Cost Reduction Strategies 10 Best Strategies, Importance and Benefits of Cost Cutting

A ceiling fan used in conjunction with air conditioning can raise the thermostat setting by about 4°F. One way to save costs is to consider booking flights that will take you to a small, regional airport instead of a major airport hub. By developing a travel itinerary ahead of time, you can book in advance and avail of cheaper tickets. The situation is similar to getting a paycheck at the end of the month. There is the plan to save at least a small portion of the earning but some unprecedented expenses later and you notice that you are back to square one.

Not only will you save money, but you’ll also have greater peace of mind knowing that your contracts are serving your company well. Proactive contract management can be a powerful tool for reducing costs and ensuring that contracts better meet the needs of your company. By setting lead time alerts on upcoming contract renewals, you can give your team ample time to consider alternative suppliers or terms. Consolidating tools into a single platform can save money on licensing, support, and maintenance. This will help to reduce the amount of time and money spent on managing multiple tools, and it will also make it easier to track and analyze data. To successfully reduce your IT costs, you need to build a plan around these 8 IT cost reduction strategies.

How to Plug the Spending Holes in Your IT Budget

New company processes, data transfers, and adding or removing individual elements can significantly impact the flow of business. You must test each business operation beforehand to ensure that it functions as expected after implementation. The small efficiencies here and there will significantly reduce your information technology spending. Merging several information technology solutions into a unique and streamlined platform requires a lot of work and effort upfront. Companies that need extra security can lower their costs with ahybrid cloud model. Today the most popular and the most effective form of cloud computing, the hybrid cloud allows for an optimal distribution of workloads between public and private environments.

• The replacements of employees may even cost even higher, almost six to nine months of employee input.
• You can have a lot of different departments work from home, from marketing to accounting.
• Before the COVID-19 pandemic, the demand for IT talent was far greater than the supply.
• Another one of the best examples of cost reduction strategies is to update the systems and tools you use in your business.
• They ensure everyone can focus on the jobs to be done, rather than trying to hunt down equipment that the company has lost or can’t afford.
• For example, the American government runs the Small Business Innovation Research program, which provides funding for small businesses to conduct research and develop new products or technologies.

The hiring process, training them, and getting them up to speed takes a lot of time and resources. Reducing employee churn is easier said than done but doing so is an excellent IT cost reduction strategy. This one is hard to justify with tangible numbers but there can be huge savings by taking the time to do a few things right. cost reduction strategies For example, there can be a large cost if programmers are working with outdated and/or multiple versions of hardware and software. I like using a metric to show how well the hardware/software in place is compliant with the architectural roadmap. In addition, automating your regression tests can save money and improve quality.

The inverse relationship between IT M&M costs and an organization’s competitive positioning is just one of the more interesting findings in the Forbes Insights survey. Today’s post is part of a continuing series examining the survey’s findings. Virtualization hosts multiple virtual instances of an operating environment on the same machine, reducing the number of physical servers needed. Data Center Automation reduces the need for manual configuration and processing.

What Is a Cost Reduction Strategy?

Show how their consumption drives IT spend, so they can change behavior to reduce bottom line costs. Align IT projects and investments to business initiatives and sponsors, so that IT costs can be reduced in alignment with business reductions. Identify cost outliers by benchmarking IT spend per employee across business units.

Illustrating this in an example, consider the subscription service of Microsoft like office 365 which has a whole suite of commonly used products like excel, word, PowerPoint, and outlook. SaaS vendors provide extremely good customer support as they know that customers will start leaving or churning if at any point the customers are not happy. As a SaaS product customer, you just need to login to their system/app and start using the product. Most SaaS providers also have API integration services which will help a company to integrate the software product to the other key services that are in use. Have a clear view of all the applications and services that are currently in use across your organization.

Containers can be deployed quickly inside VMs, in the cloud, or inside a physical machine, providing a separate application and network environment without running a VM for each application. A container’s smaller infrastructure footprint provides a more secure and easier to configure environment. Moving to the cloud generally reduces capital, setup, labor, and expansion costs in exchange for monthly costs. Here’s how each strategy reduces M&M costs to increase competitiveness. This not only saves the company money, but it also fosters a sense of ownership among employees.

