Methodology:
Reducing IT Cost to Serve
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Table of Contents
1. Introduction
1.1 Context for Cutting Costs
1.2 The “Cost to Serve” Approach
2. Getting Ready
2.1 Sources of Cost Cutting
2.2 Types of Cuts
2.3 Right-sizing the Solution
2.4 Cost Cutting Resources
3. The Cost to Serve Methodology
3.1 Step I: Discover Budget and Cost Reduction Targets
3.2 Step II: Take Stop-Gap Measures and Develop a Strategy
3.3 Step III: Review Services and Compile the Plan
3.4 Step IV: Negotiate the Plan
3.5 Step V: Execute Changes
3.6 Step VI: Review
4. Closing Summary
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Introduction
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1.1 Introduction: Context for Cutting Costs
A history of “lean and mean” won’t help avoid new cuts

Most IT departments have experienced pressure to reduce costs on an ongoing basis for
many years now. Therefore, the idea of keeping a tight rein on costs is nothing new.

However, sooner or later, worsening global economic conditions will impact every
organization, be it directly or indirectly, strategically or operationally.

Do not be complacent – even though many IT leaders say they are already running “lean
and mean,” IT will not be immune from the next round of business cost reductions.
“There are fewer people doing the same things we’ve
been doing for the past four or five years. If we say, ’We
just can’t keep this up,’ the business expectation will be
‘Yes, you will.’”
CIO, Manufacturing
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1.1 Introduction: Context for Cutting Costs
Take cost-reduction action before being asked

Don’t cut costs just because of the economy; cut costs because it makes sense.

Cuts that are made during times of financial pressure should be treated as permanent
changes, i.e. the new way of doing business. They must be done as effectively as
possible to ensure future manageability.

In challenging economic times, inaction on the expense management front is not a
feasible response. Doing nothing will create severe competitive vulnerabilities, if not
vulnerabilities that jeopardize the basic survival of the organization.

IT leaders repeatedly highlight the need to take initiative in anticipation of negative
conditions. Taking initiative means exploring new ways to cut costs. One way, which will
be explored here, is the Cost-to-Serve method.
“The best thing to do is actually take initiative. If you
want to survive, you need to find the things that you
can do.”
IT Director, Business Services
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1.1 Introduction: Context for Cutting Costs
Make expense management proactive and ongoing

The key to expense management success is to take proactive steps to set a healthy
foundation for overall cost reduction.

Those organizations that have taken a proactive approach to holistic expense
management are more likely to benefit from the measures taken, and even identify new
opportunities for growth.

Those who aren’t proactive run the risk of making damaging mistakes unless thoughtful
action on how and where to reduce costs is taken.

Expense management should be an ongoing exercise, regardless of financial conditions.
Preparedness paves the way for proactive response versus panicked reaction.
“Cost cuts are an ongoing thing where no one can
ever take pause. It’s ongoing effort to become more
efficient overtime.”
IT Director, Health Insurance
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1.2 Introduction: The Cost-to-Serve Approach
Services are the direct link between IT and the business




While there are many ways to approach a
discussion about IT cost reduction, Info-Tech
proposes the “Cost to Serve” method.
An IT service is defined as a set of related
components (i.e. hardware, software, and
documentation) that work together in support
of business processes.
Although the components of a service may
cross multiple technologies, the service is
perceived by the client as a single, coherent
entity.
Many IT organizations are moving towards
service-oriented models. Examining costs from
this same service perspective is consistent
with emerging IT organizational and
operational structures.
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IT Service Areas
IT Administration
Workstation and
Peripherals
Disaster Recovery
Planning
Servers, Mainframe,
and Storage
End-user Support
Network and
Telephony
Application
Development
Application
Maintenance
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1.2 Introduction: The Cost-to-Serve Approach
Reducing cost-to-serve offers a business-oriented approach





The ultimate goal of the Cost-to-Serve approach is to directly map and forecast the
impact that changes in spending on IT services will have on the ability to achieve
business strategy.
Cost-to-Serve examines the relative cost to deliver specific IT services, such as
servers and storage services, end-user support services, and application
maintenance services.
When activities have been categorized into services, it’s much easier to decide
what spending changes to make. Changes could include reductions, decisions to
outsource, or eliminations in services.
Those spending changes that will negatively affect business strategy are avoided,
and those that will positively impact business strategy are prioritized and pursued.
The Cost-to-Serve approach differs from traditional line-by-line assessments of
capital and expense budgets. Traditional methods do not show the causal
relationship between expenditure change and the impact on business strategy.
IT departments should take a proactive approach to cost management by evaluating the cost to
serve IT and focusing on areas that will have minimal or no negative impact to the business.
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Getting Ready
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2.1 Getting Ready: Sources of Cost Cutting
IT writes checks to only two groups: staff and vendors
In general terms, organizations spend money on two things: staff, and vendor
products and services. As a result, direct cost reduction can be found in these two
areas only.
Staff

Staff expenditures can be cut by reducing headcount,
reducing salary, wage and bonus payouts, reducing
training expenses, and increasing staff productivity.
Vendor products
and services

