The Process

By Leslie Blair  |  Posted 2010-04-08 Print this article Print

Organizations search for ways to optimize the value delivered by it investments.

The Process

There are three distinct phases in IT cost optimization.

Phase One: Identify and Diagnose. Many companies do not understand the full extent of their IT costs, nor are the costs organized in a way that supports root-cause and comparative analyses. Phase One establishes the objectives of IT cost optimization, and identifies and categorizes all IT costs. Using a bottom-up approach, the organization inventories its IT spend and its drivers in the context of industry-leading practices and benchmarks. This phase also involves targeted interviews with both IT and business leadership to gain a top-down perspective of IT spend and financial management.

By understanding all IT costs and their drivers, the organization can identify practical and sustainable improvement opportunities and define a set of cost-optimization initiatives targeted at specific spending pools.

Phase Two: Design and Deliver. Once Phase One findings have been discussed with business and IT management, areas for improvement are confirmed and the cost-optimization initiatives are understood, enterprises can begin Phase Two—the efforts to optimize IT spend. In Phase Two, optimization projects are formally approved, funded, scheduled and implemented. Our experience with companies that have implemented optimization programs shows us that the most successful of them are managed, financed and administered as an integrated program of improvement projects.

Phase Three: Sustain Benefits. In Phase Three, ongoing progress reports and updates to senior management keep the cost-optimization projects focused on meeting their goals. Performance monitoring and a focus on continuous improvement increase the chances that the program will yield its expected results.

This three-phase IT cost-optimization process can position an organization for immediate quick wins, which can fund the ongoing program, as well as significant and sustainable long-term improvements in the value delivered by IT.

Beginning A Cost-Optimization Journey

A global firm realized that a significant portion of its operating expenses were invested in information technology. As it began its IT cost-optimization journey, it learned that IT expenditures and policies were in silos across various lines of businesses and geographic regions. It also discovered that, while its global IT organization provided technology services, the regional IT functions did not have input on decisions concerning global spend. In addition, it found that its IT governance processes lacked a systematic review of initiatives across the organization to identify common requirements and potential synergies.

The goal of the firm’s IT optimization initiative was to assess and improve IT effectiveness in cost, performance value and spend. Through initial due diligence in Phase One, the project team identified five issues that needed exploration:

1. Are we spending our IT investments in the right places?
2. Should we be providing an “anything to anyone at anytime” level of service?
3. How should we organize regional IT to support our various lines of business and geographies?
4. How should we leverage relationships and optimize investments with the global IT organization?
5. What are the best ways to control application and project spend sourced through the global organization?

These five questions focused project activities and established a common view of the desired result.

The team’s next step was to gather the global and regional IT data. An automated tool designed for this purpose compiled data from each organization’s disparate sources into a standard model. This model aggregated data about IT operations and expenditures for comparison against industry benchmarks.

The analysis was comprehensive, with metrics related to cost effectiveness, workforce productivity, process efficiency and cycle times. Through this analysis, the organization came to a shared understanding of the cost drivers underlying the supply and demand of its IT services. The project team then summarized the key drivers and determined specific opportunities to reduce IT costs and improve its value to the business.

Leslie Blair leads the Advisory practice for Ernst &, Young LLP’s West region. The views expressed here are those of the author and do not necessarily reflect the views of Ernst &, Young LLP.

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