Economic climate ups ante for IT cost management

It has become a familiar lament. “Our IT organization is under more pressure to deliver more value without commensurate increases in budget.” Well, in today’s economic environment of fear, uncertainty and doubt, the IT cost management problem has become even more acute. Even before the latest events on Wall Street, Forrester Research reported that more than 40 percent of over 900 executives in large European and North American businesses have cut their IT budgets in 2008. Almost half (49 percent) of North American firms have cut their IT budgets. This compares with 31 percent of respondents in Europe. Forrester, however, predicts that downward pressure IT spending for European IT shops will build.

But demands on IT are not tapering off to accommodate the reduction in resources. Indeed, as organizations respond to transformative shifts in the global economy, CEOs are looking for the IT department to contribute to innovation initiatives that will improve competitiveness, streamline operations and strengthen the corporate balance sheet.

A study out from Computer Economics Reports this summer – featuring input from 200 IT managers in small, medium, and large organization -- indicates that as much as 30 percent of IT spending this year will go toward new initiatives (as opposed to ongoing, "keeping the lights on" spending).

Since budgets are not rising, that means that “innovation initiatives” will have to be funded by cost reductions in the day-to-day management of “core” operations. As a result, enterprises around the world are focusing on new best practices that streamline both costs and processes to divert dollars and technology experts to new projects that result in new revenue generation and cost amelioration.

So what are IT managers to do? According to Matthew Holitza, an engineer at IBM’s Rational software division, managers should develop a new mindset toward cost control that revolves around:

• Simplification

• Centralization and

• Collaboration

Each of these concepts affects the others, and when they are viewed in an integrated context they offer an opportunity to reduce IT costs significantly while actually improving service delivery to the enterprise.

• Simplification. In the good times, it is easy to fall into the habit of buying solutions and fixing problems in the enterprise as they come up. Over time, however, these point solutions can contribute to the emergence of complex IT environments that are expensive to management. They also create operational and maintenance requirements that are difficult replicate and leverage to similar situations in other parts of the enterprise. Simpler and more consistently defined processes are easier to automate and lead to substantial IT cost reductions because they remove friction and distractions from day-to-day work.

• Centralization. As concepts like Services Oriented Architectures (SOA) and methodologies – such as those described in ITIL – it becomes viable to develop centralized policies based on corporate governance rules. It also provides the basis for automating processes and procedures. This can go a long way toward reducing the risk exposure – an important element in IT cost management – advancing the corporate agenda and ensuring compliance with key government and corporate mandates. “Managers, directors and executives want governance,” said Holitza. “But if you ask testers or developers...to them it just makes it harder to get their work done. If you automate workflow, however, you make it easy for people to follow, and they can produce work much faster, and at a lower cost.”

• Collaboration. A tremendous amount of effort has been expended into automating processes and removing human latency from the equation. The objective has been to remove instances of human error and accelerate the pace of workflow. However, as the imperative to be responsive in a dynamic global economy increases, then the need to make decisions and collaborate with colleagues in a cost effective manner can actually reduce operational and capital expenditures. The key, explains Holitza, is to enable more collaboration over the lifecycle of projects. This can be institutionalized by ensuring that consistent processes are supported by access to portals or central repositories. This allows key stakeholders – such as business experts, managers, directors, testers and developers – to be on the same page and work from the latest available information. The reduction in errors due to faulty assumptions can make large contributions to the IT cost management challenge.

To learn more about how experts at IBM can work with your organization to optimize your IT cost management, please contact IBM.