The Courage to Save Money

Bryon D Beilman

Sounds funny to say, but do you have the courage to save money for your company? With the economy in a recession, most companies are looking for ways to cut costs, reduce burn rate and survive and perhaps prosper during this time of economic uncertainty. It is no doubt that the current economic climate will have an impact on IT spending, which is typically around 4% (including payroll expenses) of an organizations revenue. There are different strategies being considered to reduce costs as it relates to IT and we are going to review three of them. Each of the items requires a bit of courage, but the more interested you are in saving money mid and long term, the more courage you will need and the items are listed in order of increasing amounts of courage needed for implementation.

1) Reduce IT expenditures

The first gut reaction that most people have to an anticipated revenue reduction is to cease spending on everything possible. If a company does not know their costs, (including maintenance, power, cooling and effort required to maintain existing systems), this may be a good first step. This first step should be coupled with a project to map out the costs associated with the existing infrastructure with the goal of how the same or more can be done by moving forward. A company, however, may be paralyzed by this step as they cut off all costs and after a period of time, their business is at risk and they are spending more time and money maintaining the legacy systems instead of streamlining their operations. If you have managed your business well, this might be an opportunity to get equipment at a significantly reduced price and take advantage of the downturn, but not all companies have this luxury and will stop spending.

2) IT Outsourcing

IT outsourcing ranges from a completely managed IT service provider, to discrete outsourcing that focuses on a subset of IT operations such as recurring operations, system administration or database services. IT outsourcing can also be for strategic decision making , such as help with some of the items mentioned in the first section, or IT project implementation.

According to a recent Forrester survey of IT decision makers, the top 5 motivators for IT Outsourcing are:

According to Vitale Caturano, a full Service CPA consulting and wealth management firm,

On average, IT staffing spending represents 29% of the annual IT budget making it the largest component of corporate IT spending. With annual IT spending on average 4% of revenues, a $25 million company will spend approximately $290,000 on IT staff per year. Following this are software and hardware at 23% and 21% respectively. It's not surprising that according to a recent survey of small and medium business IT decision makers, reducing costs is the number one motivator for IT Outsourcing.

The savings realized by using IT outsourcing comes from many areas, but most notably is that a company can get a full range of services without hiring many full time experts in that field. Instead of hiring a full time Network Manager, System Administrator and Application Specialist, where you would only utilize each one of those experts a fraction of the time, you can get those services that are "right sized" for your business. Small and midsized companies may not have the resources or expertise to make their computers and network reliable. IT companies that are focused on providing IT as a service have experts who are highly trained to do so and they have tools and methodologies well beyond what a small business owner or a one or two person full time IT staff would have.

You should seek an IT provider that can grow as your needs grow and has the appropriate domain or industry experience to help you with your specific IT related business challenges. Find an IT provider that has a proven track record, comes recommended and is effective at communicating and working with their clients.

3) Engaging IT projects that will reduce costs

It may seem counter intuitive to spend money when you are indeed trying to save money. The courage to do so, however, if done well, may have significant positive results for your organization. One recent extreme example of the courage to execute a new IT strategy that costs money but also saves is what HP CIO Randy Mott recently did. He recently undertook parallel projects and spent $1.7B to save $1B annually. He had an opportunity for consolidating 85 Data centers into six and 700 data marts to fewer than 55. They were able to save money in Electricity, Telecom and Heating etc but more importantly to change the shift of 70% time of maintenance and 30% on new development to 30% on Support and 70% towards new initiatives. He also uses IT Outsourcing on the appropriate parts of the business. Not everyone has a large organization where the overlap and efficiency opportunities are there, but he was able to get the CEO support and measure the real monetary value of this initiative. This, as stated before, is a more extreme example.

A few areas that I have seen small to medium sized companies find big savings is in Telecom (voice, data and cellular services) and system consolidation. Creating new cellular plans to pool minutes, switch to unlimited data plans (if you know you have consistent overages) and working closely with your provider to optimize your plan. One particular project that we had with a customer was to determine why they had 6 data T1 lines and what were they doing with them. After a traffic flow and billing analysis, we were able to show them how they could reduce down to 2 T1's. As you can imagine that resulted in significant monthly savings. One area that can be very effective is the consolidation of servers to newer technology. Why would spending money on a new server, (for example ) save you money?

In one real example a company has been utilizing four servers, that are seven plus years old and none of which are under support) that each provide one lightly utilized but business critical service. A new server , utilizing VM technology (take your pick of the technology) could easily perform the job of all four servers, provide greater reliability, less risk of disk failure , use less power and generate less heat. The new technology could also be easily put under a support contract, so the company now has the same functionality with greater reliability and less risk.

IT done right can be a business advantage for your company and sometimes it takes courage to take the steps to spend money to save money. Spending the time to create the right IT strategy for your business, (or having an IT Service company help you with this), can help you weather the financial storm and be ready to be poised to grow when the market improves.