How to deliver cost optimisation without tears

Typically IT governance processes are focused on decision rights, compliance, and regulation. Increasingly, however, the scope of governance is being recognised to include value delivery

Typically IT governance processes are focused on decision rights, compliance, and regulation. Increasingly, however, the scope of governance is being recognised to include value delivery, writes Jonathan Wyatt, managing director at Protiviti.

IT budgets are being squeezed as shareholders and others seek to ensure that discretionary investment funds are properly focused upon those areas that are most likely to result in early but sustainable value delivery to the enterprise. At the same time, enterprises need to ensure that operational costs are optimised, that waste is avoided and that value is obtained from every pound, euro or dollar spent

Enterprises must react quickly and in many cases drastically to respond to the economic crisis and resulting recession. Executives are under incredible pressure from shareholders to make the difficult decisions in order to remain profitable. The result is that significant organisational and operational changes are being made, budgets are being cut, projects cancelled and headcounts reduced. The goal of all these painful activities is to achieve a reduction in costs to preserve or increase the reported bottom line.

IT departments are traditionally an area targeted for significant changes. After all, within most enterprises, they are a cost centre. This year they will have to tighten their belts and focus on keeping the critical business systems up and running. Surely we can cut some heads, cancel some projects and make some big savings without really, genuinely, adversely impacting the business? Can't we?

Well, maybe. That's the simple truth of the matter. You can make savings this way. It might achieve the cost reductions you want. It might even have a low adverse impact on your business in the short term. However, is this always the right approach? Invariably, the answer is no. The need for immediate cost savings must always be balanced with business priorities and medium to long-term strategies. IT is an enabler for the wider business and therefore cost cutting opportunities must be assessed and realised in a way that best supports the achievement of both long- and short-term goals.

An effective way to do this is first, to understand the different focus areas for which IT executives typically have responsibility and accountability; second, to uncover and consider as many of the related cost cutting opportunities as is feasible; and third, to make informed decisions to target cost reductions in areas that have a low impact on business priorities and strategies. This approach enables the best balance to be achieved and prevents rash decisions being made and the wrong things being cut.

This is intended to be the first in a series of articles, to be published monthly, in which we will look at the typical focus areas of IT expenditure and highlight some of the commonly overlooked opportunities for cost reductions in each. The focus areas to be considered include run costs (maintaining core services and applications), change costs (selecting, managing and optimising the IT enabled business change agenda), and compliance and regulation (managing IT risks and controls to achieve compliance with internal policies and external regulations).

The focus areas and examples raised will highlight opportunities that could be exploited in your organisation. With a good understanding of the options available and due consideration of these in the context of business priorities, the right balance can be achieved between reducing spend and enabling current and future strategies.

With this in mind, be aware that there are savings to be had in all kinds of areas. You will need to consider all the options. You might yet be able to protect that budget which you really don't want to touch but are under incredible pressure to cut. Following the guidance that these articles will provide will also help enterprises to enhance the communication and partnership between the IT and business functions as, in the spirit of world class governance, IT is there to support and enable the enterprise, this cannot be achieved without a common understanding of the business and the IT challenges and opportunities that need to be recognised and properly dealt with.

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