Vendor product and service expenditures can be cut by
reducing license and service fees, negotiating deals,
acquiring more cost-effective technologies, and
practicing preventative maintenance to extend product
lifecycles and defer equipment replacement.
All other perceived “cuts,” such as gains made through process optimization, will
ultimately tie back to one or both of these two expenditure areas.
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2.2 Getting Ready: Types of Cuts
Reduce, replace, reprioritize: tie types of cuts to timeframes
Cuts can be made by doing one or all of the following: reduce, replace, or reprioritize.
Type
Impact
Description
Reduce
Immediate
(3 months)
This is the reduction or elimination of IT services, and can be performed
quickly when faced with an urgent need to cut. This is done by reducing
headcount, reducing consumption of a service, or directly eliminating spend.
Cutting the training budget, layoffs, and trimming back service levels are
ways to do this.
Replace
Mid-term
(6-9 months)
This is done by replacing a technology (or even a person) with a less
expensive alternative to achieve greater cost effectiveness. More extensive
assessment is required to make replacements, so timeframe to execution is
typically longer. An example of a replace strategy would include choosing
commercial-off-the-shelf applications over customized ones.
Reprioritize
Long term
(12 months
or longer)
This is achieved by reprioritizing expenditure and choosing to invest in
technologies (or people) that more clearly support the business strategy.
Reprioritization usually requires expenditure and longer-term
implementation timeframes before ROI and cost reductions are ultimately
realized. An example would be implementing a Storage Area Network (SAN)
to centralize data storage, consolidate storage hardware, and reduce
storage management complexity.
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2.3 Getting Ready: Right-sizing the Solution
Cut opportunities vary depending on organization size
Large enterprises have more flexibility in where to reduce costs, but complexity is a barrier.
Size
Enablers
Barriers
Small
Enterprise

Low complexity levels of small shops mean that
fewer technologies and supporting structures
are ingrained.
“Must have” elements are more obvious. The
effects of removing a piece of the IT puzzle are
more visible, and therefore less risky.

More likely than small shop to find cost
management solutions by leveraging
relationships with vendors.
Consolidation and centralization may allow for
closure of redundant service desks.

Mid-sized enterprises show elements of both small
and large organizations, and are often in transition.
They may be complex like large shops, but be
resource constrained like smaller operations. This
can reduce option flexibility.
Large staff headcounts allow flexibility for
staffing cuts and redistribution of
responsibilities.
Large vendor agreements bring renegotiation
clout. Out-of-cycle renegotiation may be an
option.
Many end users means slight changes to
service levels or number of end users
supported will yield significant cost savings.

Large organizations are often complex and slow to
change. Simple logistics and compounded risk
factors could protract timeframes for cost reduction.

Mid-Sized
Enterprise


Large
Enterprise



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
IT staff counts are already at a minimum. Achieving
cost savings through staff reduction may not be an
option without jeopardizing basic operations.
Small shops may have less pull with vendors when
negotiating licensing agreements, but are more likely
to benefit from open-source and freeware solutions.
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2.4 Getting Ready: Cost Cutting Resources
IT cut decisions rely on knowing business plans
There are specific business documents that provide invaluable
information when making cost-cutting decisions. Seek them
out to make informed decisions.
See Info-Tech OptimizeIT’s
collection of IT Strategy tools to
help document strategic business
and IT information.
Information
How to Use It
If You Don’t Have a Formal Document…
IT Budget
Contains financial information that is
the baseline for IT cost cutting.
If a budget does not exist, then collect available spending
information for the past year in a spreadsheet. Include
totals for staff, hardware, applications, and outsourced
services.
Business
Strategic Plan
Describes the enterprise’s core
business and direction, which may
change in light of a challenging
economy. Ensures that work is
prioritized and cuts are made within the
context of the business’s overall
strategy.
If the strategic plan for the coming year is not
documented, then meet with the senior management
team to rough out a one-page strategy statement
document to use as a reference. The document should
include a list of strategic goals and planned initiatives to
reach them.
IT Strategic
Plan
The enterprise’s IT strategy is derived
from the business strategic plan. It will
help determine the difference between
necessary and “nice to have.”
If an IT strategic plan does not exist or does not map to
the business strategic plan, then list the services and
projects that IT supports and show their linkage to the
business plan.
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2.4 Getting Ready: Cost Cutting Resources
Understanding IT team activities is key to creating baseline
information
See Info-Tech OptimizeIT’s Project
Prioritization tools to help track and
assess your project portfolio.
Information
How to Use It
If You Don’t Have a Formal Document…
IT Project
Portfolio
Projects consume resources. All
projects, either planned or underway,
must be accounted for and
documented so that each can be
reevaluated against the business
strategy.
Use a simple spreadsheet to document basic information
for each project, including its relationship to the business
strategy, project stakeholders, and project financial cost
to completion.
IT Service
Catalog
The service catalog is a menu of IT
services provided to the rest of the
organization. It can be used to identify
activity-based costs for IT services.
If one is not in use, then draft a brief list of IT services
provided to the business in a spreadsheet. Include each
service within the organization and its relative criticality
(high, medium, low) to business goals and operations.
Internal
Service Level
Agreements
(SLAs)
SLAs describe expected baseline IT
service levels. SLAs may need to be
renegotiated in order to reduce costs.
If internal SLAs do not exist, then at least consider how
business may react to reductions in the level of services
currently provided. For some organizations, documenting
primary service levels that exist informally may be
worthwhile to set a starting point for negotiation.
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2.4 Getting Ready: Cost Cutting Resources
Retaining the right skills brings IT a strategic advantage
See Info-Tech OptimizeIT’s Talent
Management and Policy and Procedures
Management capabilities for more helpful
toolsets.
Information
How to Use It
If You Don’t Have a Formal Document…
IT
Organizational
Chart
An organizational chart displays people
resources and reporting relationships.
This understanding allows IT leaders to
revaluate staff-to-manager ratios and
the potential for merging managerial
responsibilities.
If there is no organizational chart, it’s straightforward to
create one from basic office productivity tools. Small IT
organizations do not have enough staff to warrant this
effort.
IT Staff and
Skills
Inventories
These inventories document key
employee information. Since IT salaries
represent the largest portion of IT
spend, they often play a major role in
deep IT spending cuts.
A single or multiple spreadsheets can be used here to
document basic staffing information. Include compensation
and potential bonus amounts, skill sets and skill levels, and
primary tasks, responsibilities, and projects.
IT Policies and
Standard
Operating
Procedures
(SOPs)
Operational efficiencies can be gained
by documenting and reviewing policies
and procedures. Any review of IT
services will mean a review of
associated IT operations and the
policies and procedures that govern
them.
If no policies or procedures are formally documented, IT
likely will not have the time to document them if cost
reduction is urgent. Earmark this work as a future project,
or include relevant policy and procedure documentation as
a milestone in all in-progress or planned projects going
forward.
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“Getting Ready” Summary

