Cutting the IT budget

Our panel of experts offer some thoughtful approaches to cutting the IT budget. Here you will find suggestions that you may not...

Our panel of experts offer some thoughtful approaches to cutting the IT budget. Here you will find suggestions that you may not yet have thought of

The problem

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?

The solution

Cutting costs may not be the answer

Roger Rawlinson


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

Lynn Mercer


Consider the following areas and if necessary challenge every aspect of the present department and services against it.

  • Attitude and approach - look at your company as if you were an outsourced IT supplier. Take a fresh approach to the delivery of ITservice to the organisation. Adopt a "users can have whatever they want, provided they pay for it," attitude.

  • Discipline and standards - who is responsible for procurement standards? Are the freedoms of specification allowed appropriate? Is your change control adequate?

  • SLAs - do they meet levels of performance?

  • Applications - who is using/sponsoring unnecessary applications, and why? How much cost is fairly attributed to each?

  • Inventory - what unnecessary equipment is attracting support and licence costs?

  • Productivity - question your wage bills? Are you spending too much time and effort in internal "political" hassle?

  • Change management - are changes properly costed and their implications understood? Is the IT department sufficiently aware of the business processes involved to forewarn users?

  • Networks - is your network operating in the most efficient way?

    Finally, work with the CEO to understand what he wants/needs to pay for.

    Don't place a cost on the value of IT

    Chris Edwards

    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

    Alan Pollard


    There are two major reasons why the IT department has come to represent potentially rich pickings for the suppliers.

  • Be sure of your own statistical data on overheads, costs and performance. Too many internal operations have no idea how they are performing.

  • Second, use the newly acquired information to carry through a vigorous programme of measures, driving down costs and raising standards and performance.

    Progressive investment is the best

    Hugh Macken


    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.

  • Separate out IT project spend from your main budget, and ensure that business owners of these projects justify these amounts

  • Run your department like a business. Propose to your company that you run your operation as a profit centre

  • Make your peers paranoid about the future

  • Encourage comparisons with outsourcing. A company that tries to run your department on the grounds of costs alone is heading for problems. Such companies will be unable to provide the flexibility, loyalty and commitment shown by internal staff.

    The answer is in the equation

    Dan Remenyi

    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.

  • Read more on IT outsourcing