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3 Best Practices for Short-term IT Cost Control

Apr 30, 2020 | By Wil Cleaveland

IT Leadership Planning, Budgeting & Forecasting

As organizations seek to become as lean as possible to survive the economic turbulence caused by COVID-19, technology leaders are under particularly strong pressure to deliver short-term spend reductions — in many cases, the strongest they’ve ever felt.

Unfortunately, there’s no “easy button” to make big IT cuts quickly and safely. There are, however, some simple best practices that can make the task both simpler and more effective, and today’s post outlines three of them…

Don’t Lean Too Heavily On Freezes and Delays

Budget cuts are painful, even more so when they have to be fast and deep. That’s why it’s so tempting to massage the budget with freezes and special accounting treatments — temporarily reducing spend instead of biting the bullet and making the hard cuts that are truly needed. But unless you’re extremely confident in how long it will take for conditions to restabilize, employing these kinds of tactics is a tremendous gamble.

Sure, freezing and delaying spend can reduce the immediate burden of existing obligations. But those obligations still exist, and the day of reckoning will still arrive — just a little later than it would have otherwise.

The key point here is to remember the reason you’re reducing spend in the first place, and how long that reason will persist.

If the reason is primarily external and there’s significant uncertainty around when it will resolve — a surprise recession, for example — freezes and delays will do little more than keep your head above water until necessary cuts are finally made.

Avoid Multiple Rounds of Cuts

Everyone knows the saying, “Measure twice, cut once.”

Well, in the context of IT spend, that saying couldn’t be more applicable. Not only should you ‘measure twice’ to be sure you’re cutting the right things; trying your best to ‘cut once’ is important to minimize any fallout.

At first, it might seem smart to make small, incremental cuts — only as they’re urgently needed. But in most cases, all this does is prolong the inevitable, while causing needless damage in the meantime.

That said, executing many small, recurring budget cuts — instead of 1-2 larger, decisive ones — does more harm than good in several ways:

Have a Plan to Manage Emotions

Everyone has special attachments to certain initiatives and functions within IT; that’s why it’s so critical to know how you’ll handle objections as various items go up on the chopping block.

And it’s not just the opinions of others you have to worry about. You also need to be honest with yourself too.

Don’t let sunk costs wield undue influence on decision-making. Look forward only, and as a few simple questions…

Given the current climate — and based on your best understanding of what to expect in the next 6-12 months — examine potential cuts and ask:

– Do we believe this item will continue generating sufficient (and relevant) value to justify its cost?

– Even if so, what other cuts will we consider to avoid this one?

– Will the negative impact of what we’re forced to cut elsewhere outweigh the value of keeping this alive?

Understanding the Long-term Consequences of Short-term Cuts

Without a mature ITFM/TBM practice, it’s exceedingly difficult to fully understand the long-term impact of short-term cuts.

Think of it like this…

Your entire IT budget is like a Jenga tower. Every cut you make is like removing a block from the tower and stacking it on top. Some blocks are riskier to pull out than others, and picking too many of the wrong ones can topple the whole thing.

Here’s the problem: choosing the right IT cuts isn’t as simple as choosing the right Jenga blocks, and it might take months to see the impact of a bad decision.

But imagine being able to see the long-term impact of any cut before you pull the trigger — just like tapping a Jenga block to see if it’s loose.

That’s what a mature ITFM/TBM practice lets you do. If you want to see how, get in touch today to start the conversation.

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