Cost reduction activities inevitably target just two areas: Lowering expenditure on staff,
and lowering expenditure on vendor products and services.
 Cost reduction offers three types of cut strategy: reduce, replace, and reprioritize. The
size and timeframe of cut targets will drive the strategy taken.
 Enablers and barriers to cost reduction vary by organization size, which often dictates
flexibility, available redundancy, and impact of cuts.
 There are key business documents that contain highly important information for making
cost-cutting decisions. Track down these documents. If they don’t exist, then gather the
right basic business information to illuminate thinking and reduce risk.
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The Cost-to-Serve
Methodology
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3.0 The Cost to Serve Methodology
The cost-to-serve methodology is iterative – it begins with
target setting and concludes with process review
1
Discover
Targets
6
Review
2
Develop
Strategy
Cost-to-Serve
Methodology
5
Execute
Changes
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Review Services &
Compile the Plan
4
Negotiate
the Plan
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3.0 The Cost to Serve Methodology
Executing cost cutting requires careful consideration and
review
Steps in the Cost-to-Serve Methodology
Step I
Discover Budget and Cost
Reduction Targets
Review and understand mandated cuts, timelines and the
resulting effect on the enterprise and IT budget.
Step II
Take Stop-Gap Measures
and Develop a Strategy
Take immediate measures where necessary and develop a
go-forward strategy to address long-term targets that align
with business and technology strategies.
Step III
Review Services and
Compile the Plan
Conduct reviews of IT service areas to establish whether
they offer cost-cutting opportunities for given targets and
timelines.
Step IV
Negotiate the Plan
Obtain staff and management buy-in and rally around the
cost management plan.
Step V
Execute Changes
Execute the related staffing, vendor management and
process changes.
Step VI
Review the Plan
Measure success of cost cutting and cost management
solutions.
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3.1 Step I: Discover Budget and Cost Reduction Targets
Understanding the urgency and depth of cuts clarifies IT’s
response
Gathering information about the enterprise’s situation helps define the internal economic
climate and establishes expectations the business has of its IT department.
Information
Why It Matters
Know the depth and timeframe of cuts:
Does senior management want a cut of 10%
within three months and a total cut of 30% within
12 months?
Fast and deep cuts indicate that senior
management perceives the situation as urgent
and that the enterprise itself is at immediate risk.
Understand IT’s role:
How much say will IT leaders have in where and
how to cut costs?
Limited input in cost management planning will
prove frustrating and may lead to mistakes.
Acquire situational information:
How much are the different departments in the
organization being asked to cut?
If cuts are broad and wide, there is also an
opportunity for IT to reduce service
requirements, and ultimately headcount.
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3.1 Step I: Discover Budget and Cost Reduction Targets
Don’t assume explicit targets and deadlines will be
communicated by the business

It leaders report frustration when cost targets and timelines are not clearly
communicated. However, clear targets may never materialize.
 The Cost-to-Serve methodology begins by establishing time and scale criteria. A
targeted approach need not rely on an executive order; IT departments can
develop internal cost management targets as well.
Executive Mandate
Expectations from IT
Examples
Targeted and
immediate mandated
cuts
Actions with guaranteed
results and by a
guaranteed deadline.

Unclear statement
about the need to
reduce costs
Fiscal responsibility and
improvement to the
bottom line.

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Freezing of capital
expenditures
 Layoffs
Reassess purchase policy
 Revisit application licensing
structure.
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3.1 Step I: Discover Budget and Cost Reduction Targets
Understanding when to hit targets is as important as the
target’s size

To achieve a 5% budget reduction within this quarter will require a different set of
tactics than it would a year from now.
• Some tactics represent a one time reduction which is not repeatable. For
example, how long can you defer raises before losing talent to competitors?
• Some tactics require time. For example, a vendor contract may require the
enterprise continue with a service to the end of the contract term.
“We think IT might have to make another five or ten percent cut. That's still
up in the air right now because it's hard to forecast revenue projections that
far ahead of time. But due to anticipated revenue shortfalls, there will likely
be an additional $2 million hit to the organization.”
IT Director, Public Sector
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3.1 Step I: Discover Budget and Cost Reduction Targets
Caveat: IT’s “place at the table” affects decisions made

The way cuts affect IT services is more often than not dictated by the nature of the
relationships between CIOs and the other executives at the table.
 While some IT departments work unpaid weekends to deliver next to impossible service
levels, others use strong professional relationships to negotiate trade offs.
 IT leaders who are satisfied with the IT/business relationship with regards to managing
service levels cited these factors and recommendations as a factor.
Factor Affecting Business and IT
Relations
Ability to
Improve
Recommendation for Proactive Improvement
Strong communication of IT efforts.
High

