As organizations grow, the demand for technology also increases to support operations. However, the challenge of managing and optimizing IT costs arises with increased demand for IT services. In today’s rapidly evolving business landscape, organizations rely significantly on IT infrastructure to remain agile and competitive, making it more difficult to control rising costs. IT cost optimization is crucial for analyzing and lowering costs while maintaining the value of IT services to the organization.
What is IT cost optimization?
IT cost optimization continuously evaluates an organization’s technology processes to discover and develop cost-saving opportunities. The goal is to reduce costs while also maximizing business value. It can be achieved by:
- Standardizing costing methods.
- Automate IT operations across the organization.
- Obtain the best price for business and IT purchases.
Reasons for the increase in IT costs
According to the latest research by Gartner, global IT spending is expected to reach $5.06 trillion in 2024, an increase of 8% from 2023.
The highest IT spend is on cybersecurity, increasing by 11.1% to US$79 billion. This indicates a heightened demand for securing data and systems against rising threats. Software spending has increased by 5.5% to US$833 billion due to price rises, renewals, and upselling of cloud application software. Cloud spending, cybersecurity transformation, and adoption of AI technologies have contributed to IT services expanding by 7.5% to US$1.5 trillion.
4 future proof IT cost optimization strategies
1. Centralize and consolidate the technology landscape
As businesses expand their operations, their technology landscape grows as well. They require a widespread network of data centers, IT devices, and software applications. This is where consolidation of the technology landscape helps. It centralizes all the disparate systems within an organization so the information doesn’t reside in unreachable silos anymore. For example, organizations adopting a hybrid work environment can unify the management of their remote and on-premise IT endpoints to lower costs and mitigate security risks.
Data and system consolidation can help a business in the following ways:
- Tactical: It streamlines operations and centralized data storage and the overall management of your workstations, servers, and networks; thereby reducing IT management costs.
- Operational: By standardizing assets and removing redundant workflows, consolidation also enhances the productivity of your IT team. Comprehensive visibility into your IT landscape helps reduce downtime, enables quicker problem resolution, and improves disaster recovery measures.
- Strategic: You can also quickly adapt to the future growth needs of your organization with a centralized, scalable IT environment.
2. Implement a cloud-first strategy
Prioritize cloud-based systems over on-premise ones by shifting from legacy in-house systems to easily accessible cloud platforms. Cloud-first strategy enables organizations to access data anywhere and anytime, supports oversight of remote technology assets, and reduces costs. Here’s how this is achieved:
- Cost efficiency: It saves extra time, money, and resources spent building hardware for on-premise systems.
- Scalable: Cloud hosting platforms are extensible and easy to scale during times of expansion as opposed to in-house systems that require a complete infrastructural overhaul.
- Recoverable: Physical databases may fail due to hardware crashes, natural disasters, theft, etc. On the other hand, cloud databases are regularly backed up and easily recoverable with zero downtime.
- Governance: Carry out periodic cloud governance and risk checks to solidify your cloud infrastructure, avoid costs resulting from poor governance, and increase cost efficiencies over time.
3. Improve procurement strategies
An inaccurate forecast of the optimal demand for technology assets may result in overspending for unnecessary assets or underspending leading to a technology shortfall.
Streamlining IT procurement processes with the help of the ITAM tool is essential to integrate procurement planning, budgeting, asset lifecycle management, and disposal into one complete solution.
Complete control of your procurement processes from purchase to retirement lowers equipment holding costs and ensures optimal spending. ITAM tool enables organizations to optimize procurement costs in the following ways:
- Provides a quick overview of ongoing and pending asset procurement schedules.
- Forecasts asset needs by leveraging historical utilization patterns.
- Verifies purchase requisitions made by employees.
- Helps communicate with vendors effectively and manages purchase orders and contracts.
- Tracks the useful life of procured equipment.
- It helps dispose of obsolete assets from the system.
4. Software license management (SLM)
Managing a variety of software tools without keeping track of their licensing needs may lead to non-compliance and consequent legal fines and true-up costs. You can save up on these expenses by carrying out software license management processes.
A robust SLM tool helps document, track, and optimize total licensing costs. It enables you to monitor your subscription licenses’ compliance, payment, and renewal status. You can identify underutilized or unassigned software applications and revoke licenses of unused copies to avoid overspending the software budget. By monitoring the overall licensing framework, organizations can reduce IT costs and remain compliant with international regulations.
Built cost-optimized framework
A well-defined IT cost optimization framework is essential for organizations to remain competitive and ensure sustainable growth. This framework includes the following key components.
