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Opportunities & Challenges in IT Cost Reduction: Summary Report


Introduction to the Summary Report

Table of Contents for “Opportunities & Challenges in IT Cost Reduction” :

1. Executive Summary

2. Research Methodology

3. Influences on Cost Reductions

4. Cost Reduction Techniques

5. Success of Cost Reduction Areas

6. Staffing & Salaries

7. Project Portfolio Management (PPM)

8. Discretionary Spending

9. Vendor & Outsourcer Management

10. Vendor & Outsourcer Management Best Practices

11. Key Conclusions

12. Case Studies

This summary report contains sample slides from the full Impact Research Report, “Opportunities & Challenges in IT Cost Reduction.” The actual report contains 71 slides and provides full analysis and best practices for IT cost reduction, as illustrated in the table of contents below.


Research Method


Research Method

Profile of Organizations StudiedRespondents by Industry

Respondents by Total Employees Respondents by Region Respondents by Job Title

“Opportunities & Challenges in IT Cost Reduction” analyzes cost reduction practices gathered from 167 survey and 60 interview respondents.

Respondents come from a diverse mix of industries and business sizes, and bring insights from both North America and other regions.

Many senior leaders participated in this study, and provide additional depth in IT and business expertise.

Manufacturing(24%)

Trans., Utilities, Telecom.

(16%)

Business Services

(14%)

Financial Services

(11%)

Government(10%)

Healthcare(10%)

Wholesale/Retail(8%)

Education(7%)

1 - 100(11%)5000+

(17%)

1001 - 5000(29%)

501 - 1000(16%)

251 - 500(16%)

101 - 250(11%)

Other(12%)

United States(70%)

Canada(18%)

Ow ner / President /

CEO(2%)

C-Level Off icer(12%)

VP-level(14%)

Director-level(41%)

Team Lead / Supervisor

(6%)

Manager(26%)


How Survey Results Shape the Format of this Report

Respondents answered questions about a specific, significant IT cost reduction exercise they were involved with in the past five years, and about what activities contributed to this reduction. Respondents were also asked about the impact of 2008 economic conditions.

Respondents then provided details in 1 of 4 areas: Staffing and Salaries Project Portfolio Management (PPM) Vendor and Outsourcer Management Discretionary Spending

This report examines why and how IT departments undertake cost reductions, then moves into results and best practices.

The organizations sampled have a particular wealth of experience in Vendor and Outsourcer Management, so an extended set of best practices is offered for this area.

Respondents By Type ofSurvey Answered

Vendor & Outsourcer Management

27%

Staff ing & Salaries28%

Discretionary Spending24%

Project Portfolio Management

21%

Throughout the report, a wealth of interview data validates and illustrates survey results and provides numerous best practices.

Research Method


Why are IT departmentsreducing costs?


Overall, IT departments try to optimize cost proactively – but the economy is a major factor, too.

An effort to optimize or decrease spending is the largest influence on reducing costs. Organizations are indeed focusing on self-started cost reduction programs that contribute to IT’s overall value.

Despite this, general economic conditions are counted as a moderate or major influence in 6 out of 10 IT departments.

2008 economic conditions have affected IT to some extent, with almost 4 in 10 organizations decreasing their spend.

Why are IT departments reducing costs?

Change in IT Budget from 2007 to 2008

“…other departments were forced to cut budgets – but we weren’t, because we delivered a flat to modestly increased

budget for 4 years without cutting services to the organization.”

CIO, Public Service Organization

17%

16%

30%

21% 17%Increased more than 5%

Increased by up to 5%

Stayed the same

Decreased by up to 5%

Decreased by more than 5%


What cost reductiontechniques are used?


What cost reduction techniques are used?

