with the message that this system does not appear to offer significant value and should be stopped. If senior management insists that the system should be developed, strongly make the point that this may account for the apparently high expenditure levels. Second, openly welcome outsourcing and tell senior management that you are conducting focused trials to better understand how it might be applied in your organisation. Find two or three elements that you can more easily outsource and begin a trial, measuring cost reduction and service level changes. Continue to do this and from the data obtained consider if total outsourcing is appropriate for your organisation.
It's better to be safe than sorry
There are two major reasons why the IT department has come to represent potentially rich pickings for the suppliers.
Progressive investment is the best
This is a time to invest in technology and IT skills but there are still plenty of CEOs who continue to measure IT on the basis of money-in, money-out. Here are four steps to change the mindset from one of cost to one of value.
The answer is in the equation
Of course you can cut the budget by 10% per annum for the next three years. It is simply a question of balancing the service cost equation. Ask yourself whether you are offering services that the organisation doesn't need or value, and are you providing services out of your budget that should be paid for by the user?
Look at which elements are core to a successful IT function, and then, off your own bat, outsource the parts of your operations that can be done more cheaply by others.