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Technology is meant to streamline work and improve business outcomes. But, in reality, hidden IT inefficiencies can negatively impact ROI.
Extensive cloud usage, overvalued or overlapping SaaS tools, and clunky legacy systems can drain resources without providing significant benefits. To prevent resource strain and maximize the potential of their tech, savvy business leaders must analyze the functionality and productivity of their current IT tools, seeking ways to save and boost results.
This process is known as IT cost optimization and involves several key strategies that combat overspending and maximize resources. Here, learn how to perform this analysis at your organization and introduce cost-saving improvements for both the short- and long term.
What is IT cost optimization?
IT cost optimization refers to the continual process of reviewing an organization's information technology (IT) expenses, seeking ways to reduce spending without limiting the quality of daily operations or restricting innovation. Through this analysis, businesses look for ways to optimize costs on software licenses, cloud-based services, infrastructure, and tools.
While IT cost optimization may sometimes mean eliminating redundant tools or launching resource-saving automations, it can also imply cultural shifts. For example, organizations might foster a more "disciplined" approach to spending, performing comprehensive need analyses before acquiring or extending the use of costly tech tools.
5 common IT cost optimization strategies
IT cost optimization often takes a multifaceted approach to maximize efficiency across a company's entire tech landscape. Here are five top resourcing-saving strategies to know.
Rightsizing & cloud optimization
Rightsizing is often focused on cloud optimization—aligning resources, like virtual machines (VMs) and licenses, to actual business needs. Organizations eliminate idle services and reduce overprovisioned ones after performing a thorough analysis of application, memory, CPU, and service usage.
Application and infrastructure rationalization
This tactic limits redundant software and hardware, identifying opportunities for consolidation or elimination. The idea is to boost efficiency without compromising security or everyday functionality. As part of this strategy, businesses may decide to reduce software licenses, slow down maintenance cadences, and replace legacy systems with more agile cloud-based ones.
Automation and workflow efficiency
Improving the efficiency of workflows and automating redundant human tasks is an IT cost optimization strategy that may, in fact, imply some new tech expenditures, but that limits spending in other areas, like on human labor and duplicate work. Scribe Optimize gives you visibility into how work gets done, using AI-powered insights to identify workflow inefficiencies and pinpoint opportunities for improvement and automation.
Vendor and contract management
This strategy often implies direct cost negotiations with IT providers, like refining an overprovisioned annual services contract or leveraging lower competitor pricing to get a discount. Other tactics include downsizing tools that perform similar work or consolidating overlapping services. Organizations also generally take a hard look at their contracts with suppliers, ensuring that they're maximizing the offering they're entitled to and not missing out on promised benefits.
Financial governance
Practicing strong financial governance means aligning IT spending with overarching business goals and requires the input of leaders from across the organization, who can provide insights on the perceived and actual value of tech tools. This strategy also relies on excellent IT cost transparency: a clear and comprehensive inventory of current tech tools and services. Organizations can then use this information to make data-based decisions on inefficiencies to cut, automations to implement, and vendor relationships to renegotiate.
Taken together, these five strategies comprise a powerful IT cost optimization framework. Relying on one alone may result in some savings, but the more comprehensive and transparent your analysis of current spending and needs, the more opportunity for cost savings.
Key drivers behind IT cost optimization
While IT cost optimization is ideally an iterative, continual process, certain drivers can push an organization to take immediate action to cut expenditures. Here are a few reasons that businesses may feel motivated to reduce costs.
Increasing cloud consumption and variable usage patterns
Organizations often use fluctuating cloud-based resources: For example, a company might experience significantly higher internal usage or external traffic rates at busy times of the year. But during the "off-season," when data consumption drops, the organization doesn't need high-powered data processing and storage services. In turn, they can negotiate packages that mirror fluctuations in demand, instead of always paying the most robust (and expensive) cloud costs.
Redundant applications and tools
Process, task, and workflow mapping can surface redundant tools—applications and hardware that perform similar or identical processes. These analyses will also demonstrate if team members waste time bouncing between apps to complete work that could be performed in one place. Insights in hand, organizations can eliminate excess tools and, if needed, invest in additional features within remaining tools that will boost their operational functionality and, in turn, drive long-term cost reductions.
Resource-consuming manual processes
Workflow mining often also turns up resource-heavy, error-inducing manual processes, pushing business leaders to consider optimizations. Streamlining work—such as through AI-driven automations—implies direct cost savings on labor but also indirect ones, like fewer expenditures on rework due to human error.
High-maintenance legacy infrastructure
Legacy tools can imply steep maintenance costs, like for the cooling and electricity that support physical data centers. The financial pressure of maintaining these tools can drive companies to seek cloud-based alternatives. And if organizations can't fully rid themselves of these systems, they can consolidate them or swap them out for newer, more resource-efficient tools.
Aligning IT investments to business results
When organizations review whether their current IT spending translates to business value, they may discover that their tech isn't supporting their overall goals. While, in some cases, this revelation may lead to immediate cost reductions via the elimination of tools and services, it's also possible that the organization will need to retool and revamp its tech program, leading, instead, to longer-term savings. That is, if the company strategically shifts its tech to drive better business outcomes (like improved revenue), these efforts will likely imply an initial investment but pay out in the future.
How Scribe fits into IT cost optimization strategies
Scribe's Workflow AI platform is essential for IT teams looking to get the most value from their tech stack. Scribe Capture documents processes as you work, enabling adoption and standardization with step-by-step guides. Scribe Optimize mines workflows to uncover hidden inefficiencies within your IT tools and operational procedures, giving you a clear picture of how work gets done and helping you prioritize improvement opportunities in your teams’ workflows.
With real-time data and Scribe's AI-driven insights on process improvements, you can make informed decisions on where to streamline and automate work to maximize cost savings.
FAQs
How often should organizations revisit their IT cost optimization strategy?
It's smart to continually review your IT usage and costs, preventing inefficiencies from draining resources over a long period of time. Conduct both quarterly and annual reviews.
What’s the difference between IT cost optimization and IT budgeting?
IT budgeting refers to the projection of future IT costs, while IT cost optimization is the process of reviewing current technology resources with the intent to optimize expenses wherever possible.
How do teams measure the ROI of cost optimization efforts?
Teams can compare the pre- and post-optimization spending numbers to identify direct savings and can also track indirect savings by monitoring error reduction, improvements in customer and employee satisfaction, and boosts in efficiency and productivity.
Which groups inside an organization typically own IT cost optimization?
IT cost optimization relies on input from FinOps and IT, as well as business unit and C-level leaders, like the CIO and CFO.
