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9 Ways to Reduce Business IT Expense
Last month I got a lot of positive feedback about the timeliness of my newsletter topic, “The Right Span of Control Isn’t a Number,” so this month I’ve written another newsletter article dealing with today's problems. In our current economy there is a high likelihood that you’ve been asked to “tighten your belt” and cut back on business IT expenses. If you follow some of the recommendations in this article, then you'll be more successful in that endeavor.
Before we get started, note that the title of this article is “9 Ways to Reduce Business IT Expense – not “9 Ways to Reduce IT Expense.” I want to make that distinction because one easy way to reduce IT expenses is to stop doing things that cost IT money. You can stop supporting certain products, stop taking certain kinds of Help Desk calls, or stop helping the business with certain kinds of problems, and that will indeed reduce IT expenses. However, if those things just move the expense from IT to the business then you haven’t done anything good for the business at all. That’s why I include the word “business” in the title. The goal is to reduce business IT expenses – that is to say you’re trying to reduce overall expenses to the business for IT-related services – not just move expense from one cost center to another.
Now I realize that this altruistic view may not be shared by the accountant or manager who’s bugging you to cut your budget. But for the good of your company, it’s important that you focus on reducing expenses for the overall business – not just for your own department. Make it clear that your focus is bigger than your department, and this attitude will do wonderful things for your career down the road.
TANSTAAFL
OK, now that we’ve got the article title out of the way, let me talk about one other key to IT expense reduction. It’s important for you to get the message across that with each and every IT expense reduction comes a lower level of service. This is equivalent to saying “There’s no such thing as a free lunch,” and it may seem obvious, but it's critical that you actually demonstrate it in your budget reductions. You’ve got to say this clearly to whoever is after you to reduce expense, “Any reduction in IT expense will have an impact on the business. The impact may be worth the reduction, but that has to be a business decision – not an arbitrary decision by someone in IT. No IT expense reduction can come without a corresponding business price.”
Here's why you have to make that message clear:
- If the business sees a lower level of service as the consequence of IT budget cuts, then they'll know exactly what they're losing, and they'll be on your side when it comes time to eventually increase budgets and restore those lost services or restart those postponed projects.
- If you ever – even once – cut your budget without showing a corresponding cut in services to your customer, then you'll have set a precedent and an expectation that you'll be able to do this again and again. You'll have established the reputation that "IT budgets loosely, so we can always get them to squeeze money out of their budget without incurring any business penalty," and you will have lost the trust of your business customers.
9 Strategies for Expense Reduction
Now it’s time to reduce expense. To help make the strategies clear without getting us tied up in IT issues, let me first go through an example of how we would cut expenses for a hypothetical household if our family were forced into a cost-cutting situation. Then, after you see how these nine strategies work for families, we'll go through the same strategies and apply them to IT.
Most families look at nine basic strategies for expense reduction:
- Postpone expenses which aren’t required right now.
This isn’t the best time to get a new car, and we can probably avoid buying new clothes for a while.
- Postpone all non-essential maintenance.
The house can probably do without painting for another year, and maybe we can get our hair cut every 6 weeks instead of every month.
- Substitute less expensive alternatives for those things that have substitutes.
We can buy store-brand groceries, eat more beans instead of meat, and get cheaper shoes for the kids when they outgrow the ones they have. We’ll do our own yard work and stop using a lawn service.
- Reuse old stuff.
Eight-year-old Sarah can use ten-year-old Sally’s old coat. We can make lunches out of leftovers from dinner.
- Consolidate needs where possible, and let one thing satisfy multiple needs.
We can reduce gasoline costs if we just shop once a week. And the new coat for Sally (she outgrew her old one) can have a zip-out liner so she won’t need two coats.
- Go to a lower standard of living.
We can turn down the thermostat in the winter and turn it up in the summer to reduce energy costs. If necessary, we can move to a smaller, less-expensive apartment.
- Stop “going out.”
We’ll cut back on restaurants and vacations for the time being.
- Move to less expensive ways to enjoy life.
Instead of a week in Florida at Disney World, we’ll do some day-trips to local parks.
- Look for additional sources of income.
Maybe we can find weekend jobs, or maybe we can take some of those baskets Jean likes to make and sell them at a craft fair.
9 Strategies for Reducing Business Expense in IT
Now let’s see some examples of applying each of these nine techniques to IT.
- Postpone expenses which aren’t required right now.
You had planned to upgrade the server, but the users can live with their current system response time, so that upgrade can be postponed. And maybe you can do without that new software development tool a little while longer.
