Inflation and the possibility of a recession are leading companies to wonder how they can reduce IT costs without impacting business processes in the long term. If your company has a large IT budget, cutting costs from this area might seem like the most logical way to save money.
While your business might feel pressure from internal and external sources to implement cost-reduction strategies, cutting projects or services where financial resources have already been spent or costs have been incurred is unwise.
You also don’t want to limit potential business growth or relinquish a competitive advantage in the marketplace to reduce costs. So, how can your organization promote cost savings in a responsible manner that enables it to continue to drive business growth?
This post will explore some IT cost reduction strategies your business can implement to save money without limiting your company’s future potential.
IT Cost Reduction Strategies
Controlling operational costs can be challenging, especially when it comes to technology. While saving money is important, cost-saving strategies should ideally not limit your company’s ability to compete and grow.
Finding a balance between cost optimization and market competition is challenging. There is no perfect cost reduction strategy. Every business is different and has different needs and goals.
When looking to implement a cost reduction strategy, look at these facets of your IT operations first:
- Personnel
- Hardware
- Software
Personnel
When cost-cutting initiatives become necessary for an organization, the first instinct is to cut labor costs by reducing the workforce. While this is a natural reaction since labor is one of the most significant operating costs, it is not always the best strategy, especially with IT employees.
Finding good tech talent in your local area can be difficult. In addition, the cost of recruiting and hiring can get expensive quickly. Therefore, if these positions are necessary for operations, it will cost your business more to lay off employees in the short term and replace them in the future with new hires.
You should only look to reduce personnel costs when the positions are extraneous and won’t affect daily operations. Otherwise, while you might save money in the short term, it will cost the business more in the long run.
The best way to control your personnel costs is to retain employees and limit turnover as much as possible.
Hardware
Energy and hardware costs are generally the second largest facet of an IT budget. When it comes to hardware costs, there is a lot of opportunity to cut costs effectively without affecting operations or business performance.
Servers are perhaps the most expensive form of hardware many businesses purchase. Thanks to cloud computing, your business no longer has to purchase or maintain servers. All of the things businesses use servers for can be accomplished with cloud solutions for significantly less.
However, if your business doesn’t want to cut physical servers completely, it can still reduce IT costs related to server acquisition and maintenance by using virtualization to partition a server into multiple servers.
Furthermore, your business can cut costs related to hardware by purchasing cheaper devices. There is a reflex to purchase the most expensive computers and devices, but this is not always necessary.
As long as the hardware can perform the tasks required of employees efficiently and securely, it is okay to buy cheaper devices. For example, MacBooks are some of the most expensive laptops, but for most tasks, other laptops are much cheaper and perform nearly as well.
Software
It is easy to overlook software costs, but software licensing costs can get expensive quickly. The most effective way to reduce software licensing costs is to use open-source software.
Not only does open-source software eliminate licensing costs, but it also allows your developers and business to modify the software to uniquely meet its needs.
Additionally, since open-source software is supported by more than one company, updates, and other features are typically rolled out much faster.
Another way to save costs here is to decommission software that is not being actively used. It is easy to purchase software or subscribe to a SaaS solution and then forget about it after you use it.
Practical Cost Reduction Tips to Utilize
When deciding how to reduce costs, here are some cost-cutting tips your business should consider:
- Look for instant impact
- Don’t freeze
- Cut once
- Target unspent expenses
- Do things the right way first
Look for Instant Impact
When reigning in business costs, target the things that will have an immediate impact. The impact of cuts should be felt within weeks or months. If you have to wait a year or more to feel the impacts of a cost-cutting measure, consider leaving that alone for the time being in favor of more impactful cuts in the short term.
Don’t Freeze
Look to reduce or eliminate costs rather than freeze them. Frozen costs will only reappear later and won’t be an effective cost-saving measure in the coming quarters or business periods.
Cut Once
Cost-cutting can be a painful process. The problem most businesses make is that they don’t cut costs deep enough and are forced to do it again. Not only is this an unproductive approach to cost-cutting, but it can create an uncertain environment for employees, which can negatively affect productivity and morale.
Target Unspent Expenses
The most impactful cost-saving measures will target unspent expenses or uncommitted resources. Carefully inspect your contracts for renegotiation and termination clauses before canceling orders or services. Unless your business can recover payments or deposits already made, don’t focus on cutting costs in the areas where money has already been spent.
Do Things the Right Way First
It is hard to quantify this one. However, rework and errors increase costs. Maybe it is initially cheaper and faster to do things in a shoddy manner, but ultimately, doing things the right way will save your business money when you don’t have to fix mistakes and rework projects.
This last bit of advice is more vague than the other points in this post. However, it is important to spend a little bit more time and money to do things properly initially because, ultimately, it will cost your business more to fix bad work.
This can be applied beyond IT and is a point everyone in the business should know.
Final Thoughts
Cutting costs is not fun for any business. However, it is sometimes necessary to control costs and make cuts. If you want to learn more about optimizing your organization’s IT budget, contact a skilled IT development and consulting partner like Koombea.
