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Analyst Gartner has urged IT leaders to develop a cost optimisation framework to help determine where to reduce IT and business costs as their organisations plan for business recovery.
Economic recovery from the coronavirus will require CIOs and business leaders to evaluate cost-cutting measures, cost optimisation and projects that can deliver business value within a timeframe required by the business.
Before any cost optimisation project or initiative begins, Gartner recommends that the executive board first supports and agrees to fund it.
Cesar Lozada, senior principal research analyst at Gartner, said: “Cost optimisation ideas are typically weighed almost exclusively on their potential cost savings, without considering the effects such proposed cost savings may have on the business. Using potential benefits as the only decision criterion could result in a prioritised list of initiatives that could yield savings, but could also be risky, have negative impacts on the business or most likely fail.”
Gartner has set out six areas of focus for CIOs and IT leaders when evaluating the costs, benefits and viability of different cost optimisation initiatives. These cover the benefits to the organisation of any cost optimisation measure, the time required to achieve these benefits, the investment required and the risks both to the organisation and technical risks.
“Organisations should approach cost management as an expansive effort that can have immediate and long-term significance to business performance,” said Chris Ganly, senior research director at Gartner. “Cost management demands a mix of approaches and improvements that touch every part of the organisation if it is to truly serve it.”
Looking at the potential financial benefits, Gartner recommends that CIOs investigate the degree to which cost initiatives will affect the bottom line. The analyst firm also suggests IT leaders should assess how much the organisation will save if the action is implemented and how the action will affect cash flow.
Chris Ganly, Gartner
When determining the business impact of cost optimisation exercises, Gartner recommends CIOs determine what impact an initiative will have on staff and day-to-day business operations, such as if an initiative will have a negative impact on productivity or a product launch.
It will take time for the business to realise the cost savings and improved business value from cost optimisation initiatives regardless of the method. According to Gartner, the question CIOs must ask is what that timeframe needs to be – weeks, months or longer term.
To mitigate technical risk, Gartner advises CIOs to assess how the cost optimisation initiative will be integrated within their current operations and enterprise architecture. Delays caused by or attributed to the initiative could result in a loss of service delivery or productivity, the analyst warns.
In the Gartner paper Strategic executives manage costs across the enterprise, Ganly and co-author Robert Naegle wrote: “Functional priorities must ensure that essential ‘run the business’ processes are sustained. Leaders must identify critical projects that deliver business value; protect key talent; and distinguish between budgetary line items to cut, reduce, outsource and defend.
“Leaders are prudent to consider numerous areas for potential optimisation activity. Such an approach may require an initial investment, but can drive future cost reduction and maximise business outcomes. This can be achieved by automating business processes and information delivery, and by optimising the use of processes, resources and existing capacity.”
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