Experience Information Technology conferences

Nevertheless, appoximately 20% of the function will be moved to a value play arrangement, using primarily staff in lower-cost areas. This will afford you greater leverage and the ability to devote less staff attention to managing the relationships. Some companies have hundreds of small-staffing vendors, and would be better served with a carefully handpicked group. Consider one of the giant managed service providers that have thousands of staff members with IT specializations your company couldn’t match.

These teams include staff assigned in an ad hoc fashion, or external consultants who provide specialized expertise or who can substitute for staff at moments of crunch or crisis. Staff augmentation of this sort tends to be comparatively expensive and thus should be used only in moderation for limited periods. BCG X disrupts the present and creates the future by building bold new tech products, services, and businesses.

Reduce Hardware, Software and Other Costs

If one bakery has cut down on the size of its bread or muffins, why can’t you? As long as you maintain the high quality of your products, your consumers will continue to buy your products. Cost becomes more important when competition increases and price becomes a differentiator in the market.

This is a successful strategy as the project deliverables are the primary reason behind company costs. A full in-house strength means higher costs as sometimes the company might face a lower number of projects. Lever A enables you not just to cut costs, but also to find untapped opportunities for capability improvement. Many companies have struggled for years with a fragmented IT vendor landscape.

No. 4: Plan to do it once

Quantify the business value your applications deliver by tying cost to business drivers (e.g. cost per web visitor, order, etc.). Know the cost of your top applications, broken down across run versus dev, infrastructure, and projects. Use this information to strategically reduce investments in applications that provide low business value for the cost they incur. Now calculate how much cost savings you can achieve by lowering those by 10%.

Identify and eliminate redundant services and processes.

If your company has a lack of visibility into your cloud spend, you may want to consider a cloud cost management platform. For example, developers can save a database image, run a test cycle, correct errors, and then revert back to the original database image for retesting. Start out by virtualizing your lower-risk databases, such as development and production LDAP databases.

Four IT Cost Reduction Strategies

In addition, there can be significant travel costs which are usually ignored when calculating ROI’s. Unfortunately, too many senior executives do not understand this and look for the offshore silver bullet when they want to cut costs. I believe a far more effective strategy is to let your managers use offshore only where appropriate and incent them to reduce personnel costs in other ways. This is a simple example, but most organizations are rife with processes that developed around the limitations of older technology. Companies that move to the cloud see an increase in process efficiency, growth, and time to market. It is easy to see that cloud computing helps companies save money and boost productivity.

Then, you won’t have to use a ton of paper and ink, and the costs of those materials can add up. You might even be able to get rid of your printer and not have to pay for a new one. Cost savings will be visible in your business’s financial statements, making them more tangible. Each company is different, so no “one-size-fits-all” approach exists, and your combination of role changes, levers, and archetypes may include some elements that are not highlighted here. Nevertheless, these universal principles represent a good starting point for any company’s analysis—and they can help you save immediately and in the future. Taking a bionic approach to digital transformation can lead to successful business outcomes.

Once you have this information, reduce licensing costs for unused or underused applications and invest where additional licenses are required. Here are a few basic strategies that can help you reduce your IT costs. While they may not suit every single business out there, they could be used as a springboard for your IT department’s 2021 planning and budgeting process. At the same time, reducing IT costs is a top priority for nearly 40 percent of IT Leaders worldwide, especially since they are dealing with an economic downturn and new budget constraints. In the current economic environment, IT teams are expected to do more with less.

IT leaders always prioritize cutting IT costs, but it’s more prevalent when faced with economic slowdowns. The good news is that lowering costs and maintaining business growth is possible. An effective IT cost reduction strategy begins with stakeholder participation and a clear understanding of the high-level priorities. It may feel like everything is resting on your shoulders, but now is the time to find opportunities to drive value, exceed expectations and achieve company initiatives.