Top 12 Ways to optimize IT costs

Since most IT projects are significant investments, as their prices for enterprises start from $100k, it is always worth looking for ways to save your money. With the ongoing worldwide inflation and socio-economical changes, the times call for a clever way to manage each company’s expenses. With help comes IT cost optimization, which involves a series of actions designed to enhance operational efficiency, lower expenses, and simplify tasks. If you are wondering what is the IT cost optimization strategy or what are the steps involved in this process, read the following article. This way we can help you better understand this process and enable you to implement it in your business.

What is IT cost optimization?

The term may seem self-explanatory, but it is worth understanding the concept in its entirety. IT cost optimization involves assessing a company's tech-related business operations to identify potential cost savings. This can pertain to various aspects, such as cloud services, hardware infrastructure, and software applications. While both general technology improvements and targeted cost-cutting measures aim to enhance business value, the former focuses on modernization and efficiency gains. In contrast, the latter is centered on financial considerations.

The need for such fine-tuning has grown significantly since the rise of the internet economy in the early 2000s and was further emphasized during the COVID-19 pandemic. Organizations must regularly reassess and upgrade their technology infrastructure with today's rapidly changing business landscape.

As a result, implementing cost-reduction measures should be a cornerstone in a company's overall strategy for improving tech-related operations.

What IT assets can be optimized to reduce costs?

The idea of cost reduction always sounds great, but the first question always arises: What are the areas that could be optimized in a way that helps the company save? Optimizing IT assets to reduce costs is integral to modern business management. It's not merely about cutting corners; it's about more thoughtful use of resources to drive operational efficiency. For example, unused software licenses or redundant applications can consume valuable financial resources, while over-provisioning in cloud services can lead to inflated bills. Similarly, excess physical hardware, like computers and printers or underutilized servers in your infrastructure, can add unnecessary costs.

Here are some specific areas where optimization can make a notable difference:

• Hardware (Computers, Printers): Regularly assess the actual need for physical devices. Outdated or rarely used equipment can be recycled or resold, freeing up capital for more pressing needs.
• Infrastructure (Servers, Networks, Storage): Adopt strategies like server consolidation through virtualization to reduce both hardware and energy costs. Efficient network design can also lead to cost savings by reducing the amount of required hardware and lowering maintenance expenses.
• Cloud Services: Consider switching to a pay-as-you-go or consumption-based model to avoid paying for unused capacity. Auditing and monitoring usage can also help in identifying over-provisioning.
• Shared Services: Implement shared services for functions like HR, finance, or IT support, which can eliminate redundancies and reduce overall operational costs.
• Applications: Streamline the number of software applications in use by eliminating or consolidating overlapping functionalities. This reduces the costs associated with licensing, maintenance, and staff training.
• End-User Computing: Opt for thin clients or adopt Bring Your Own Device (BYOD) policies to minimize the costs associated with individual workstations, including hardware, software, and maintenance costs.

By proactively assessing and fine-tuning these areas, companies can achieve significant cost reductions without sacrificing the quality or efficiency of their operations.

Benefits of IT cost optimization

A clever and sufficient optimation of IT assets brings more than cost reductions. Here are some other benefits that will come with such processes:

• Boost Profit Margins: Long-term cost reductions will ultimately enhance the organization's overall profitability.
• Simplify Operations: Periodic assessment and streamlining of resources will minimize operational complexity. Automating processes can further contribute to cost reductions.
• Mitigate Risks: Scrutinizing expenditures can lower the risks associated with unauthorized technology use, known as shadow IT, and the costs of unused services and applications.
• Allocate Funds for Innovation: Savings achieved through tech-related cost-cutting can be reinvested into the business. These resources can then be directed towards research and modernization efforts to keep the company competitive.