Transparency of IT costs
Medium

Associating cost to service activities
Medium

Backing of the IT department from
champions at the executive level.
Low

Time cost-cutting actions in accordance to
enterprise-wide initiatives.
Pre-existing equal and leveraged
relationships with the business.
Low

Increase face time with the corporate leaders.
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Demonstrate hard numbers in formal
business communications.
Publish the IT budget.
 Negotiate Service Level Agreements.
Outsource IT activities to tie service to cost.
 Implement service catalogs.
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3.1 Step I: Discover Budget and Cost Reduction Targets
Step I Summary
Understand the urgency and depth of cuts to clarify IT’s position and response.
Don’t assume explicit targets and deadlines will be communicated by the business. A
targeted approach need not rely on an executive order; IT departments can develop
internal cost management targets as well.
 Understand that target size and timeframe will determine the best types of cuts to make.
 Remember that IT’s “place at the table” affects decisions made and take proactive steps
to improve this position.


1
Discover
Targets
Cost-to-Serve
Methodology
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3.2 Step II: Take Stop-Gap Measures and Develop a Strategy
Take stop-gap measures to meet immediate cash flow needs


Developing a strategy for cost cutting requires time; however, immediate actions will
be required where mandated cuts are:
•
Immediate (within the quarter).
•
Significant (10% or higher).
Some or all of the following steps can have immediate results on cash flow if
deadlines and significant cuts must be made. These should be viewed as temporary
measures.
Capital expenses
Freeze and reevaluate all capital expenses, including
purchases currently in progress.
Vendor contracts
Revisit unsigned contracts that are still in negotiations.
Hiring
Consider freezing hiring across the board.
IT salaries
Consider freezing bonuses and raises for existing
employees.
Project portfolio
Temporarily hold off on the entire project portfolio,
including projects currently in progress.
Other discretionary
Place temporary limits on travel and training expenses.
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3.2 Step II: Take Stop-Gap Measures and Develop a Strategy
Build a strategy around targets discovered in Step I
With stop-gap measures in place, a longer-term strategy will be developed around the
opportunities and constraints uncovered around cut targets, IT’s role, and business
strategy.
Know the Depth and
Timeframe of Cuts
Understand IT’s Role
These Considerations
Build the Strategy
Cost-to-Serve
Strategy
Acquire situational
information
What are the major strategic thrusts of the organization for the next year or
two years or five years? Let’s identify the top five of those and let’s make
sure that the IT spending is aligned with that, and then make the cuts in the
areas where things are not aligned.”
IT Consultant, Professional Services
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3.2 Step II: Take Stop-Gap Measures and Develop a Strategy
A cost reduction strategy is a high-level declaration that seeks
to achieve targets while minimizing business impact





The main benefit of the Cost-to-Serve approach is not random – its primary goal is to
control business risk.
Committing to a strategy helps drive cost management and cost cutting decisions. A
strategy ensures that the steps taken will achieve the required cost cuts without
cutting off arterial business functions.
Knowing where the enterprise stands and IT’s role in cost management efforts helps
drive the direction of cuts.
There is no one-size-fits-all solution; each enterprise is unique with it’s own “sacred
cow” projects, technology strengths and weaknesses, and cost reduction targets.
IT’s cost cutting strategy will drive the types of tactics that are used. It may not specify
which tactics will be used, but it should certainly point to a general direction.
Sample Strategic Statement
The IT department must meet its 5% first quarter reduction target
without cutting back the quality of client facing Web applications. To
do so we will employ actions that offer both immediate and
repeatable cost reductions in IT operations.
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3.2 Step II: Take Stop-Gap Measures and Develop a Strategy
An enterprise under financial duress must select an approach
.
with
immediate pay-off

The timeframe and size of a cut determines strategy, driving the real life tactics
available.
 If timeframes are short, there is little time to gather information and make in-depth plans.
Organizations must focus cost reduction efforts on low-hanging fruit that achieve quick
wins with minimal effort and bureaucracy.
Strategic
Approaches
Short-term
Description
Includes tactics aimed
at immediate impact.
These must have cash
flow implications.
Sample Tactics
1.
2.
3.
4.
5.
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Drawbacks
Cut travel costs, training costs, and
perks. (Reduce)
Eliminate contractor positions.
Delay upcoming pay increases. (Reduce)
Reallocate funds to essential services.
(Reprioritize)
Freeze projects. (Reprioritize)
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
Short-term
pay off.
 Potentially
nonrepeatable.
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3.2 Step II: Take Stop-Gap Measures and Develop a Strategy
Ongoing cost management improvement opportunities appear
in the mid-term

Timeframes of six to nine months afford more opportunity to making lasting change built
on research and planning.
Strategic
Approaches
Mid-term
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Description
Primes the
enterprise for
continued savings
through adoption
of changes that
involve day to day
activities.
Replacing
expiring contracts
and hardware
with more cost
efficient solutions.
Sample Tactics
1.
2.
3.
4.
Drawbacks
Revisit vendor contracts for
renegotiation. (Reduce)
Reassess software licensing for cost
savings. (Replace)
Increase hardware lifecycles. (Replace)
Open up previously approved change
requests for reassessment under new
budgetary constraints. (Reprioritize)
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
Requires
planning.
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3.2 Step II: Take Stop-Gap Measures and Develop a Strategy
Where cuts are not immediate, focus on investment for longterm upside

