The significance of IT cost management in modern enterprises

Many organisations now view themselves as technology companies as a result of the advent of digital transformation and the rising adoption of cloud computing, which enables them to offer distinctive services to clients online. And in line with this new reality, technological costs are increasing. In 2023, IT spending is anticipated to increase by 5.5% to $4.6 trillion from 2022 levels.

CEOs and CFOs are eager to spend money on IT services and technology because they recognise how crucial it is to creating a modern company that offers top-notch goods and customer service. However, they are also emphasising cost allocation and expecting more cost discipline from their CIOs and IT teams, which puts more pressure on CIOs to defend their spending decisions and maintain spending records.

The process by which CIOs and IT departments project and control expenditures associated to their organization’s technology spend is the best way to achieve this.

Due to the fact that cost containment is a priority for all organisations across all industries, IT cost management has become more significant. In other words, IT executives cannot absorb rising project expenses that result in budget overruns.

The IT department of a company might handle costs inefficiently in a number of ways. They may construct a cutting-edge data centre on their premises, only to discover that operating everything on the cloud would cut their costs in half. Alternately, they may move all of their data to a single cloud provider and discover that for extended periods of time, they were only using a small portion of their cloud footprint but were still paying for the full thing. Alternately, they could purchase pricey project management software only to discover that few staff actually used it.

IT cost management involves more than just expense reduction; it also requires decision-making that can boost revenue and, ultimately, profitability. As executives and other stakeholders come to realise that technology is the upcoming battleground for supremacy, CIOs are being assigned more and more business-related responsibilities.

CIOs can prioritise spending in particular areas that will generate more revenue. For instance, switching from spreadsheets and/or decentralised records to a modern customer relationship management (CRM) platform may be expensive at first, but it can boost productivity and boost revenue.

In the end, organisations are promoting financial management across the board, and IT departments would be advised to promote order and transparency inside their processes to stay in step with the rest of the organisations.

How businesses should handle IT cost management

To ensure they can accomplish their objectives effectively and ultimately provide the necessary cost reductions, organisations must have a clear, defined approach to IT cost management:

Start with a thorough cost analysis. IT departments must first benchmark their current spending to determine how effective or ineffective their current processes are. They must also determine how much money is being wasted and pinpoint areas where they can reduce spending or otherwise improve the position of their IT department.

Establish specific goals: Just like every other business unit, the CIO can evaluate their strategy using metrics. To make sure they are keeping their commitments to executives, organisations must create clear goals and monitor their progress in IT cost control.

Predict their spending accurately: CIOs can no longer afford to let their initiatives go over budget. They anticipate that IT budget predictions will include accurate prices, realistic delivery schedules, and a clear knowledge of the impact the finished project will have on the company. Accurate cost estimation and thorough project budgets that take into account potential deviations are essential components of any modern IT cost management strategy.

Determine total costs of ownership (TCO): Each IT technology must undergo a cost analysis that gives a clear image of how much their technology costs. This study should include IT operational costs, capital expenditures, migration, server upgrades, maintenance, and other factors.

Train or reskill the staff: Whether or not an organization’s employees use the technology it develops or licences, IT services have an indirect cost. The value of the technology should be maximised by employees with the assistance of organisations; otherwise, it will go underutilised and add to the overall tech debt of the company.

Organisational culture must be changed since people and technology must work together to run successful IT operations. Businesses that actively pursue IT cost management must also upskill their workforces and change the culture to prioritise cost reduction and efficiency. Employees should be encouraged to identify software that is being used inefficiently or not at all, to help develop strategies for reducing expenses or increasing productivity, and to consider ways to get rid of or avert tech debt before it becomes too onerous.

There are six ways IT can reduce costs

Any organization’s primary priority is cost optimisation. IT cost management involves both cutting back on current services and increasing their value. The appropriate strategy and investment can boost profits or, at the very least, keep customers.

1. Optimising the cloud

Due to a number of issues, such as delivering cloud migrations over budget or cloud transformations failing to generate the projected cost reductions, cloud spending has increased by 20% to 30% annually.

There are many reasons why cloud expenses are increasing, like paying for underutilised capacity, not being able to track their spending, or paying for extra storage for unnecessary data. Organisations that switch to the cloud and then “set it and forget it” are probably spending too much money. Because cloud usage will inevitably expand with the use of artificial intelligence (AI), particularly generative AI, which McKinsey projects may bring an increase of $2.6 trillion to $4.4 trillion in value yearly, cloud cost management is essential for any IT cost management programme. Utilization-related cloud expenses for generative AI will increase beyond what it will cost to licence models and hire humans to monitor or curate the output.

2.Automatism

A growing variety of IT functions, such as infrastructure management, software updating, and server provisioning and setup, can now be totally automated. Human workers are less required to perform manual jobs as a result of automation, freeing them up to concentrate on tactics and tasks that are of higher priority.

3. Virtualizing desktop and server systems

A single computer’s resources, such as its processors, memory, and storage, are divided into a number of virtual machines (VMs) through the process of virtualization. By allowing for more resource-efficient resource utilisation, virtualization reduces costs. Each application server had its own corresponding CPU prior to virtualization, which ultimately resulted in some servers not operating at full capacity. Organisations may match apps with their own virtual machine and operating system on a single physical computer thanks to virtualization.

4. Evaluation of software licencing

Organisations can increasingly licence technology from third-party suppliers to lower the price of their internal IT services thanks to the growth of the software-as-a-service (SaaS) market. However, over time, organisations may accumulate unused or superfluous subscriptions, occasionally paying for a service they no longer utilise. IT specialists regularly reevaluate licences as part of any comprehensive IT cost management strategy to make sure organisations are only paying for products that they use and that deliver value above their cost.

5. Asset and IT lifecycle management

The amount of time an organisation can use software and other IT services is increased by lengthening their lifecycles. Businesses should regularly review every aspect of their IT systems to understand every area of their infrastructure, how it is working, and when it requires maintenance or replacement. This will give them real-time visibility into their services.

6. Invest in modern technology

As counterintuitive as it may appear at first, a corporation can save money by buying or licencing new technology. Technical debt is a common problem with outdated technology, which results in today’s poor choices costing more money tomorrow. A temporary patch rather than addressing the underlying problem or choosing a less expensive platform that does not offer all required services are examples of technical debt. Even if those charges are put off for now, they will all eventually result in more maintenance expenses.

While there is an upfront expense associated with investing in new technology, over the long run it can help a company become more efficient, more easily develop innovative consumer solutions, and prevent expensive security breaches.

CIOs need to control costs while generating value.

Organisations are giving CIOs’ jobs more weight, and they anticipate them to have a positive impact on the bottom line. They must therefore make IT cost management a key part of their mandate if they are to understand how IT is boosting profits while controlling costs. In order to effectively impact their organisation, which unquestionably depends more on technology than at any other time in its history, CIOs must proactively and consistently monitor, analyse, and report the financial health of their departments. In doing so, they will be viewed as important and equal partners in the C-suite.

Take action now.

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