Cost Optimization
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Cost Optimization - why now and impacts because of the economic slowdown
When government budget crises arise, IT organizations are often asked to make cuts like everyone else.
• Cutting IT is often an easy choice but most of the time irrational, because IT's services and solutions support end users who can suffer from severe limitations to availability of tools and hence their ability to maintain optimum productivity.
• Conversely, it is no secret that IT organizations can undertake certain activities to help reduce IT expenditures and to use IT to reduce the cost of the rest of government.
• However it depends on which facets of IT spending are selected for cost optimization. Potentially many of the cuts might be risky, may require initial investments to realize cost benegits or take a long time to see fruition and, therefore, may be frustrating and not even be worthwhile.
A word of caution...
• Examine the options for IT budget cuts, but before undertaking them, make certain that government executives understand the implications and risks of each type of cut.
• Ensure that necessary levels of executive buy-in are achieved before getting under way.
• Make certain areas of the operational budget immune to budget cutting — particularly those related to security and business continuity and those that generate revenue.
• Understand the impact of budget cuts to service-level commitments that are in place.
Top methods to cut costs
In this page, you will find some of the most common types of cost optimization initiatives major organizations across the globe are undertaking. The information contained here-in is courtesy of Gartner, an analysis and research firm with a global presence.
Enterprise Call Center consolidation
Customer facing call-centers are usually agency specific and proliferate within Government organizations. Current technology however provides the ability to consolidate these call centers and cut operations cost overheads. The potential for cost savings is high, with a low technical risk of implementation. Organizational risk vis-a-vis consolidation service agreements, re-structuring etc and investment into such technologies is rated at moderate. This measure would take 6-18 months to achieve desired results.
Teleworking
IT can be an enabler to promote the culture of teleworking in organizations. With moderate benefits, and moderate risk of technical, organization implementation and investment, this can also promote a greener organizational culture and benefits can be see within 18 months. Teleworking is emerging as a smarter way to do business and more and more corporates are buying into this policy. However, care must be taken to ensure there are very definitive policies set for employees working from home, job functions that are appropriate for teleworking are identified, supervision principles, wi-fi security policies and remote work security policies, accountability guidelines etcetera. Most importantly training programs for such staff needs to be identified and implemented as well so there is clear communication on teleworking.
Using tools to reduce travel (for example video-conferencing)
The Ohio EPA has realized a return on investment as early as within 16 months if we implement Video Conferencing for example as an effective means of reducing travel costs (time, lost productivity, gasoline, mileage etc). Typical break-even times are 18 months are greater. By promoting greater use of video-conferencing, teleconference tools, Net meeting webcasts and other collaborative systems, moderate immediate benefits can be achieved. Benefits vary depending on the type of the organization, its average travel per employee and how effectively technology can be leveraged without compromising on mission effectiveness. A study needs to be conducted on the return on investment and a decision made.
Implementing energy savings measures
Another sure-fire, low investment, high benefits area of cost containment in IT is having clearly defined tools and policies to minimize power consumption. A precursor to this is completing an assessment of the current power consumption. The potential benefits can be reaped in a period of 6-18 months. The time and investment depends on if the agency already has a environmental sustainability program in place or if it has access to the necessary expertise.
Print Fewer Reports
How many project reports and project status reports are trashed soon after a meeting? A low investment, low risk cost containment activity with moderate benefits and something you can achieve results within 6 months is encouraging your employees to print fewer reports, fewer emails. Also to have organizational policies and tools available to reduce, reuse and recycle can help achieve better results. Stop printing some of the reports you consider superflous and see how many people actually notice them! An effective way to disseminate information is to have a overhead projector and laptop in a meeting and discuss meeting handouts where everybody can see them and comment on them Vs requiring paper handouts and having to scribe all comments and then convert them to electronic form.
Standardize administrative applications
Standardize on a single ERP suite for the entire enterprise for administrative functions (finance, HR, indirect procurement). Use this as a foundation for implementing shared services.
This is high investment cost optimization method, but with high benefits and moderate risks. It does take more than 18 months to see results, but a lot of government entities like the State of Florida, the State of Connecticut and the State of Ohio have moved in this direction and are closer to achieving desired results.The degree of organizational risk could increase if application standardization is combined with establishment of shared services, which usually implies a reduction of personnel.
Create a project management office (PMO)
While this initiative will not deliver results in the short term (less than 6 months), it offers insights into projects that may enable fewer, better managed projects and more cross-agency synergies. This is a moderate investment, but low risk, high benefit initiative. It helps reduce projects risks and increase staff productivity by better managed, centralized projects.
Consolidate IT procurement
Centralizing IT procurement under one organization to drive economies of scale can be a high benefit, low risk,low investment initiative that can produce desired results in cost optimization in less than 6 months. One caveat is that the time required to implement such a centralized procurement can be longer depending on strong leadership committed to see this happen. The new organization must have authority to consolidate contracting and drive new agreeements even though it means other agency agreements must be superseded. This model works well within the State of Ohio - majority of IT procurement is centralized and this help leverage re-use, collaboration among different state agencies with similar product lines, consolidate vendor agreements and drive better pricing. This also gives unprecedented negotiating power to the the central agency.
Consolidate data management and integration tools and technologies to minimize redundancy
Organizations have a range of opportunities for reducing costs through consolidation of data structures such as operational databases and data marts. Additional savings can be realized through streamlining of complex data integration processes to remove redundant data flows. Executing tool consolidation (database management system [DBMS] products, data integration tools, data-modeling and design tools, among others) will reduce costs of software licenses and skills. This initiative will produce high benefits, with moderate risk and investment over a period of 6-18 months.
Consolidate mainframes
Reduce the number of mainframes to the minimum level. This is another area where potential benefits are high, but also come with a high investment for consolidation and phase over to other client-server or web based technologies. It would also take more than 18 months to implement, however the caveat is that with dying mainframe skills and support being scarce, it is probably very advisable for organizations to look at other technologies. The greater the number of mainframes, the greater the potential benefit. The more diverse the brand and operating system (OS) of the mainframes, the less the potential benefit. Time can be shorter if there is strong executive engagement and an existing competent and trusted IT organization and data center to host the consolidation.
High-volume print rationalization/consolidation
As with mainframes, government can centralize large print centers for increased efficiency.Potential benefits vary depending on how decentralized the operation currently is. This is another area where the cost benefits are high and are combined with a moderate risk of implementation and moderate to high investment.
Adopting open-source desktop software
There is significant momentum in organizations and corporations moving towards the open-source route. Replacing traditionally license cost heavy desktop software like MS Office with Open Office, Star Office or other open-source office application would yield moderate cost benefits with minimal risk and investment. The cost benefits can also be realized in less than 6 months. Benefits can be higher, depending on what percentage of staff can switch to Open Office and on whether interoperability issues between different document
formats can be kept to a minimum.
There are several more ideas like Server Consolidation and Virtualization, Creating shared disaster recovery centers, Email consolidation, Email storage consolidation, Opensource server software, Help Desk consolidation, discarding unused equipment, by conducting telecom line audits, centralizing security/virus access software, renegotiating contracts with vendors on contractor rates, network rates, staff augmentation rates etc might all go a long way in cutting IT Costs. IT cost optimization will not only see the organization through these tough times, but also set the tone for future spending and having access to increased funds for other strategic initiatives and IT procurement.
