Five ways to control spiralling IT costs after disruption

The last 12 months have seen dramatic changes across all areas of business

As a result of accelerated trends like remote working, IT leaders are under increasing pressure to deliver more for their organisations, often with less budget at their disposal. This is leading to an urgent reappraisal of processes and strategies.

With technology playing an increasingly important role in our working lives, managing the associated costs has proved something of a headache. There are all kinds of challenges that need to be addressed by those holding the purse strings. These include the renewed investment in cloud, the growing use of Software-as-a-Service (SaaS) applications and the increasing amount of spend on technology services from business functions outside the IT department, like marketing and HR.

Many organisations responded to uncertainty by battening down the hatches in 2020, with CIOs cancelling projects and discarding their carefully considered plans and forecasts. According to a recent survey, 72 percent of CIOs said their priorities for 2020 shifted as a result of business disruptions.

This indicates a reactive mindset when really what was needed was a proactive one. Abandoning considered strategies in favour of simply treading water in the hope of survival has put some companies at a competitive disadvantage moving forward.

With the benefit of hindsight, we are all now in a position to learn from last year. To help focus on areas that need addressing, there are five key steps to take as you review your organisation’s technology spending. These steps will guide the search for new governance processes and tools that will make it more cost-effective going forward.

Eliminate unnecessary cloud costs

The events of 2020 encouraged many businesses to depend more on the cloud. Recent Forester research indicates that 2021 will continue to see cloud adoption grow rapidly. While that is understandable and even necessary for future-proofing your business, cloud expenditure is a variable and complex cost which makes it particularly difficult to control.

One of the biggest issues is that while cloud instances can easily be introduced or scaled up when needed, they can often be forgotten about as soon as priorities change. The bad news is that this seems to be a common problem with many large organisations. The good news is that with effective optimisation, 25 to 30 percent of this wasted resource can quickly be clawed back.

However, before you can cut back on wasted resources, you need to be able to fully understand the nature of your costs so you can assess which parts of your cloud infrastructure need to be changed. With some providers, this is easier said than done. Bills can run to thousands of lines which makes reconciling them a labour-intensive challenge that consumes both time and money. Having effective tools in place that can provide quick insights into cloud costs by analysing use and spend data is now a must for any business.

Take control of your SaaS applications

In 2020 we also saw organisations continue to spend more on SaaS products. Forrester’s analysis shows that businesses are currently spending $500bn in this area alone.

With an ongoing need to optimise costs, many businesses are suddenly realising they have lost control of their SaaS spend. It’s now common for large businesses to have SaaS applications managed outside the IT department, multiple contracts with the same vendor, or even multiple vendors providing the same service to the business.

To combat this, first you need to draw on technology solutions that will give you full visibility of all SaaS application licences and services within the business. Then you need to rationalise them. With SaaS sprawl likely to be coming from outside IT, one way of consolidating this spend is to use tools that leverage single sign-on (SSO) data stored within an organisation’s network to identify hidden licences. Once you see the full picture, you can assess where best to cut back and which licences are redundant.

Introduce stronger procurement protocols for SaaS applications

Following on from this point, you need to introduce more accountability for SaaS usage and spend together with strict procurement processes and user chargeback. That’s because services like file storage and collaboration can be too easy to sign up for without the knowledge of IT.

By ensuring that IT has more of a say in the buying process and by directly charging business departments for their SaaS usage, you can soon tighten up on unnecessary spending in this area.

Don’t forget to include labour within your costs

All too often, labour isn’t directly tied to the costs of specific IT services and this can lead to misleading conclusions. This means that when deciding which of two IT services to cut back on, for example, you might opt to cut the one that costs more. However, the service that is more expensive in pure cost terms may require less labour. If this hasn’t been accounted for in your calculations, you might end up discarding the service that, in real terms, comes with less cost to the business.

Another benefit of linking labour costs directly to IT services is that it leads to better decision making on how to deploy your labour and how much contractor support to engage. Organisations always need to factor in these associated costs up front. By doing so, IT leaders can better prioritise. This task requires dedicated tools, as well as close collaboration between departments.

Make sure you have the right data and processes in place

To successfully achieve the reorganisation outlined within those first four recommendations, you will need to have the right processes and data to assess where costs can be cut with the least impact on company performance. With these in place, you can have informed conversations with the rest of the business rather than make knee-jerk reactions that could well hamper long-term growth.

To highlight the importance of getting your processes and data right going forward, research found that even though most organisations were under pressure to reduce IT spend, 63 percent reported an increase in demand for new IT capabilities during the pandemic.

In summary, then, IT leaders who learn the lessons from 2020 on managing cloud, vendor and labour spending more effectively will be the ones who are best equipped to make strategic changes for sustainable long-term growth.

About the Author

Henrik Nilsson is Vice President of EMEA at Apptio. With Apptio, IT leaders become strategic partners to the business by demonstrating value of IT investments, accelerate innovation and shift their technology investments from running the business to digital innovation. Hundreds of global enterprise organizations choose Apptio as their business system of record for hybrid IT.

Featured image: ©Lengchopan