IT Cost Optimization – how to do it?

Cost optimization plays a significant role in every enterprise. It should cover every aspect of its functioning, including IT departments. In the era of rapid technology development and the need to adapt the hardware and system infrastructure to the prevailing market conditions, it becomes clear that IT divisions’ rational financial management brings measurable benefits to […]

Cost optimization plays a significant role in every enterprise. It should cover every aspect of its functioning, including IT departments. In the era of rapid technology development and the need to adapt the hardware and system infrastructure to the prevailing market conditions, it becomes clear that IT divisions’ rational financial management brings measurable benefits to the entire enterprise. So how to properly optimize IT costs?

What does IT cost optimization, and why should it be carried out?

The main objective of IT cost optimization is to reduce expenses related to the provision and maintenance of IT solutions and the rational use of existing IT resources to ensure the company’s smooth functioning. Besides, the benefits also come from minimizing business risks, increasing the efficiency of IT process handling, creating flexible and efficient operation, and business processes.

IT cost optimization – best practices

According to Gartner’s “Five Principles Underpin IT Cost Optimization Success” report, companies’ success that optimize costs typically revolves around five fundamental principles that translate into long-term goals. Among them are:

1. Transparency – a quantitative assessment that defines IT resource consumption, the drivers and inhibitors of IT departments, and other business services is key. 
   
2. Agility – companies that continually optimize IT processes typically demonstrate high levels of skill and adaptability.
   
3. Responsibility – in optimizing IT costs, it is essential to anticipate demand and to react to changes in the company in good time. This eliminates downtime and brings tangible financial benefits.
   
4. Simplification – an emphasis on simplifying processes, usually in itself, leads to cost optimization. Data on crucial IT metrics released by Gartner shows that the best-performing companies optimizing IT costs spend on average 38% less than others to achieve similar results.
   
5. Discipline – it is important to remember that the cost optimization process is not a one-off task. For it to be carried out correctly, accurate and continuous data analysis is needed.

IT infrastructure cost optimization strategy 

The starting point for IT infrastructure cost optimization is to focus on activities that will provide the company with the best and fastest return on investment. When planning the next stages of the work, particular attention should be paid to: 

1. Proper alignment of initiatives with business priorities – IT departments now play a vital role in software development companies and their digital transformation. Cost optimization should, therefore, be correlated with company objectives. It does not necessarily have to mean choosing the cheapest solutions. They must be tailored to the company’s needs and help implement the adopted strategy.
   
2. Better overview of the IT resources – optimizing IT services’ costs requires precise knowledge of what resources the company uses. Therefore, it is worth making a thorough calculation of the cloud services you use and the traditional ones in the form of local data centers.
   
3. Carefully define your cost structure – proper cost allocation allows the alternatives available on the market to be priced appropriately. The costs of cloud solutions are easy to calculate, and the conditions for using them are included in the business contract or the selected subscription model. Also hosting services usually have an exact price list. In the case of traditional local infrastructure, however, one should pay attention to the cost of individual hardware, operating systems, and administration and maintenance costs of the entire IT infrastructure.
   
4. Rational identification of inefficient processes – both overestimation and underestimation of IT infrastructure resources is not acceptable. However, to optimize IT costs, it is worth verifying the IT department workload intensity in seasonality, applied and planned changes in business processes. To do so, historical data can be used and related to market trends. The analysis will then cover the full business cycle and allow easier identification of areas where IT service cost optimization is possible.
   
5. Appropriate allocation of costs based on IT departments’ activities – in IT infrastructure cost optimization, it is also essential to know which IT infrastructure resources are used by individual departments. For example, if we use cloud solutions and know the total cost of maintaining these technologies, we can quickly and easily calculate individual units’ financial burden. By allowing each cost center to pay for what they use while optimizing their costs, we can lower the overall cost. For in-house data centers, the situation is not as simple. Not only the total cost of maintaining the IT infrastructure but also depreciation must be taken into account.

As shown from the above examples, proactive IT infrastructure management can positively affect IT costs optimization. These activities also significantly minimize the risk resulting from the preliminary estimation of the demand for individual hardware and system resources and improve the digitization process while rationalizing budget management.