The COVID-19 crisis is creating pressure on CIOs to do more with less and make difficult decisions. Gartner recommends that CIOs follow a cost optimization framework to help determine where to reduce IT and business costs.
According to Gartner’s senior principal research analyst, Cesar Lozada cost optimization ideas are typically weighed almost exclusively on their potential cost savings, without considering the effects such proposed cost savings may have on the business.
He added that this is equivalent to prioritizing new initiatives based only on their potential benefits without concern for their impact. This approach could result in a prioritized list of initiatives that could yield savings, but could also be risky, have negative impacts on the business or most likely fail.”
“To achieve the most sustainable business outcomes, executives must ensure that cost management reaches beyond mere cost cutting, spending freezes or staff reductions — which is usually short-term thinking,” said Chris Ganly, senior research director at Gartner. “Organizations should approach cost management as an expansive effort that can have immediate and long-term significance to business performance. Cost management demands a mix of approaches and improvements that touch every part of the organization if it is to truly serve the enterprise.”
Gartner recommends that CIOs and IT leaders focus on six areas when evaluating the costs, benefits and viability of different cost optimization initiatives.
- Potential financial benefit: Establish to what degree (small, medium or large and positive or negative) cost initiatives will impact the bottom line. Leaders should ask questions such as “how much will the enterprise save if the action is implemented” and “how does the action affect enterprise cash flow”.
- Business impact: Determine what impact an initiative will have on your employees and day-to-day business operations, such as if an initiative will have a negative impact on productivity or product launch.
- Time requirement: It will take time for the enterprise to realize the cost savings and improved business value from cost optimization initiatives regardless of the method. The question CIOs must ask is what that time frame needs to be (weeks, months or longer-term).
- Degree of organizational risk: The effectiveness of the cost optimization initiative partly depends on the ability of teams to change and adapt to the new reality. Leaders capable of articulating the benefits of the cost optimization initiative with minimal changes to organizational processes will be able to demonstrate how impactful the business outcomes would be by providing a foundation for success.
- Degree of technical risk: To mitigate technical risk, CIOs must assess how the cost optimization initiative will be integrated within their current operations and enterprise architecture. Delays caused by or attributed to the initiative could result in a loss of service delivery or productivity.
- Investment requirement: Before any cost optimization project or initiative begins, the executive board must support and agree to fund it. CIOs must present a business case showing how the cost optimization initiative will improve business processes, productivity, time to market and the like, as opposed to continuing with the status quo. It is essential that the level of investment required to be evaluated before any savings can be realized.