1. Define the objective and identify the goals
Aligning cost optimization efforts with organizational strategies is core to achieving sustainable cost reduction while maximizing growth. Establishing cost-effective objectives requires conducting a thorough analysis of cloud usage and expenses. You can start by Identifying patterns and uncovering underutilized resources or inefficient practices.
Once identified, set specific goals for non-critical services or improve the utilization rate of existing resources, for example, understand the value derived from cloud service and rightsize computing services to match workload demands.
This helps control costs and fosters a culture of financial accountability and continuous improvement within the organization.
2. Benchmark and assess IT costs
Benchmarking the IT budget is a relatively easier method to control and adjust expenses. Organizations can benchmark against:
- Recognized industry standards: Assess research websites such as Gartner, Forrester, etc. to evaluate industry metrics, market trends, and competitor analysis crucial for strategic decision-making and cost implementation.
- Internal business units, departments, or branches: Gauge how technology assets add value to different departments within the organization. Understand how cost savings, time efficiencies, or improved communication metrics contribute towards cost allocation and prioritize IT investments to align with these metrics for cost-efficient productivity.
It is also important to assess the baseline after setting a specific benchmark. Analyze billing data, use IT asset management tools to track resource utilization, and engage with cross-functional teams to understand costing methods. A detailed analysis provides an outline for opportunities to optimize costs and lays the groundwork for a sustainable framework supporting ongoing benchmarking and assessment.
3. Analyze and identify cost-improvement areas
Continuous assessment of current IT spending helps organizations identify inefficiencies and improvise alternatives with fewer expenses incurred. For example, software licensing agreements and usage patterns can be regularly reviewed to realize underutilized licenses and reduce costs with renegotiation or downsizing licenses to meet actual needs. Trend analysis can depict patterns that show underutilized or idle resources, for example, unused storage volumes which can be utilized where needed to avoid cost overruns.
4. Implement cost optimization measures
Implementing measures and adjusting IT budgets is essential to maintain financial discipline. Organizations can invest in employee training that enhances skills to improve efficiency and reduce errors, leading to decreased operational costs.
They can also introduce cost-saving initiatives within an organization that increase operational efficiency and contribute to long-term cost optimization. For example, an employee notices that they are unable to connect to the internet on their laptop. They log into the self-service portal to troubleshoot this issue instead of calling the IT helpdesk and waiting for their request to be processed.
The portal presents a step-by-step guide on common networking issues based on which the employee reconnects WiFi settings and can connect successfully. This enables employees to resolve issues independently and optimize IT costs by reducing the volume of basic requests to IT support.
5. Regularly monitor IT cost optimization strategy
After defining goals and taking relevant actions, reviewing strategies is equally important to avoid unexpected expenditures. Carry out periodic cost-benefit analyses of IT services within the organization. List cost-related initiatives, sort them by value and priority, and review and revise the budget accordingly. Avoid making sudden budget cuts in response to crises that negatively impact yearly budgets. This can also impact the development needs of IT teams.
Apply cost optimization techniques
Three effective techniques are:
1. Application rationalization with cloud optimization
Cloud optimization is the quickest way to reduce IT costs. Application rationalization is a process that highlights redundant and overlapping applications, non-compliant applications, and shadow IT. A comprehensive overview of the IT landscape and business capabilities that provide IT services where cost can be reduced, for example, applications that provide low or no value can be canceled or removed.
2. Server Virtualization
Virtualization allows multiple virtual machines to run on a single physical server and significantly reduces the number of physical servers required. In addition, using many physical servers results in lower hardware and maintenance expenditures.
Allocation of CPU, memory, and storage based on demand enables better utilization of server resources, reduces over-provisioning, and improves cost efficiency.
3. Centralized Management
IT admins can centralize desktop management by hosting desktop environments on virtual machines in the data center. They can conveniently manage and update desktop images and applications from a centralized location. This also allows organizations to repurpose old hardware resulting in cost savings on desktop purchases and maintenance.
Evaluate reports and make informed decisions
IT cost optimization report provides visibility and insights into the cost and efficiency of IT resources within an organization. Reports consolidate data from financial records, procurement systems, and usage monitoring tools to analyze IT spending and track cost optimization initiatives.
Set custom or in-built reports on total IT spending, cost breakdown by categories (hardware, software, services), or cost per user to make informed decisions regarding resource allocation and strategic IT investments that reduce costs, enhance operational efficiency, and provide better IT service delivery.
Establishing an IT cost optimization framework, putting strategies into practice, and applying relevant techniques can help organizations reduce overhead costs, manage resources efficiently, and achieve significant savings while maintaining operational efficiency.
