Interested in how to effectively tackle IT optimization? Be sure to download our new whitepaper, “Six Best Practices for Optimizing IT Investment to Fuel Innovation.”
Optimizing IT cost and investment is something CIOs, infrastructure and operations, and other senior IT leaders do every day. But how you approach that and determining what areas you attack is rarely easy.
Many IT organizations are already lean, so it can be difficult to find places to optimize. Legacy applications may not be ready for optimization. Progress may stall out in the early stages of getting buy-in from the business or selling other business leaders on the value of planned optimization efforts. Getting accurate data on costs may prove challenging, especially when that information is critical to making build-versus-buy decisions. And that’s just scratching the surface.
In fact, the cost issue is where we see IT leaders struggle the most. Either inefficiencies in infrastructure, applications, and projects are hidden in data silos, or inefficiencies are known, but IT leaders lack data to get people to act on it. Finance and IT views rarely line up, making it difficult to identify, let alone prioritize, opportunities for optimization. Without metrics, it will certainly be difficult to justify IT consolidation, standardization and rationalization initiatives.
So you’ll need to start there.
Getting a Handle on Costs and Utilization
To correct for this, you’ll need to translate the data about technology costs from your corporate financial system to metrics that are actionable for IT. This finance data reflects the actual spend in your organization — a “source of truth,” if you will — but it needs to be restructured into categories that are relevant to IT, and then costs needs to be assigned to the various IT functions, technology stacks, applications, and business units that consume them.
To do this accurately, you’ll need data from other IT operational systems to inform the routing and weighting of costs according to usage volumes and consumption. Finally, you’ll incorporate utilization data from IT management systems to spot inefficient use of resources juxtaposed against costs.
It’s not as daunting as you might think. The key to success is to avoid legacy approaches such as spreadsheets and business intelligence tools in favor of a system purpose-built for this type of IT cost analytics.
Five Metrics for IT Functional Leaders
The leaders of your functional teams probably know where the inefficiencies are, but lack facts that compel action. As busy as they are, they just don’t have the time to attach a dollar amount to such opportunities for improvement and assemble a solid business case for change.
To address this, you’ll need to provide those same teams with relevant cost and utilization metrics for each of their functional areas, so that they can quickly and accurately identify opportunities, make decisions, pull the right levers and monitor progress.
They’ll need access to five key types of metrics:
- Application metrics expose the total costs to deliver each application, including not just the initial purchase and development costs, but also ongoing maintenance and support costs. They should also break out costs according to each application’s consumption of servers, storage, databases, and other resources.
- Infrastructure metrics provide a granular view of cost and utilization for various categories of IT resources, including data centers, compute, storage, networking, and so on.
- Vendor and service provider metrics track the cost and consumption of third-party resources. Where appropriate, they should also show unit costs and vendor spend broken out by vendor portfolio priorities.
- Labor metrics expose labor costs and variance by job function. They should break out labor costs by application, resource tower, and full-time versus contract labor.
- Project metrics track the total investment in projects, including budget variance. They should also break out costs by project status, run vs grow, and strategic priority.
With visibility into these metrics, functional team leaders will be positioned to identify outliers (candidates for optimization) and provide solid justification for change. This can be achieved in several ways.
In many cases, merely correlating total costs with utilization data (think unused storage capacity per service tier for each application) provides enough visibility to identify opportunities and start racking-up wins. For example, by identifying unused capacity and associating a cost, you’ll have both a target and a motivation for right-sizing that capacity.
Benchmarking your costs against peers helps identify places where you can improve. Traditionally, this has been an expensive, point-in-time exercise of little value when it comes to making a change and quickly seeing the results. Instead, adopt a benchmarking approach that provides side-by-side views of your monthly actuals versus benchmarks so your functional leaders can make decisions based on current information and so there’s little lag between taking action and seeing an outcome.
You can also establish a baseline of IT cost efficiency using Gartner's IT budget tool as a source of comparative data on IT spend to generate enterprise-specific IT spending metrics comparisons against the industry.
To find out your next steps and read more about how to deliver effective optimization, be sure to download our new whitepaper, “Six Best Practices for Optimizing IT Investment to Fuel Innovation.”
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