If cut targets are 12 months or longer away, invest-to-save projects that require
expenditure today, with the promise of future savings or returns, are now an option.
Strategic
Approaches
Long-term
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Description
Cost management
strategy involving investto-save tactics aimed at
positioning the department
for long-term cost
efficiency.
Sample Tactics
1.
2.
3.
Drawbacks
Evaluate services for outsourcing.
(Replace)
Standardize applications to reduce
maintenance and development
costs. (Replace)
Develop service catalogs and tie
costs to IT services. (Reprioritize)
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
Longer
implementation
time.
 May involve
costs before
savings
realized.
 Savings may be
interpreted as
“cost
avoidance”
versus an
actual
reduction.
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3.2 Step II: Take Stop-Gap Measures and Develop a Strategy
Step II Summary

Take stop-gap measures to meet immediate cash flow needs.
 Develop a strategy that will meet target cuts and align with business initiatives.
1
Discover
Targets
2
Develop
Strategy
Cost-to-Serve
Methodology
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3.3 Step III Review Services & Compile Plan
Assemble the plan by reviewing each service for opportunities

Given a general direction in the way of a strategy, each service area can be assessed for
tactical solutions that fit with the department’s strategy.
 This step is repeated for each IT service to generate a set of potential recommendations.
IT Services
1. Internal IT
Administration
4. Workstation Services Cost Management Tactics
Workstation refresh
rates
2. Networks and
Telephony
3. End-User Support
Services
Workstation Services
4.Workstation Services
Desktop
virtualization
Explore the advantages of virtualized
desktop technologies to make a long-term
and very real impact on the bottom line.
Desktop images
Reduce and standardize the number of
desktop images supported so that end
users have the applications and
configurations they need, and only what
they need.
Print management
Reducing access to personal printers,
centralizing on few multi-function
machines, and setting limits on color
printing via a print policy is a quick, and
often overlooked, way to reduce costs.
5. Disaster Recovery
Services
6. Servers, Mainframes
and Storage Services
7. Application
Development
8. Application
Maintenance
www.infotech.com
Workstation refresh rates can realistically
be extended from the traditional 3-5 years
to as long as six years. Cascading old
high-end workstations to less critical tasks
is another cost-saving tactic.
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3.3 Step III Review Services & Compile Plan
Internal IT administration opens opportunities to simplify and
streamline processes
1. IT Administration Services
Travel expense management
This represents a major area of loose discretionary spending in
most organizations. Formalize a travel expense policy if none
exists, or tighten approval considerations and enforcement if one
does exist.
IT staff productivity
Every work minute counts, especially if doing more with less is a
reality. Track staff productivity levels and then identify ways to
motivate and increase efficiencies.
IT staff headcount
Finding the right staff headcount and staff-to-manager ratios are fast
ways to dramatically reduce IT costs. But proceed with caution to
avoid deficits of key skills.
IT administrative processes
Streamlining existing processes and formally documenting others
will reduce wasted time and errors.
Centralizing management of IT
operations
Bringing IT operations under a single management point of control
reduces waste created by policy disparities and operational nonstandardization.
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3.3 Step III Review Services & Compile Plan
Optimizing network and telephony investments returns cold,
hard cash
2. Network and Telephony Services
Network and telephony
infrastructure integration
Explore all opportunities to consolidate data and telephony networks
and support teams. This may mean standardization on IP and
examining the costs and benefits of integration.
Network monitoring
Monitor the performance of network components to ensure they’re
operating appropriately and efficiently.
Bandwidth consumption
Bandwidth may be oversubscribed. Monitor consumption for
opportunities to right-size and pare back on costs.
Mobile device policy
Explore which is more cost effective: the enterprise supplying mobile
devices, or the individual employee who then bills the company for
business costs incurred. Document and enforce.
Teleconferencing solutions
Explore where teleconferencing solutions can be implemented to
reduce travel costs.
Second-hand equipment
Second-hand and refurbished network and telephony gear can bring a
“good enough” hardware solution at bargain prices.
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3.3 Step III Review Services & Compile Plan
Analyzing end-user support activities is the best way to gain IT
process efficiencies
3. End-User Support Services
Analysis of problem root causes
Understanding the real nature of end-user problems affords the
chance to address and eliminate root causes, thereby eliminating
them and reduce ticket volumes.
Logging incidents
Document help desk tickets to be able find trends and uncover more
effective practices.
Speed of ticket resolution
Tier resolution rates based on business criticality.
Tickets per analyst
Review the number of tickets per analyst to achieve more efficient
demand management.
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3.3 Step III Review Services & Compile Plan
Spend smarter with workstations and peripherals
4. Workstation Services
Workstation refresh rates
Workstation refresh rates can realistically be extended from the
traditional 3-5 years to as long as six years. Cascading old high-end
workstations to less critical tasks is another cost-saving tactic.
Desktop virtualization
Explore the advantages of virtualized desktop technologies to make a
long-term and very real impact on the bottom line.
Desktop images
Reduce and standardize the number of desktop images supported so
that end users have the applications and configurations they need,
and only what they need.
Print management
Reducing access to personal printers, centralizing on few multifunction machines, and setting limits on color printing via a print policy
is a quick way to reduce costs that is often overlooked.
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3.3 Step III Review Services & Compile Plan
Reassess disaster recovery investment in light of real risks
5. Disaster Recovery Services
Matching DR solution to system
needs
Not every system requires the same level of disaster recovery
investment. Match the DR investment to the need, which may result in
scaling back and cost savings.
Business recovery objectives
Review recovery objectives with business stakeholders to determine if
current objectives are too stringent based on assessed risk.
DR outsourcing
Outsourcing DR may be critical to risk mitigation, or too costly to
justify. Perform a cost-benefit analysis to determine if DR is best
delivered in-house.
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3.4 Step III: Review Services & Compile Plan
Servers, mainframes and storage bring huge IT capital costs,
so they’re prime targets for cost reduction
6. Servers, Mainframes and Storage Services
Server consolidation and
virtualization
Reducing the number of physical servers and virtualizing server
instances is a proven way to reduce data center capital and
operational costs.
External server collocation or
hosting
Explore cost saving opportunities in collocating servers or running
applications on hosted external servers.
Second-hand equipment
Refurbished servers can offer “good enough” solutions for common
server functions.
Storage virtualization
This can include implementation of SAN technologies. Perform a costbenefit analysis to assess long-term savings.
Limited personal storage
volumes
Review and potentially reduce existing storage volume limits for enduser groups. If there is no policy on storage volumes, create and
enforce one.
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3.3 Step III Review Services & Compile Plan
Application development work can be reduced or eliminated
7. Application Development Services
Continuation of application
development
Consider stopping application development entirely if it is not
absolutely required.
Prioritize projects
Implement a process for selecting and prioritizing only those projects
that bring a strategic benefit to the organization.
Document requirements
Clearly documented requirements reduce wasted effort and ensure
applications built meet business needs.
Test applications
Detecting and fixing errors early costs much less than fixing errors
released into production.
Contracting out application
development
Assess the relative costs of contracting out development work versus
retaining full-time in-house staff.
Commercial-off-the-shelf (COTS)
vs. custom builds
COTS applications often cost less to procure and maintain. Set COTS
as the preferred option when possible.
Open source alternatives
Consider open source options for non-mission-critical deployments.
Software-as-a-Service (SaaS)
SaaS alternatives can be more cost effective than COTS or custom
solutions. Explore the options.
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3.3 Step III Review Services & Compile Plan
Improving application maintenance processes reduces wasted
effort
8. Application Maintenance Services
Prioritizing maintenance work
requests
Implement a system for strictly prioritizing work requests to ensure
time is invested in the most critical changes.
Bundling work requests and
change releases
Bundling work and releases maximizes efficiencies.
Redundant and isolated
applications
Unused and underused applications inflate licensing costs and impede
integration efforts.
Software patching
Patching presents a tradeoff between costs and benefits. Ensure the
tradeoff is balanced cost-effectively.
Application testing and reviewing
Ensure applications continue to meet business requirements. It’s less
expensive to identify and fix problems early.
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3.3 Step III Review Services & Compile Plan
The Cost to Serve plan includes time to completion and
estimated savings