Cost reduction activities vary across organizations, but a few types of efforts are quite common. Staffing & Salary Changes: Change in use of consultants/contractors Layoffs or retirements Change staff duties or training Freeze on raises or decrease bonuses Move full-time to part-time

Project Portfolio Management (PPM): Optimize business processes Reprioritize capital expenditures/projects Cancel/delay capital expenditures/projects Introduce new cost reduction projects

Vendor & Outsourcer Management: Renegotiate vendor/supplier/outsourcer

contracts Change outsourcing mix

Discretionary Changes: Change travel levels/policies Change training levels for staff or

management Reduce team builders/events Change non-monetary benefits

While 3 in 10 organizations have used layoffs to reduce costs, changing the use of

contractors & consultants is the most popular.

Reprioritizing or cancelling projects are popular choices. Fewer IT departments introduce

initiatives that specifically drive cost savings.

Changing discretionary spending & travel policies contributes to discretionary spending reductions, but few organizations focus here.

Renegotiating vendor & outsourcer contracts is very common, with up to half of organizations

undertaking this activity.


How successful are cost reductions in each focus area?


The success & ease of reducing costs varies considerably by focus area.

Organizations that focus on vendor and outsourcer management and staffing and salaries are most successful in saving money – but those savings don’t happen without hard work or growing pains.

Project portfolio management and discretionary spending offer fewer savings opportunities than organizations first realize, and tampering with these areas could cause significant distress in IT.

IT organizations may not know where the cost savings opportunities are, or recognize the accompanying pitfalls. The best practices in this report help boost savings while preventing pain.

Executive Summary

“IT departments are now running leaner and they can tell management, ‘Look, we’re getting closer to the edge. It’s still okay, but if you cut further, you’re going to have major

consequences’.”

IT Director, Healthcare Organization

Staffing & Salaries Vendor & Outsourcer Management

Discretionary SpendingProject Portfolio

Management

High Pain Low PainL

ow

G

ain

Hig

h

Gai

n


What mitigating steps & best practices should IT departments

use when reducing costs?


Mitigating Steps & Best Practices

What mitigating steps & best practices should IT use when reducing costs?

Staffing Understand why tracking present & future skill-set needs aids staffing

decisions. Learn to increase the training budget to realize productivity gains.

Project Portfolio Management Understand why a clear project management strategy and ongoing

prioritization is essential. Use projects with a savings component to increase IT’s value.

Discretionary Spending To avoid severe negative impact to staff morale, choose the right

discretionary budget items to pull back on. Understand how staff will be impacted by certain policy changes.

Vendor & Outsourcer Management Vendor & outsourcer management is time consuming, so learn how to

properly organize the continuous cycle of activities required. Learn which vendors have the most cost savings potential.

These mitigating steps & best practices are a sample of what is available in the full Impact Research report, “Opportunities & Challenges in IT Cost Reduction.”

To download the full report, click here.


Case Studies

Industry Pharmaceuticals Employees 2700

Type of Organization Private IT Employees 60

Number of Locations More than 5, international Revenue $1B

Cost Reduction Period 2005-2007 Revenue Growth -9%

IT Complexity High IT Budget $20M

Technology Adoption Average Change in IT Budget -5%

The Situation: IT had to cut costs while in the middle of multiple, major projects. At the time, IT was treated as a cost center.

Steps Taken: The CIO at this organization believes the value of IT is amplified during a downturn, so the project portfolio was adjusted to provide cost savings. A few of the initiatives that were changed included:

Delaying new projects that could be safely pushed back. For example, delaying the modernization program for infrastructure and data center upgrades.

Reducing the scope of existing projects and cancelling parts of the e-mail archiving project and virtualization program.

Postponing desktop PC and server upgrades. Pushing refresh cycles for desktops from every 3-4 years to 5-6 years and for servers from 4-5 years to 6-7 years.

The Result: IT met the mandated cuts and established a governance process that didn’t exist before the downturn. Once revenues picked up again, the new processes enabled IT to immediately ramp up to speed on the delayed projects.

Sample Case Study Proactive Project Portfolio Management

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