Wednesday, February 04, 2009

Simple Savvy Savings recommendations to help reduce IT Costs

The economic downturn has IT executives scrambling to defend budgets, avoid cutbacks, and help the business survive. In times of crisis, CFOs invariably turn up the heat on CIOs, and although IT spending is a modest 3.1% of revenue on average, because IT is seen within most organizations as a cost center, it is usually at the top of the list for spending cuts.[1]

Unfairly, as prior times of crisis have proven, IT is cut proportionately more than most other business groups.

According to a Tech Target survey of 268 IT decision makers [2], the pressure is not unexpectedly on IT to cut costs with:

· 75% of respondents indicated that the overall economy is having a significant impact on their IT budget,
· 50% indicating a decrease greater than 10%,
· 68% indicate that more budget cuts are likely if the economy does not improve in the first half of the year.

Goldman Sachs’ latest IT spending survey predicts the impact these individual budget cuts are having on IT spending worldwide, where in 2009 for the first time since the bursting of the tech bubble in 2001/2002, annual growth in IT spending is expected to be negative. The estimate is for a -1% global decrease - a year over year 116% decline in growth (down from +6% growth in 2008, and +9% growth in 2009), that although expected by Goldman Sach’s analysts not to last as long as the last slowdown because spending prior to the pullback was more modest than the run-up to the tech bubble, still promises to have a substantial impact. [3]

Rather than be victimized, it is essential that savvy IT executives proactively prepare tangible plans for how they are going to help their organization weather the downturn. For commercial companies with declining revenues, in order to maintain profitability, the organization needs to find ways to gain scarce revenue (which is tough), or better, to reduce overall business costs.[4] . Governments and not-for-profits face similar issues with declining tax basis, donors and other sources of funding leading to budget cuts.

Of course IT cost cutting can contribute to budget shortfalls, but often the best way to cut total business costs, is not by reducing IT spending significantly, but showing how a resource focused on specific projects, and in some cases select incremental investments in IT can help drive business costs down and boost profitability.

Most important, when times are tough, smaller projects with faster paybacks are king. As a result of the tight budget, the organization gets more conservative, losing the chutzpah for blockbuster projects, and moreover wanting to assure that any monies invested today, start contributing to profitability (paying off the original investment and then yielding positive returns) in the same calendar or even fiscal year. Projects with soft benefits and big claims will not fly. Therefore, what are the projects with minimal investments in time and capital that can be made proactively to best deliver the biggest and fastest cost saving for IT and the business?

To help achieve these goals we offer three practice areas and several projects to yield the most tangible cost savings from the least amount of effort and investment:
1. Make better use of what you already have - > saving $650 USD per user per year in reduced infrastructure, energy and operating overhead costs,
2. Standardize and simplify to reduce IT management and support costs -> $700 USD per user per year in IT labor savings,
3. Help reduce unnecessary business costs and waste -> over $1,320 USD per user per year in business costs and overhead avoidance.

Following these simple savvy savings have proven to deliver $2,670 USD in savings per user per year. More importantly, these savings are all hard / tangible savings in infrastructure, labor and services costs, energy costs and overhead, easily realized, with minimal investment and quick paybacks – the kind any frugal executive would love to implement.
Implementing the Simple Savvy Savings program can result in savings of up to $2,670 per user per year.

Click here to view the full white paper:
http://www.alinean.com/articles/CostCutHero.asp

Access a tool developed for Microsoft and powered by Alinean so you can calculate your own personal savings using these recommended initatives:
http://www.microsoft.com/optimization/default.mspx

[1] Alinean ValueIT™ database of 20,000 worldwide company’s IT Spending vs. Financial Performance – 2008.
[2] Survey: Economy puts nonessential IT projects on back burner, Linda Tucci, 12 November 2008, SearchCIO.com / Tech Target
[3] IT Spending Survey: 2009 Under the Knife, Sarah Friar, Goldman Sachs IT Spending Survey of 100 managers with strategic decision-making authority at multi-national Fortune 1000 Companies, November 10, 2008, SandHill.com
[4] Comparing two projects, one that generates a dollar of cost saving to one that generates a dollar of revenue, the dollar in cost savings is often worth 3 to 5 times more bottom-line (profit) impact to the company. This is because that for every dollar in revenue generated as a result of a project, only a fraction of that dollar actually reaches the bottom-line, because every dollar has a cost of goods / service, and a variable sales, general and administrative (SG&A) expense. For every revenue dollar, an average contribution of less than 30% is realized in profit.

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