The chart below is designed to reflect some generalities. For example, Internal IT
Administration expenses such as travel and training are easy to reduce immediately, but
don’t reflect a large percentage of most IT budgets.
This table represents an example of what a top level Cost-to-Serve plan might look like.
IT Services
Example Service
Components
Percentage of IT
Budget
Estimate a portion of
the IT budget that this
service represents
Estimated
Potential for
Reduction
Estimate
potential
savings
Estimated
Time to
Completion
IT/Business
Alignment Score
Estimate alignment
with top level
enterprise strategy
1. Internal IT
Administration
Travel, training,
supplies
Low
30-60%
Immediate
Low
2. Networks and
Telephony
Monthly telecom
expenses, network
infrastructure
Med-Low
10-20%
Six months
Medium
3. End-User
Support Services
Help desk salaries,
support applications
Med-Low
20-30%
Six months
Low
4. Workstation
Services
Laptops, desktops,
printers
Medium
10-20%
Immediate to
one year
High
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3.3 Step III Review Services & Compile Plan
The Cost-to-Serve plan includes time to completion and
estimated savings - continued
IT Services
Example Service
Components
Percentage of IT
Budget
Estimate a portion
of the IT budget
that this service
represents
Estimated
Potential for
Reduction
Estimate
potential
savings
Estimated
Time to
Completion
IT/Business
Alignment Score
Estimate alignment
with top level enterprise
strategy
5. Disaster
Recovery
Services
“Hot” or “cold” sites.
Low
30-60%
Six months.
High
6. Servers,
Mainframes
and Storage
Services
Backup procedures,
server monitoring
High
10-20%
Immediate
to one year
Medium
7. Application
Development
Vendor’s maintenance
costs, in-house
development staff
salaries.
Medium-High
50%-100%
One year
High
8. Application
Maintenance
Service
Vendor’s maintenance
costs, in-house
development staff
salaries.
Medium-High
50%-100%
One year
High
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3.3 Step III Review Services & Compile Plan
Step III Summary



Assemble the plan by reviewing each service for opportunities.
Rate the tactics within each service area for “fit.”
These recommendations will next be discussed and negotiated with business
stakeholders to arrive at a final cost reduction list for execution.
1
Discover
Targets
2
Develop
Strategy
Cost-to-Serve
Methodology
www.infotech.com
43
3
Review Services &
Compile the Plan
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3.4 Step IV: Negotiate the Plan
Reducing IT services may be met with strong resistance
Read the ITA Premium note, “Save the IT
Department by Linking Budget Cuts to
Decreased IT Services.”

