Organizations are cutting budgets across the enterprise, including IT. IT management is under pressure to reduce costs while continuing to provide high-quality service. Key questions IT management must consider are:
- Can we reduce IT operational expense rapidly without impacting service or incurring unacceptable risk?
- Is our understanding of the IT portfolio sufficient to allow us to identify the most appropriate cuts?
Companies naturally go after the “low hanging fruit” to cut costs, particularly in IT. Projects – both planned and underway – are often targeted, as well as discretionary IT spend and any “nonessential” IT activities. Often, this first pass does not yield sufficient reductions because in most organizations a majority of IT spend goes directly to the operation and support of existing pplications.Therefore, it is necessary to go beyond basic analysis. Undertaking a thorough review of an application portfolio can be highly beneficial in identifying less-than-obvious cost savings, but organizations often lack the necessary visibility into their application infrastructure.
Challenges and Opportunities
Effective reduction of operational spend requires that costs be analyzed by their component parts and contrasted with current internal demand and market conditions in order to identify trends. Much of the value of rapid application portfolio analysis lies in its ability to associate seemingly disparate data elements quickly and place them in the context of current demand and staffing to provide new insights. A lack of appropriate detail, or a failure to examine the cost from various perspectives, can lead to an inability to change spending patterns or cost-driving behaviors. For example, if software maintenance is viewed as a fixed recurring cost without considering an application’s service level agreement (SLA), expected enhancements or time to retirement, it is difficult to identify maintenance costreduction opportunities.
Moreover, changes in staffing levels or a revised product focus can create “stranded” IT costs – spending that persists despite a diminished need. IT usually is aware that the organization’s needs have changed, but often lacks the forum and detailed information necessary to communicate the stranded costs to the business. Addressing this misalignment between what IT is obligated to provide and what the business currently needs creates significant cost-reduction opportunities for organizations willing to discuss service levels, demand and other cost-driving behaviors. While it is unlikely that needs relative to critical business applications have changed significantly, there likely are opportunities to save costs with respect to less critical and noncritical (Tier II and Tier III) applications.
Five commonly overlooked IT operational areas are likely to yield immediate or near-term cost reductions:
- SLA and disaster recovery (DR) reductions and concessions – Identify Tier II and Tier III applications with higher-than-necessary SLAs or DR plans.
- Maintenance deferral and optimization – Identify applications that are near retirement or have no planned enhancements or upgrades, and re-evaluate for maintenance changes or cancellation.
- Infrastructure and application consolidation – Identify duplicate infrastructure, applications, Data/DBM or functions, and consider feasibility of consolidation.
- Virtualization of common platforms – Identify common platforms (hardware or OS) and consider virtualization or data center/server consolidation.
- Outsourcing of noncore applications – Identify off-theshelf applications with a limited number of integration points that could be outsourced or those for which support could be moved to a variable cost model.
A disciplined but rapid approach to application portfolio management will enable organizations to find the “harderto-reach” costs and quickly implement intelligent reductions. Such an approach will:
- Ensure optimization and additional cost savings by identifying any remaining inefficiency or duplication of applications, services or infrastructure.
- Re-prioritize needs by identifying SLAs, maintenance, DR and related services that can be reduced, optimized or realigned.
- Reduce operating costs while maintaining quality by highlighting opportunities to use low-cost, high-quality alternative providers (on, off and near-shore) and platforms.
How We Help Companies Succeed
Our Rapid Application Portfolio Analysis for Cost Cutting (RAPACC) service leverages traditional application portfolio management principles, rapid data collection processes, and a field-tested tool to identify the best cost-saving opportunities quickly. Whether your company lacks a formal application portfolio, complete or consistent data, or analytical resources, we can help you:
- Understand in detail the components that drive your IT costs.
- Identify trends and patterns in these components.
- Highlight data gaps, inconsistencies or inaccuracies, and assist you in resolving them in order to maximize cost savings and enhance the value of your portfolio.
- Address the misalignment between IT and the business by creating a channel to communicate all the seemingly unrelated factors that drive cost.
A large utility needed to reduce IT costs quickly. Our analysis increased visibility of the organization’s IT systems, cost structure and related risks. We helped the company discover:
- Misaligned or outdated service level requirements for applications in which the risks and cost of failure did not warrant current disaster-recovery spending
- SLAs and maintenance agreements that were oversized based on current demand and needs
- Opportunities to consolidate redundant applications
- Proposed project spend that was misaligned with future IT objectives and application criticality
These findings became opportunities for cost reduction in a number of areas:
- IT maintenance costs were reduced by 10 percent.
- Service level changes enabled the organization to redeploy five percent of its support headcount.
- Three applications were scheduled for retirement, eliminating software, hardware and support costs.
- Changes to the outsourcing service mix freed funds for two new full-time employees needed for new initiatives.