IT cost-cutting vs. IT cost optimization

While "cost-cutting initiatives" and "cost optimization" are often used synonymously, they refer to distinct approaches with different objectives. Cost-cutting involves immediate, one-time measures designed to reduce expenditures quickly. In contrast, cost optimization is an ongoing practice of assessing and fine-tuning resources within a broader IT framework, aiming for long-term savings through improved efficiency. To help you better visualize this, we prepared a table mapping the main differences:

Top 12 Ways to Reduce Costs

After all the theory and explanation, it is finally time to present the concrete clues that will help you reduce costs in your company. Here are the leading 12 that you can incorporate and see the results:

1. Different Approaches to Cloud Migration: Moving to the cloud can save capital and operational costs. Strategies like 'lift-and-shift' or 're-architecting' offer flexibility, each with its own cost-benefit profile.
2. Cost Benefits of Cloud Computing: Pay-as-you-go models and reduced hardware expenses make cloud solutions cost-effective in the long term.
3. Avoiding Over-provisioning of Resources: Right-sizing ensures you're not paying for unused capacity. Continuously monitor CPU, memory, and storage to avoid unnecessary costs.
4. Monitoring and Adjusting Resource Allocation: Use monitoring tools to reallocate resources based on demand, helping to maintain cost efficiency.
5. Cost Savings through Serverless Computing: Serverless architecture lets you pay only for the compute time you use, eliminating the cost of idle server time.
6. Use Cases for Serverless Architecture: Ideal for event-driven architectures and microservices, serverless allows for cost-effective scaling and operation.
7. Benefits of Virtualization and Containers: Virtualizing servers and container solutions like Docker can improve resource utilization and reduce hardware costs.
8. Technologies like Docker and Kubernetes: These technologies enable easier management and orchestration of containers, reducing the operational overhead and, in turn, costs.
9. Role of Automation in Reducing Labor Costs: Automation tools can handle repetitive tasks, freeing up human resources for more strategic, high-value work.
10. Cutting Costs with Open-Source Solutions: Open-source software reduces upfront software costs and is often customizable, fitting specific business needs.
11. The connection between Energy-Efficient Practices and Savings: Implementing Green IT practices can reduce energy costs in data centers and office spaces.
12. Investing in Employee Training for Optimization: Skilled employees make fewer errors and work more efficiently, indirectly contributing to cost savings.

These points can be elaborated further, but they serve as a primer for areas businesses can focus on to optimize their IT costs.

How do you start with IT cost optimization?

Since the cost optimization process could be complicated and there are many aspects to consider before the start, it is easy to get overwhelmed. To ensure a smoother transition we prepared a list of 5 steps worth following.

1. Collaborate with Business Stakeholders

One of the most pivotal first steps is actively collaborating with business stakeholders. This goes beyond just having a meeting or two; it involves setting up regular check-ins, gathering input, and aligning the IT department's priorities with the overarching objectives of the business. Involving key stakeholders from diverse departments ensures that your optimization efforts are directed toward initiatives that truly add value to the company. Additionally, it fosters a culture of shared responsibility for IT costs.

2. Map the IT Landscape

Before making any changes, it's crucial to have a comprehensive understanding of the existing IT environment. This means cataloging hardware, software, network configurations, and even human resources. The aim is to identify redundancies, underutilized assets, and potential areas for consolidation. Without this fundamental baseline, any cost-saving measures could inadvertently undermine critical processes.

3. Map Business Capabilities

Once you have a clear picture of the IT assets, the next step is to map them to business capabilities. This helps organizations understand which technologies directly contribute to business-critical functions and which may be tangential. By understanding how each asset plays a role in fulfilling specific business objectives, companies can more effectively prioritize which resources to maintain, enhance, or phase out in their cost-optimization efforts.

4. Ensure Financial Transparency

Financial transparency isn’t just a buzzword; it’s necessary for meaningful IT cost optimization. Organizations must track expenditures meticulously, broken down by projects, departments, and individual assets. Accurate, granular data enables better decision-making and justifies or challenges current and future investments. This level of financial transparency should be shared with stakeholders, ensuring that everyone understands the fiscal implications of different IT decisions.

