Seven Ways to Reduce IT Costs

IT costs are impacted by IT developments and operations. Those in charge of information systems pursue cost savings that grow year by year. The scope can be enormous even when considering only IT. From replacing PCs, to budget requests from software developers, to monthly maintenance operation, there can be a variety of costs. Where do you start? Confusion is understandable, so this article will introduce seven steps to help, beginning with the person who took the request for IT costs from management.

1. Organize the potential changes so that you can demonstrate leadership

The first thing you should tackle to reduce costs is to make it possible for information systems to manage all IT investments within their operation. In other words, it starts by preventing other departments from overlapping or multiplying your work. It is a wasteful IT investment in operational expenses if you are responding to multiple, overlapping requests from departments. And while it may be a necessary investment for each department, without a unified in-house IT strategy it can become an unnecessary hindrance to corporate growth. The person in the information systems leadership role needs to take charge and promote reform from the top down. It is not uncommon for the person in this role to redirect demands from other departments and make proactive investment decisions. Now, just because you want to reduce costs, it does not mean you should cut the budget of all departments uniformly. It is necessary to show an understanding of the importance and urgency related to the company’s mid- to long-term IT strategy, as it is to promote cost saving measures. A balance between IT investments and the implementation of strict cost correctives must be struck. This way, if the information systems department has a final say on everything related to IT, a control will have been put in place to prevent other departments from undermining the authority and cost-cutting measures.

2. Visualize IT costs

Visualizing IT costs is key. Without it you cannot, for example, confidently back up your manager’s request to reduce “x” because it costs too much. And you must start by asking, are the current IT costs for “x” too high for this type of business or a company this size? At this point you need to remain aware of the effectiveness and efficiency of IT cost drivers. Effectiveness is an indicator of whether the IT investment is paying off. Most only consider this when the system is introduced, but we measure effectiveness on improvements since installation. This is the best way to determine if substantial maintenance and operational costs would be incurred on a system should it become outdated. Efficiency is an indicator to determine whether excessive overhead is required to achieve strategic goals. As mentioned in the previous step, here you must also begin cuts where an inefficiency was introduced to the system. If you do not prioritize according to efficiency, there is a possibility that the productivity will decline more than it reduces costs.

3. Outsource of non-core business

Many large companies have introduced BPO (Business Process Outsourcing) to reduce initial costs and improve operation efficiency in recent years. By delegating all or part of the company’s operations to the outside, the in-house side can focus on other tasks and achieve more efficiencies, such as higher quality controls, local cost reduction, etc. Those in charge of information systems who are unable to focus on core business and multitask, should consider utilizing BPOs since they range from handling operation and development of IT systems, customer correspondence, personnel, accounting, and other general affairs. Below are a list of business processes that can be outsourced.

Examples of BPO services provided:

Service support: Troubleshooting, business inquiry correspondence, support desk operations, Q/A correspondence, etc. Security: Mail security, web security, server security, formulation of security policy, security monitoring, etc. Application: Information/business application development, maintenance, package provisioning, etc. Hosting: Providing equipment, providing some software such as middleware, providing software such as server OS, operational monitoring, etc. Data entry tasks: Name entry, business card entry, questionnaire entry, etc. Other: Office processing, DM shipping, secretarial management agency, EC site management agency, etc.

4. Switch to cloud computing

If you switch your server to a cloud service operation, you can store your company’s data externally at a secure location without having to keep servers on site. The initial transfer cost is affordable, and the monthly cost can range from several thousands to several tens of thousands of yen, so it can be an effective tool for reducing maintenance and operational server expenses. It will be necessary for information system personnel to determine whether the service structure and level conform to IT goals and are the best choice. Security risks such as data leaks may increase so it is wise to consider a cloud service that allows fine-tuning of operational service levels according to the needs of your company.

5. Lease options

Depending on the IT policies set forth by leadership of the information systems of your company, leasing IT equipment may be an option to reduce initial costs. Although the costs are prohibitive in the long term, leasing allows you to be flexible to organizational changes and business, and as with outsourcing, there are advantages to having access to the most the up-to-date models. In addition, leasing has the advantage that you contract for much as you need, as long as you need it, is easy to upgrade (or downgrade), can reduce initial costs, and possibly save on taxes. Outsourcing vs In-house

6. Review cost of outsourcing

The cost of outsourcing must be considered as well. For example, if you outsource your entire system, the cost of the upstream process will also be itemized, which may result in higher overall costs. If upstream processes such as requirement definition are completed by your own company, and you choose to outsource tasks after simplification, you can reduce direction and outsourcing costs. It is also an effective outsourcing cost reduction to prepare an RFP (Request For Proposal) that summarizes the requirements necessary for system development for a contractor in advance. Creating an RFP makes it possible to clarify the management strategy your company wishes to achieve, to present a reasonable budget and delivery date to the trustee, and risks such as outsourcing costs and quality issues can be minimized.

7. Consider system integration/consolidation/standardization

If the person in charge of the information system can demonstrate successful leadership, it will also be possible to integrate similar systems that are disconnected inside your company. If you can onboard your company and their affiliates, you can greatly reduce costs. Outside that range, implementation is often more difficult to promote. Friction between stakeholders is inevitable when you are partially optimizing a system that is not in its complete form. To mitigate that friction it is necessary, as described above, to ensure the rules of the IT investment (and reduction) are clear, and ensure the IT strategy and indicators of achievement are understood in advance. If the rules are clear and understood, adjustments with stakeholders should be easier, and you should be able to promote system integration, consolidation, and standardization considerations at a low cost as well. Integration of systems can also effect purchasing IT equipment. You can benefit from centralized purchasing if you are able to convert contracts that were mixed at the department and personnel level at once, incorporate them within the RFP requirements, and then choose a trustee after completing those requirements.

Let's start with what you can do first

We have presented you with seven cost reduction steps. There are other various measures such as completing a thorough cost awareness program with employees, quality control activities in IT utilization, and cost reduction by sharing knowledge through education and training, but focus on the cost reduction efforts laid out in the seven steps first. Remember, when the information system changes, the company changes. It will be challenging because this is a pivotal role. Instead of fighting change, embrace it, and make it work for you.
This article was translated to English and was originally published in Japan.