IT Focus Area: strategy
September 9, 2020
Unlock IT Spend in the Time of COVID-19
Every choice you make for your business today will shape your financial future tomorrow.
As businesses continue to react to economic shifts caused by the global pandemic, it’s more important than ever to invest wisely in decisions now that will ensure financial security for the long-term.
Many IT leaders are being repeatedly asked to cut their budgets to help struggling businesses. Even companies that have plenty of capital feel they need to preserve it. And, no one knows when we will make our way out of this strange, unique time.
CIO.com reports that COVID-19 has “shaken up business across the board,” and consequently, “CIOs and management advisers say nearly everyone is adjusting their plans and projections for the rest of 2020 and throughout 2021.”
As the financial stewards of your area, IT leaders need to keep a careful eye on the budget more than ever. Here are a few tips for managing your budget today to best prepare for tomorrow.
Don’t cut for the sake of cutting
Optimize your spend to make your environment more efficient, which means making it faster, better and less expensive. The good news is that you can absolutely make it better while you make it cheaper, if you do it thoughtfully. The key is to ask yourself always, “How can I make the environment more efficient to better position us in the future when we come out of this?” People who invest well today will significantly outperform those who just cut costs without thinking through the implications.
Everyone is busy, but don’t wait for the business to come calling. Stay ahead of the game by identifying places you can make a difference in your budget, even if you haven’t dug deep enough yet. As we come out of COVID-19, make it a part of your monthly, quarterly, biannual or annual process to look for (or look again at) ways to be more efficient with your spend.
Take a disciplined approach based on your objective
Is there a business need you must address with limited or no budget? Or do you just need to reduce cost? Either way, you can follow a disciplined approach to ensure that you make the best possible decision.
If you need to add a business solution:
Establish which areas of your current environment—people, infrastructure, support, software—may benefit from change. Identify the cost of that environment over three to five years.
Take a look at the cost of the business solution you would like to add, including cost and time for migration, support, people, etc. Lay out those costs over the same timeframe. Then, look at the business case. Ask yourself:
- What do I really need to do now?
- What would happen if I wait?
- What would happen if I don’t do it at all?
Make the business case, with all the costs and benefits of your various options, to help you make the most informed business decision.
If you need to reduce cost:
Look carefully at your environment to identify any inefficiencies. Are you being negatively impacted by aged infrastructure, increased support contracts, or costly maintenance and licensing? Take a close look, application by application, and ask yourself, does the business still require it? Should you buy, hold or sell—meaning should you invest more, maintain as is, or retire the application?
To do this effectively, you will need to understand the actual cost of each app, as well as the value it provides to the business. Often, just asking the business whether the apps you support still matter will help you identify some apps you can drop along with all associated costs, which could be significant. That step alone can fund needed projects or allow you to return money to the business. Or, it can help you focus more resources on the apps that you decide to “buy,” or invest further in, based on their business value. Apps you decide to maintain, or “hold,” will be a wash.
Consider flexible financing
If you still need to find more savings to reallocate or give back to the business, consider working with a solutions provider that can finance parts of your environment in different ways, such as:
- Refinancing. Sell your assets for book/market value to help eliminate depreciation. You can then include that within a new or upgraded solution, with payments structured to meet your cash or budget requirements. You could defer or modify payments, adjusting the payment schedule so you take them out of the front end and push them back, perhaps to 2022 when business will likely be stabilized.
- Variable consumption plans. Insert managed services within the current model and ask for a bundled managed transaction.
Take a second look at low-hanging fruit
From maintenance to subscriptions and software licensing, there’s always money to be found. Review your current contracts to determine if they are accurate per the business requirement, they have proper coverage levels, and their assets are still in service.
Consider moving from annual to multi-year contracts, then work with your supplier to structure a payment plan to align the cash to the respective years. Most vendors will give you a significantly better price for multiyear agreements.
Approach cost-cutting expeditions carefully
The people who are responsible for various areas or functions may be afraid of getting blamed for overpaying or doing something wrong. Or you may be creating work for someone who is already stretched. Perhaps position it this way: “We know you’ve wanted to do this for a while, and we’ve all been busy with other things, but now’s the time.”
Lean on your solutions provider to get the best deals for you
Work with a solutions provider who brings financial acumen to the sales process and keeps a financial eye on everything. Let them use their overall leverage with OEMs to get you better deals, or better yet, across multiple OEMs to maximize the benefit.
Be transparent with end-users on cost
Show internal business customers the real IT cost of their requirements. For example, what does 100 terabytes of storage actually cost? How much is a small virtual machine?
If you can make the actual cost of a request clear to your internal business customers in a concise way, you can drive a lot of savings. Better yet, bill them for it—requirements get better sized with people buying only what they need, or when they must pay for it out of their own budgets. Oversubscriptions drop quickly.
Remember: a move to cloud is a major change with far-reaching implications
Moving to cloud is not only a financial change from CAPEX to OPEX, but it is also a major shift in the way you do business. While moving to cloud frees up capital, costs can quickly spiral out of control if you don’t keep a close eye on them.
Work with finance to understand the implications, closely manage users to ensure that they don’t blow the budget, and apply appropriate governance so you don’t create financial risks for your business.
Keep your eye on your future goals
Don’t let the current challenges blind you to the fact that everything you do today will shape your financial future tomorrow. Be proactive, invest wisely, and plan for the long-term.