IT Budgeting: Exploring Cost Reduction Strategies

IT Operations
Two People Budgeting and Planning

As companies look to transform their businesses digitally and rely more on technology, investing in IT becomes more important than ever. Building an IT budget that drives innovation and business growth while controlling costs at the same time can be a herculean struggle for many IT teams. Let’s look at some ways IT teams can find that balance between cost control and innovation in their 2021 IT budgets.

IT Budgeting

IT budgeting generally involves allocating about 80 percent of a company’s resources towards simply “keeping the lights on” (KTLO). This means keeping the existing infrastructure and applications up and running. This leaves only 20 percent for innovation and new technologies that could drive business growth and create a competitive advantage. A 2018 study by market research firm Vanson Bourne found that 96 percent of IT leaders said increasing spending on innovation is a strategic priority for their organizations. However, 71 percent said that they struggle to find the budget for IT innovation.

One of the really key takeaways from that study was this:

“Organizations that have already experienced innovation benefits reported an average increase of 14 percent in annual revenue and an average decrease of 12 percent in operating costs.

It is critical to find ways to prioritize investments that can help you achieve your business’ growth strategy and improve your company’s bottom line. Your IT budget should align your IT initiatives with your organizational goals.

At the same time, reducing IT costs is a top priority for nearly 40 percent of IT Leaders worldwide, especially since they are dealing with an economic downturn and new budget constraints. In the current economic environment, IT teams are expected to do more with less. Therefore, an IT budget that enables you to optimize spending is of critical importance.

IT Cost-Reduction Strategies

It goes without saying that reigning in and controlling IT expenses can be challenging.

Here are a few basic strategies that can help you reduce your IT costs. While they may not suit every single business out there, they could be used as a springboard for your IT department’s 2021 planning and budgeting process.

1. Reduce Hardware, Software and Other Costs

You can reduce software licensing costs and improve IT productivity by:

Eliminating redundant IT management point tools

Using a comprehensive IT management solution that meets all your IT needs can increase your team’s productivity while also allowing you to eliminate unnecessary point tools. This can reduce your overall software license costs for IT management tools.

Optimizing the use of virtualization and containerization technologies

Both these technologies allow IT teams to improve the utilization of hardware resources, which in turn reduces operating costs. However, virtualization technology works better for certain applications while containers work better for others. Understanding where these technologies fit best allows you to you optimize your costs. For example, each VM runs a full guest Operating System (OS), so they are better suited for applications that require access to all of the OS’ resources and are generally considered to be more secure. Conversely, containers share OS resources and are more lightweight compared to VMs, which means you can run many more applications on the same hardware. This can save you money on hardware resources for applications that work well in containers.

Accelerating your move to cloud/SaaS

This can help you reduce or eliminate many of the expenses associated with on-premises technologies. With cloud solutions, you don’t have to spend on maintaining or replacing hardware. Also, you can easily adjust your usage and costs (pay as you go) as you scale your business.

Investing in tools that support a remote workforce long term

Remote work is here to stay. Companies transitioning to remote work due to the COVID-19 pandemic can cut down on business expenses by letting go of brick-and-mortar offices and the costs associated with them. Use remote monitoring and endpoint management tools that enable your IT team to efficiently manage remote devices for work-from-home (WFH) users.

Monitoring and managing software license costs

Have a clear view of all the applications and services that are currently in use across your organization. Once you have this information, reduce licensing costs for unused or underused applications and invest where additional licenses are required.

Reviewing existing contracts prior to renewal

Set lead time alerts on contract renewals so that your team has time to consider alternatives before the contract renews. You could also try and renegotiate contracts to reduce costs and better meet your company’s needs going forward.

2. Reduce Labor Costs

You can reduce these costs by:

Managing employee retention

Every time an employee leaves your team, your company incurs costs. It costs as much as 33 percent of an employee’s annual salary to replace that person. Support your employees in their professional growth, create a workplace they would want to thrive in and make the extra effort to keep them engaged.

Embracing IT automation

Policy-based automation of IT processes relieves IT teams from manual effort, thereby reducing operational costs and freeing up time for more strategic tasks. Download our IT budgeting checklist – 7 Processes to Automate to Improve Productivity and Reduce IT Costs, to identify which IT areas you can automate.

Monitoring contractor costs

Employing contractors instead of permanent employees can be cost-efficient in some cases since contractors are often employed for short periods of time or for specific projects. However, if these costs are not monitored, companies can overshoot their budgets in this area.

Reducing your hiring costs

If your company experiences frequent employee turnover, you could look to reduce recruiting costs in the following ways:

  • Leverage social media channels, such as LinkedIn, to post job openings and recruit new talent
  • Implement an employee referral program to get quality candidates in the pipeline for a relatively small employee referral fee
  • Promote your company on your website and social media by highlighting your culture and employee perks

The Ultimate IT Budgeting Checklist

By implementing some of these cost-saving strategies, your organization will be able to free up more funding for innovation that will, in turn, drive business transformation and growth. Check out our IT Budgeting Checklist that can help you with your budgeting process.

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