Departments faced with significant budget cutting
mandates are often given the impossible task of
maintaining, or even increasing IT services despite a
reduction in available resources.
 Organizations with poor IT-Business alignment often
find that the business is resistant to service level cuts
due to the lack of understanding of the cost to serve
IT.
 Cuts to the department’s budget may necessitate cut
backs on IT services, something that must be
negotiated with the senior management prior to the
execution phase.
 Having an executive sponsor lends credibility to the
IT department’s measures and will improve IT’s
position at the bargaining table.
IT budget
IT services
“I think the biggest thing that enterprises need to really understand is to know your cost.
You really need to understand what your cost is …So when business comes to you and
says they need you to reduce my cost, then you’re in a better position to say okay. You
can negotiate with them and say this is what it is. What is it you want to take out?”
IT Director , Tech Services Industry
www.infotech.com
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3.4 Step IV: Negotiate the Plan
Acknowledge ongoing cuts and specify planned measures

Both written documentation and meetings with key stakeholders will be required to
negotiate and finalize the cost reduction plan. Follow the four steps below.
1
Negotiation Steps
Description
Communicate
Ongoing Measures
Already Taken




2
Detail the Planned
Cost Cutting Efforts


www.infotech.com
Demonstrate IT’s ongoing cost management efforts to the business
through a presentation of recent accomplishments.
Detail how recent steps taken affect the bottom line, whether
positively or negatively. It is important to highlight areas where IT
has made itself or the business more efficient. These proof points
will help gain buy-in for future “invest to save” initiatives.
Demonstrating IT’s current efficiency helps validate anticipated
service reductions, signaling that IT has already taken measures to
maintain service levels.
Use tangible numbers whenever possible.
Document the future steps that will be taken (e.g. reductions,
postponed projects) and demonstrate alignment of these steps with
the enterprise and departments’ cost-cutting strategy.
Use hard numbers to show expected cost savings from each
individual measure.
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3.4 Step IV: Negotiate the Plan
Communicate consequences to senior management to finalize
the plan
3
Negotiation Steps
Description
Explain Consequences
and Impact to
Stakeholders




4
Finalize the Plan
www.infotech.com

Transparency of the IT budget changes the perception that IT is a
“free” service and helps enable senior management to understand
what needs to be done in order to accomplish cost cuts.
Demonstrate the potential consequences of cutting expenses. For
example, “We can save $5,000 per year on maintenance, but if a
breakdown occurs the department will require additional funds to
make repairs.”
It is important that each individual measure to be taken is evaluated
in terms of consequences and impact to stakeholders. By outlining
each one, senior management can easily understand what impacts
to expect.
Where cuts will impact current ongoing projects, specify how
timelines will be affected.
IT and senior management should work together to negotiate the
final plan. Where drastic cuts are required, IT will have to give up
core resources and, subsequently, core services. As a result, senior
management should decide where service levels can be cut back.
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3.4 Step IV: Negotiate the Plan
Step IV Summary


Acknowledge ongoing cuts and specify planned measures.
Communicate consequences to senior management to negotiate and finalize the plan.
1
Discover
Targets
2
Develop
Strategy
Cost-to-Serve
Methodology
3
Review Services &
Compile the Plan
4
Negotiate
the Plan
www.infotech.com
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3.5 Step V Execute Changes
Executing cost management tactics can make or break the
plan – treat it like a full, formal project

Changes to staff, organizational structure and service levels must be accompanied by
strong communication.
 Measures built on changes to procedures and policy must be enforced to remain effective.
 Without strong vendor management practices, cost reduction efforts surrounding
purchasing may be ineffective – or even backfire to increase costs.
 To make all of these things happen well, it is best to approach cost management tactic
execution as an actual project with formal deliverables, milestones and measures.
IT Leaders on Challenges in Strategy Execution
Communications…
Policy…
Vendors…
If I cut staff by x%, what
does that mean to the
business? It means a lot of
things. It’s tough to nail it
down to the actual effect on
service levels.
The problem we have here is
this is, by and large, a
trusting organization. It’s
quite difficult to actually get
a policy in place that says
that users can’t do stuff.
You’ll never have as good a
negotiating position as
when you’re buying… When
we’re out there negotiating,
we’re smart.
IT Director,
Technology Industry
IT Director,
Manufacturing Industry
IT Director,
Manufacturing Industry
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3.5 Step V Execute Changes
Communication is crucial to successful implementation of cost
cutting plans

Communicate the plan to business users. The
IT cost reduction plan should be communicated to
end users – especially if service levels or business
facing projects are being impacted. Once the plan
has been communicated, the department will
embark on executing proposed plans.
 Continue to make efforts visible. Proactive cost
management should not go unrewarded. The
challenge of being a good corporate citizen is that
when costs are managed on an ongoing basis,
there is much less fat to cut from the IT budget. Be
an active IT advocate and employ departmental
PR.
• Share news on cost cutting efforts in monthly
or weekly meetings.
• Use weekly or monthly bulletin e-mails to laud
IT’s cost cutting efforts. For example,
communicate to end users why they’ve had
their personal printers taken away and show
how much money the company has saved as a
result.
www.infotech.com
49
Peer Example
An IT Manager at a small
professional services organization
keeps its end users constantly
informed of IT’s major initiatives
via their “Weekly Edition.” This
weekly newsletter educates end
users on what IT is doing, the
pros and cons of why they are
doing it and how it impacts the
organization.
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3.5 Step V. Execute Changes
When cut backs are necessary, IT must take extra
steps to retain current staff