5. Monitor Continuously

Last but certainly not least is the importance of continuous monitoring. Implementing Key Performance Indicators (KPIs) tailored to measure the success of your IT cost optimization efforts can provide ongoing insights. Automated monitoring tools can track these KPIs in real time, allowing organizations to adjust strategies proactively rather than reactively. By keeping a finger on the pulse of both financial and operational metrics, companies can sustain their optimization gains over the long term.

Each of these steps is interconnected and collectively forms the backbone of a successful IT cost optimization strategy. Navigating through them with care and strategic foresight will position any organization to make the most of their IT investments.

7 best techniques to optimize IT costs

Once stakeholders and project managers have mutually agreed upon a structured framework, strategies for IT cost optimization can be formally rolled out and executed. Here's a deeper look into the various methods:

Streamline and Rationalize Applications

The fastest routes to IT cost reduction are through application rationalization and SaaS optimization. A thorough examination of your IT environment and its alignment with business capabilities will reveal areas ripe for optimization. Platforms like LeanIX offer Enterprise Architecture Management (EAM) and Software Portfolio Management (SMP) as a comprehensive business technology dashboard. This aids organizations in identifying applications that either contribute positively or serve as bloat. Redundancies, non-compliance, and shadow IT issues become readily apparent.

Centralize Data Centers

Consolidating your data centers can significantly cut long-term expenditures. The process involves collecting data from different parts of the organization into a single, centralized repository. Growing businesses often find that the costs of maintaining multiple data centers escalate quickly, which can lead some to adopt data-center switching architectures. Benefits include streamlined operations, better data visibility across departments, and enhanced energy efficiency—resulting in cost savings of 10% to 20%.

Sync with DevOps

In today's digital age, software development is a vital business function. Enterprise architects and project managers should actively support and integrate with DevOps to maintain focus on efficient software delivery and cost management. This involves ensuring that the technology stacks used in development are consistent with the organization's broader tech architecture. Enterprise Architecture (EA) tools can assist development teams, particularly in managing cloud resources and microservices.

Strategically Plan Tech Roadmap and Budget

Anticipating your technology roadmap and budget before implementation allows for a better understanding of expected IT service delivery and costs. Roadmaps give a full picture of your IT environment, help to identify life cycles, and pinpoint opportunities for optimization. Sophisticated tools like LeanIX EAM make it easier for key decision-makers to plan, evaluate, and compare various future scenarios, thus accelerating planning cycles and enhancing budget allocation.

Engage in Proactive Vendor Management

Leveraging cloud computing effectively is integral to IT cost management, especially as many organizations rely heavily on SaaS, IaaS, and PaaS. Tools like LeanIX SMP offer insights into cloud usage, licensing, and expenditures across different departments. Active vendor management can lead to better negotiation outcomes, more favorable terms, and smarter license recycling practices.

Commit to Ongoing Transformation

The essence of IT and cost optimization lies in continuous transformation. This means maintaining adaptability and agility in your IT infrastructure. Various strategies can be employed here, such as adopting cloud services where suitable, implementing automation to lessen manual workloads, and exploring new avenues for digital business transformation. Funds freed up through cost optimization can be reinvested in these transformative projects.

Evaluate Human Resources

Efficiency isn't only about technology; it's also about people. Through performance management, goal-setting, and time tracking, organizations can align their workforce with a focus on efficiency and cost-saving measures. This ensures that the skills and activities of employees contribute directly to financial efficiency and operational effectiveness.

By adopting and adapting these methodologies, organizations can realize substantial cost savings and operational efficiency benefits.

Summary

As companies grow and generate additional costs, the significance of IT cost optimization within a robust IT business plan becomes more pronounced. Eterprises can realize sustained financial benefits by adopting cost optimization techniques, in contrast to the transient gains achieved through one-off cost-cutting actions. Therefore, developing a well-thought-out plan that will serve as a base for successful business with minimized costs is crucial.
However, we understand that this process may seem too overwhelming for some of you or you need more time to implement it yourself. In this case, pairing up with a company of experts is always a great idea. Contact us at SolveQ as we focus on each client individually and we can help you save time and money.