- Postpone all non-essential maintenance.
You have to keep doing operating system and security patches (those are essential for company security), but some of the other application software maintenance can probably be postponed. You can also delay some of those minor software enhancements the users have been wanting; that will let you focus on what’s really important right now.
- Substitute less expensive alternatives for those things that have substitutes.
What first comes to mind is open systems software: both for operating systems as well as applications. This can definitely be a money-saver, but it’s usually not a quick decision, you and your users will need training to make it work, and there’s a migration involved. Still, it’s something you ought to consider at some point.
Another possibility is offshoring, but again this requires a great deal of planning and thought – it’s not a quick budget fix, and you pay the price for offshoring in increased rigidity of your processes. Surprisingly, you may find that insourcing – moving some of your outsourced work in-house – may help you reduce expenses in some areas where you have people who can do the work.
You’ll probably get the most bang for your buck in this area by reducing the amount of “gold plating” that you’ve got going on in the requirements for your systems. Try to convince your business users that they can live with a less-expensive system that doesn’t have all of the features they think they need.
- Reuse old stuff.
Every IT shop has lots of old equipment lying around. Try to reuse some of it. Refurbish old notebook PC’s and use them for new employees. Use old desktop PC’s for kiosks. And definitely reuse software licenses – it’s way too easy to just buy a new license for each new employee, but it’s a waste of money if you have old no-longer-used licenses for the same software. Stay legal, but there’s no point in giving unnecessary money to software vendors.
- Consolidate needs where possible, and let one thing satisfy multiple needs.
“Virtualization” is the IT buzzword in this area. Use a single server for multiple purposes. Use blade servers for remote users over the Internet instead of giving each of them their own high-powered individual PC. Share offices between two people who each work half the time from home.
- Go to a lower standard of living.
Re-look at those up-time goals; maybe you could save money if the business tolerated slightly lower up-time. You might also be able to reduce expense by delivering a lower level of service on your help desk: maybe a next day response to problems instead of a few minutes or a few hours.
If it makes sense, share offices, consolidate computer centers, and reduce the number of square feet required for your department. Give the space to someone who really needs it.
- Stop “going out.”
Postpone unnecessary training. Try to find local training when you absolutely need it, and avoid conferences for a while to minimize travel costs. Many of those conferences can be accessed via the Internet now anyway. And many vendors can give you training over the Internet too.
- Move to less expensive ways to enjoy life.
You might have to cut back on bonuses, but maybe you can provide other perqs instead. If you go to a staggered four-day workweek (each person works four days, but someone is always in the office) or let more people work from home, then your employees will save money on gas and waste less time commuting. That’s worth a lot these days.
- Look for additional sources of income.
Take a hard look at the skills in your department. Is there any way that those skills could be the basis of a paid service done for your customers (that’s the customers of your business – not just the IT customers)? This is probably the least likely of the 9 strategies, but give it at least a little bit of thought.
Conclusion
You can be creative about cutting costs, or you can turn the cost-cutting process into pure drudgery. It’s your choice, and your attitude toward the problem will have a big impact on your career. People get rewarded when they have a good attitude and help the business. People who complain in this economy often get targeted as lay-off candidates.
Whatever happens, try to be positive about the situation. Turn the process of cost-cutting – and of then living with the subsequent reduced budget – into a challenge for your employees. Help them be creative in coming up with ways to do more with less, and in reusing things that already exist. Cost-cutting is itself a marketable skill, and if you do it right then you and your employees will have fun while you all enhance your careers.
Think about each of the nine cost-cutting strategies, and figure out ways to use them in your own situation. It’s much better to be the leader in cost cutting than to fight it and end up being the cost that someone else cuts.
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You might also be interested in these related newsletter articles:
- "The Right Span of Control Isn't a Number," from July, 2008, talks about why the span of control in an IT organization may not conform to traditional rules
- "Thrasher's Hierarchy of Business IT Needs," from November, 2007, talks about the Maslow-like hierarchy of IT needs for a business
- "Why Middle Managers Are Important," from January, 2005, describes the four vital aspects of a middle manager job
- "How to Fail as a CIO," from March, 2007, describes ways that CIO's fail, and provides advice on how to prevent those failures
Harwell Thrasher is an author, speaker, and advisor specializing in the human side of Information Technology. Harwell shows IT and business people how to work together more effectively by taking the magic out of IT. Call Harwell at (770) 331-6979, or see more on the web site at www.makingITclear.com.
Send comments or questions to newsletter@makingITclear.com.
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