10 IT cost management tips organizations must follow to ensure growth

Matt Dando, Director, Strategic Business Value Consulting at Serviceware, discusses the 10 most important steps for maintaining, and optimising IT cost control.
Matt Dando, Director, Strategic Business Value Consulting at Serviceware, discusses the 10 most important steps for maintaining, and optimising IT cost control.

Over the last 18 months, digital transformation initiatives have sky-rocketed, with investment in the cloud increasing dramatically. As a result, businesses are now being faced with what can only be described as a ‘data deluge’, as CFOs and CIOs battle to manage cost data from the various vendors associated with both cloud and existing on-premises investments.

And now, as businesses turn the corner in terms of growth, with pressure around sustainability acting as another influence for cloud adoption, never has there been a greater need for businesses to have a complete, detailed and transparent view of all IT costs. To identify the right investment areas and increase the performance of existing systems and technology.

Now, more than ever, businesses must ensure that they are managing IT costs effectively – not just in terms of cutting, but also optimizing investments, and reinvesting in the tools and technologies that can and will enable them to keep up with the wider business strategy. Luckily, there are 10 simple steps that businesses can follow in order to ensure efficient and streamlined control over IT costs.

Step 1: Create a comprehensive IT service catalogue

The starting point for IT cost control is the creation of an IT service catalogue. This catalogue outlines individual IT services, information about their purpose, location and costs, to create a detailed overview. Having a clear and complete definition creates standards for available services and bridges the gap between different departments.

Step 2: Track IT costs effectively

One of the most important tools for the efficient tracking of IT costs is the control of the value chain, from the smallest cost units to finished business units. With the help of service catalogues, benchmarks, the use of IT Financial Management (ITFM) or what is often referred to as Technology Business Management (TBM) solutions, comprehensive access to this data can be guaranteed, creating a ‘cost-to-service flow’ that identifies and controls the availability of IT costs.

Step 3: Establish IT budgets

Even with perfect transparency of IT costs, there are different approaches to allocating IT budget – centralized, decentralized and iterative. With a centralized approach, the budget is determined in advance and distributed to operating cost centres and projects in a top-down process, allowing for easy, tight budget allocation. With this approach, however, there is the risk of overlooking projects that offer potential growth opportunities. With the decentralized approach, the process is reversed. Operating costs are precisely calculated before budgeting and projects are determined. The downside is that budget demands might exceed available resources.

Finally, the iterative approach tries to unify both methods. Set budgets, overhead and prospective projects are put together to make a detailed assessment of the most viable course of action. Although the most lucrative approach, it also requires the most resources. None of these approaches are necessarily superior. Instead, it depends on the available resources, and the enterprise’s structural organization.

Step 4: Manage the IT budget for growing the business

Before allocating IT budget, it is important to define costs into two categories: ‘run’ and ‘grow’ costs. ‘Run’ costs usually include operating costs, while ‘grow’ costs refer to all services and products that are intended to change, transform or expand the business. Benchmarks and standard definitions can help with this categorization, but do not necessarily have to be followed, as long as cost allocation remains consistent. When definitions have been clearly determined and projects assigned, the IT budget needs to be allocated, and decisions need to be made on how to split the budget. Whilst a split of 70% run/30% grow is the norm across most enterprises, there is no one-size-fits-all approach, and decisions will rely on varying factors such as availability of resources and the goals of the enterprise as a whole.

Step 5: Maintain a positive profit margin

By following the steps above, organizations can achieve complete transparency with regards to which products and services are offered, where IT costs stem from, and where budgets are allocated. This makes it easier to analyze how much of the IT budget is being used and where costs lead to profits and losses. If the profit margin is positive, the controlling processes can be further optimized, and, if the profit margin is negative, appropriate, or timely, corrective measures can be initiated.

Step 6: Adhere to tax compliance

One additional important factor in comprehensive IT cost control is tax compliance. The more a company’s enterprise operates internationally, the more relevant it is to stay on top of varying international tax regulations. IT products and services marketed abroad are subject to country-specific tax laws. To ensure that they are adhered to without errors, it is necessary to provide correct transfer price documentation. This in turn depends on three factors:

  1. Transparent analysis and calculation of IT services based on the value chain
  2.  Evaluation of the services used and the associated billing processes
  3. Access to the management of service contracts between providers and consumers as the legal basis for IT services.

By achieving the transparency enabled by the previous steps, it is possible to demonstrate international tax compliance.

Step 7: Benchmark and price IT services

The first step in pricing IT services is to collect benchmark data. These can be researched or determined using existing ITFM solutions that are able to obtain them automatically from different – interconnected – databases. Next, a unit cost calculation is necessary in order to define exactly and effectively what individual IT services – and their preliminary products – cost. This enables businesses to easily compare internal unit cost calculations with the benchmarks and competitor prices, before making decisions about pricing.

