AquaMCG can help look at costs that are incurred on IT and recommend practical approaches and recommendations (Short-term and Long-term) for reducing the spend on IT including looking at benchmark figures

Our View:

Traditionally IT Cost Reduction initiatives usually come down to identifying and postponing capital expenses and special projects, reducing travel spends, deferring upgrades or replacing obsolete systems. What this leads to is a sub-optimal allocation of IT Budgets and can be detrimental to the organization over the longer term since IT is not flexible enough to bounce back once the good times are back

Companies spend nearly 65-70% of their IT Budgets on maintaining legacy systems which may now be offering only limited functionality.

Yet the majority of the IT Budgets are spent elsewhere. Organizations end up spending nearly 60-70% of their IT dollars on running their legacy systems having piece-meal functionalities and multiple servers (production, development, test environments). This balloons up the IT spend especially when the number of applications is large. However, as in most other situations, the Pareto principle works here also in that 80% of the functionality can be delivered in some form or the other through 20% of the applications.

While Application Portfolio Analysis is the right long-term approach to clean up the landscape, there may be some short-term steps that can be undertaken to get a handle on the IT Costs and to arrive at specific initiatives to address costs.


Our view is that there is a significant amount of information available in the data that is available in organizations. We approach IT Cost Reduction in 2 phases:

1. Senior Management Workshop: This is a 1-day workshop that sets the tone of the IT Spend Analysis exercise. Do a quick prioritization of the key business/organization domains under the current scope. Workshop attendees will be asked to rate their top 3 business domains that IT needs to enable. Also list down the key functionalities within these prioritized domains. Come to a consensus on this during the workshop. The framework for evaluation will be customized and agreed upon including the data requirements. 
2. IT Spend Analysis: This is an interview and workshop driven approach that brings together key stakeholders in the IT organization. In this phase, we will come to a conclusion on what are the top things that need to be done to address costs

 
 
a.    IT Capital Budgets:

Take a hard look at the IT Capital Budgets that have been allocated for projects that are ongoing and upcoming.  Most of these IT Capital Budgets that have been allocated must map to the key functionalities that have been prioritized. If they do not form part of the priorities, then it is time to look at reviewing the budget allocation.
 
a.    IT Operating Costs Evaluation:

i.    Deep-dive into the IT Operating Cost budget (by applications, infrastructure, business, domains, location, support costs etc)
ii.    Evaluate the costs based on 80/20 rule [do this only for the 20% applications/services that form 80% of the costs]. The cost baseline has to be clearly identified for these services (applications, infrastructure, support personnel, user services)
iii.    Every IT Cost needs to be allocated to applications/services. If there is an issue of allocating costs, then there are some unaccounted costs.
iv.    Assess performance vs costs. If there are large costs that are showing up for lower priority applications/services, that is a clear opportunity for re-looking at this cost

 
b.    Cost Reduction Recommendations:

Based on the analysis, identify specific cost reduction opportunities. These are typically the following:
 

i.    Lower the cost on ‘high-drain’ applications: Any lower-priority application  that is draining more IT Spend should lead to initiatives to abandon/reduce spend on infrastructure or cost of support services
ii.    Cost of Service: Applications and Services can be supported at a high cost based on needs that were perceived. However in a tightening scenario, it may be prudent to decide that you do not need to provide ‘Business Class’ service for a lower priority application/infrastructure

 
c.    Process and Organization Recommendations:

As part of this analysis, we will also identify maturity gaps in the IT processes and potential Governance activities that can provide IT executives with better control and leverage over their IT costs.

Look for applications/ services that contribute to 80% of the costs and prioritize initiatives accordingly (Pareto Rule)

What does it take?

To achieve this cost reduction, this engagement can be completed quickly in a period of 3-4 weeks for larger organizations and around 2 weeks for smaller organizations. However, it is important that some amount of preparatory work is done in collecting the data necessary before this exercise begins. Also, the executive sponsorship is critical for getting these quick results.

We work with a small team from IT and Business which should include personnel who can provide information on the IT Financial Allocation. Finally, a presentation will be made to the Sponsor and Senior Management team with the recommendations leading to implementation plans.

What do you get out of this?

This exercise can help identify quick-win opportunities for IT Cost Reduction and bring in savings of nearly 10% on current spends. As part of the deliverables, we provide clearly outlined recommendations for getting a quick handle on the IT Spends.

Implementation of Recommendations:

Start IT Cost Reduction activities right away!

To know more about our IT Cost Reduction approach and methodology, please contact us at ITSolutions@aquamcg.com or contact us at any of our office locations. We can schedule a free IT Diagnostic workshop to uncover opportunities.