See ITA Premium’s “There’s No Crying in
IT: How to Make Tough Staffing Cuts”
and “Redefining Job Roles Due to
Downsizing” for more guidance.
Cost cuts can result in employees being forced to take on new, unfamiliar tasks,
affecting morale and productivity. Practice change management to minimize potential
impacts.
Execution Step
Description
 Communicate changes honestly and proactively. While honest and
proactive communications do not guarantee success in minimizing negative
IT Communication
impact due to staffing changes, they can help boost employee confidence.
& Expectations
Management
 Set clear expectations. Employees must have a clear understanding of
what is now expected of them due to the changes.
Reassigning IT
Work Tasks &
Responsibilities
 Ask for individual preferences. While not always possible, reassign work
tasks to encourage learning and knowledge transfer.
 Track skills/competencies. Document current skills and future needs.
Coaching IT for
Success
 Provide coaching support. When training and travel budgets are frozen, it
is even more crucial for staff to receive the coaching that they need to grow.
Set up new coaching relationships that will give senior employees coaching
experience and junior employees guidance and support.
Reward IT
Successes
www.infotech.com
 Recognize accomplishments. Reward staff who take on initiatives or
additional duties and perform well. While financial rewards are important,
providing non-monetary bonuses, such as flex time, is also effective.
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3.5 Step V Execute Changes
Policies and procedures are necessary for process change
execution

Policies. Having identified several policies as means to cost cutting (e.g. printer policies,
laptop policies), it’s up to IT leaders to execute on these policies. Strong policies are:
• Capable of being enforced by management.
• Aligned with organizational culture and values.
• Accompanied by other barriers such as spending limits on company credit cards or
bandwidth limitations on company laptops.
• Well communicated from a legitimate and central point of management.
 Procedures. Well documented procedures are essential to an organization undergoing
changes.
• Documenting procedures captures knowledge that may be lost in staff layoffs.
• Establishing repeatable processes establishes consistency where high staff turnover
is expected.
• A repeatable process eliminates time spent asking questions, and offers a learning
curve which improves exponentially with each iteration.
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3.5 Step V Execute Changes
When purchasing, get a better price or forego the purchase
altogether
Visit Info-Tech’s Cost Reduction Center to
read “Negotiation Tips – How to Save $
With Vendors.”

Negotiate with vendors. The same economic conditions that drive IT to manage costs
provides opportunities for renegotiating costs with vendors.
 Consider TCO. Don’t let the pressure of finding a “cheaper” solution drive purchases
entirely. Consider total cost of ownership as well the costs associated with IT solutions
that don’t achieve their intended purpose.
 Making do with less. Expect some disappointment when IT users start noticing slower
replacement of hardware and the IT staff’s toolset.
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3.5 Step V Execute Changes
Step V Summary




Develop and enforce policy and procedure.
Communicate changes to business users and make change visible.
Take steps to retain remaining staff.
Negotiate a better price when purchasing or forego the purchase altogether.
1
Discover
Targets
2
Develop
Strategy
Cost-to-Serve
Methodology
5
Execute
Changes
www.infotech.com
3
Review Services &
Compile the Plan
4
Negotiate
the Plan
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3.6 Step VI Review
Measure cost reduction success to continuously improve

The value of a cost to serve approach is the ability to cut costs without damaging the
core of the business and it’s technology assets.
 A “numbers only” approach does not tell you what effects cuts will have on the
organization down the road.
 The benefits of reviewing efforts are twofold: IT can tout its successes and learn
from the challenges. Both should be documented and used to continuously
improve the cost reduction process.
Goal
Key Question
Measurement
Meets mandated
cost cutting targets
Did IT meet required budget
cuts?
Compare actual IT spending to
strategic plan, initial IT budget.
Meets mandated
timeframes
Was the cost cutting plan
reached in the original
timeframe?
Compare estimated time to
completion to actual. If there are
any variances, explain reasons
behind delays.
Minimize negative
impact to business
Is IT still able to meet
service level agreements?
Adherence to SLAs, client
satisfaction surveys.
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3.6 Step VI Review
Measure cost reduction success to continuously improve –
continued
Goal
Key Question
Measurement
Minimize negative
impact to IT
operations
Are IT staff more productive
with the new procedures
and processes?
Track staff productivity to compare
before and after cost reductions.
Is morale down within the IT
department?
Gauge IT satisfaction through
coaching and one on one sessions.
Take action with non-tangible rewards
if possible to recognize successes.
Minimize negative
impact to end user
morale
Is morale down within the
organization?
If user facing IT employees notice a
change in end user attitudes, IT
management should make senior
management aware.
Achieve “invest to
save”
improvements
Are current projects
improving business or IT
processes?
Calculate formal ROI or payback of
projects completed.
Minimize negative
impact to IT morale
The review process of cost reduction should identify areas which can be improved going forward.
Cost reduction should be viewed as a continuous improvement cycle.
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3.6 Step VI Review
Step VI Summary

Assess efforts and tout success.

Measure cost reduction success to continuously improve.
1
Discover
Targets
6
Review
2
Develop
Strategy
Cost-to-Serve
Methodology
5
Execute
Changes
www.infotech.com
3
Review Services &
Compile the Plan
4
Negotiate
the Plan
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Closing Summary
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4 Closing Summary
Cost to Serve Methodology in Summary






Step I – Discover Targets
• Understand target sizes and timeframes to determine the best cuts to make.
• Take proactive steps to improve IT’s position at the decision-making table.
Step II – Develop Strategy
• Take stop-gap measures to meet immediate cash flow needs.
• Develop a strategy that will meet target cuts and align with business initiatives.
Step III – Review Services and Compile the Plan
• Review each IT service for cost reduction opportunities and rate against strategy.
• Set cost reduction recommendations to negotiate with stakeholders.
Step IV - Negotiate the Plan
• Acknowledge ongoing cuts and specify planned measures.
• Explain cut consequences to senior management to negotiate and finalize the plan.
Step V – Execute the Plan
• Communicate changes to business users and make change visible.
• Make changes to policies, procedures, and staffing contingents.
• Negotiate better pricing with vendors or forego purchases altogether.
Step VI – Review the Plan
• Assess efforts and tout success.
• Measure cost reduction success to continuously improve.
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