Step 8: Identify cost drivers

A properly modelled value chain makes it clear which IT services or associated preliminary products and cost centres incur the greatest costs and why. This analysis allows for concise adjustment to expenditure and helps to avoid misunderstandings about cost drivers – for example, the importance of infrastructure on the generation of IT costs. Then, strategies can be developed to reduce IT costs effectively and determine more careful use of expensive resources.

Step 9: Charge back IT costs

IT cost control through the value chain enables efficient usage-based billing and invoicing of IT services and products. If IT costs are visualized transparently, they can easily be assigned to IT customers. This increases the transparency of the billing process, and provides opportunities to analyze the value of IT in more detail. There are two options for informing managers and users about their consumption: either through the showback process – highlighting the costs generated and how they are incurred – or through the chargeback process, in which costs incurred are sent directly to customers and subcontractors.

Step 10: Manage supply and demand

The manual nature of Excel spreadsheets poses a risk to data integrity and should therefore be avoided, as they are impossible to keep up to date all the time and require significant effort to maintain. A holistic analysis and greater cost transparency results in a larger, more detailed overall picture of IT service consumption, which allows conclusions to be drawn in a timely manner to enable the optimization of supply and demand for IT services in various business areas.

READ MORE:

Maintaining control

A secure, transparent, and sustainable IT cost control environment can be created by following the above steps. As a result, budgets can be optimally utilized, IT costs can be cut and overall productivity significantly boosted. Ignoring this advice will not necessarily lead businesses to fail, but overall business performance and growth can be severely hindered if you do not stay on top of the ever-changing conditions of the current market landscape.

 For more news from Top Business Tech, don’t forget to subscribe to our daily bulletin!

Follow us on LinkedIn and Twitter

An image of IT, News, 10 IT cost management tips organizations must follow to ensure growth

Amber Donovan-Stevens

Amber is a Content Editor at Top Business Tech

The critical role of data integrity in generative AI

Anjan Kundavaram • 23rd November 2023

The quest to harness the full potential of generative AI relies on finding trustworthy data to achieve outstanding results for diverse use cases. With the continued growth and transformative impact of generative AI, business leaders need to ensure that the data being fed into it has integrity.

Navigating a CTO-as-a-Service arrangement

Cyril Samovskiy • 21st November 2023

Attracting a top-tier Chief Technology Officer (CTO) can be challenging at the best of times, but for tech startups – who often have limited resources, a yet-to-be-proven product-market fit, and financial instability – it can be even more so. Add tech’s ongoing talent shortage to the mix, and it’s easy to see why CTO-aaS is...

The Importance of SBOM and CVE in Medical

Diego Buffa • 18th November 2023

This article explores the critical landscape of medical device cybersecurity, focusing on the IMDRF’s “Principles and Practices for Medical Device Cybersecurity.” It advocates for a holistic approach throughout the product life cycle, with particular emphasis on the vital role of the Software Bill of Materials (SBOM). The article addresses the FDA’s stringent postmarket vulnerability reporting...

AI powered fused spurs unveiled by measurable.energy

Diana Kamkina • 15th November 2023

measurable.energy, experts in eliminating wasted energy, are proud to announce the launch of their latest innovation – fused spurs. This highly anticipated addition to their product line is set to transform the landscape of energy management in construction and commercial buildings.

Technology for a Sustainable Tomorrow

Mark Robison • 09th November 2023

We currently face the critical challenge of reducing carbon emissions in an effort to reach net zero targets. This is the challenge of our lifetime and for many more generations to come. Fortunately, this challenge has ushered in a new era of innovation, where technology plays a leading role in creating a sustainable future.

Preparing UK Businesses for the Coming PSTN Switch Off

Chris Wade • 01st November 2023

The PSTN Switch Off will require a robust framework of action as all business sectors will be impacted. In order to stay ahead of this significant change, businesses must start considering new, digital alternatives such as VoIP based communication technology.

Dark Fibre’s Role in Supercharging Edge Data Centers

Sean Lowry • 18th October 2023

In response to Proximity Data Centre’s e-book, Glide’s CTO, Sean Lowry explores the impact of low latency on gaming, the Metaverse, and AI. He explains how dark fibre and Glide’s “Fibre Cities” are primed to support the evolving needs of edge data centres and seamless connectivity.

Smart Labels and the intersection of technology and logistics

Sam Colley • 13th October 2023

The delicate fabric of the ever-evolving technological landscape is being rewoven with the introduction of game-changing elements like smart labels, which are bringing the logistics industry to the forefront of innovation. These technological wonders are not only transforming the landscape of logistics, but they are also unlocking a multitude of options where precision, discretion, and...