Information technology (IT) has been the main driving force of innovation in businesses over the past two decades and continues to be today. Forecasts have shown the market volume of the IT services industry could reach $1,570 billion by 2027. As businesses continue to invest huge sums in their IT department, there is a greater need for IT cost consolidation and optimisation to reduce IT costs and achieve maximum ROI.
Chief Technology Officers (CTOs) must have an in-depth understanding of the IT assets and services that their organisation currently uses. This can aid them in consolidating their IT assets and make the approach successful. In the modern age of business, organisations use various IT assets and services to achieve their business and technological goals.
These services may include cloud computing and storage services, network security solutions, backup services and more. On the other hand, some commonly deployed IT assets may include routers, virtual machines (VMs) and other mobile or computing devices. It is paramount for CTOs to have detailed information on all these resources. This can help decide which can be consolidated to optimise costs.
Talk with our expert IT consultants and learn how we can help you consolidate IT costs.
What Is IT Cost Consolidation?
Consolidation in a business setting involves combining multiple assets and services into a single structure. Therefore, IT cost consolidation is the end result of an organisation’s efforts to combine multiple IT assets and services into a unified structure. Such an approach eliminates the use of unnecessary services. This allows businesses to reduce costs and streamline their IT operations.
Due to the reduced costs, organisations have additional capital for resource allocation. This capital can then be used to identify opportunities and investments that further improve a business’s technological capabilities. Consolidating IT costs is essential for organisations leveraging IT in the current business environment. However, when looking to consolidate IT costs, it is important to understand how these costs are structured.
Breakdown of IT Costs
IT costs can generally be categorised as internal and external costs. Internal costs are expenses that arise from employees working in the IT department. Such employees are often tasked with various IT functions critical to an organisation.
These functions may vary from one organisation to the other. However, they generally focus on IT resources’ development, implementation, support, and maintenance. External costs, on the other hand, include:
- Hardware costs – these are costs that incur due to the purchase and installation of IT assets such as on-premise servers and computing devices.
- Software costs – these costs incurred due to the use of IT-enabled solutions that aid in computing, storage, or network security. Such solutions may include Azure Backup, Microsoft Intune, and more.
Principles of IT Cost Consolidation and Optimisation
Current technological advancement is propelling IT-based business solutions to levels unheard of before. Recent developments in cloud computing, virtualisation, and remote desktops have led to services such as Azure Virtual Desktop (AVD). Such services help businesses make remote work possible and reduce hardware costs.
However, the overall software cost of the business tends to experience increase. This is a paradox that CTOs must face when optimising and consolidating IT costs. Understanding the principles of IT cost optimisation can help them make informed decisions. These principles include:
Efforts made to consolidate and optimise IT costs impact numerous stakeholders of the organisation. Therefore, it’s critical for businesses to have clear communication and collaboration protocols in place. Such protocols will allow them to identify various factors pertaining to the consolidation and optimisation efforts. Some of these factors include:
- Desired outcome – the end result in the organisation aims to achieve by reducing IT costs.
- Time frame – the amount of cost consolidation and optimisation efforts will require.
- Process – the processes that will be used to consolidate and optimise IT assets and services.
When carrying out IT cost consolidation and optimisation efforts, businesses must map their entire IT landscape. This entails identifying every IT reduction currently being used by the organisation. Such protocols are essential to feasible consolidation and optimisation as they help businesses gain visibility into their current IT landscape.
Mapping the IT landscape can allow businesses to determine which applications and programs should be terminated. However, it’s important to note that such a decision must be made after considering the application or program’s value to the business, its risk costs and usage, and its lifecycle stage. In addition, organisations should also consider evaluating the costs of on-premise infrastructure and the possibility of shifting to a hyper-converged infrastructure.
Capability Mapping allows an organisation to determine whether or not an IT asset or service is aligned with the business’s capabilities. Capability mapping is centred around determining the core functionalities a business performs. In addition, it also considers challenges that the business is currently facing or could likely face in the future.
This principle is essential to consolidating and optimising IT costs because such costs are a direct result of how the IT infrastructure and resources are used. Organisations with adequate knowledge of their capabilities and challenges will likely choose IT assets and services sufficient for them. In addition, such businesses use IT resources as per a predefined requirement. This eliminates the possibility of usage exploitation and can lead to reduced costs.
Most businesses fail to realise that IT cost consolidation and optimisation is not a tech strategy yet one for the organisation’s finances. Working with such a mindset can often hinder the strategy’s effectiveness as stakeholders lose confidence in the IT resources being consolidated.
To overcome such hurdles, finance managers or teams must ensure that stakeholders understand the business value of the consolidation efforts. When communicating the business value of IT resources, it is important to provide information pertaining to their costs and performance. Such details can help stakeholders determine if the IT recourse is worth its monetary expense or not.
Following through on the principles mentioned above will allow businesses to identify IT assets and resources suitable for consolidation and optimisation. Technological advancement will always lead to newer IT resources that function more efficiently. In addition, the usage of existing resources will lead to deterioration which will result in inefficient use and increased cost.
Therefore, organisations must understand that IT cost consolidation and optimisation is a continuous and an ongoing effort. It is centred on the continuous evolution of the IT resources an organisation uses. The continuous monitoring and evaluation can help businesses determine problems with IT resources. In addition, it can also allow them to determine if the resources are performing as expected and help keep IT costs feasible.
IT Cost Consolidation Best Practices
As mentioned, IT cost consolidation refers to combining IT assets and resources. Based on this, it can be stated that the successful consolidation of IT resources depends on an organisation’s ability to combine as many IT resources as possible. In addition to the principles of cost consolidation, some of the key aspect best practices for IT cost consolidation include:
IT resources used in an organisation are subject to the monetary resource allocated to the department. Therefore, strategic planning serves as an essential to consolidate IT costs. Leaders lacking this element often experience budget drains.
Spendings in excess of the budget occur due to the exploited use of IT resources. Strategically planning such resources with regard to business goals or objectives can lead to effective resource consumption and budget utilisation.
When consolidating IT resources, businesses must consider their goals and objectives. These two should be the fundamental factors determining which resources will be consolidated and which will be used independently.
Ensuring alignment between IT resource consolidation and business goals is highly important. This can help ensure that resources that businesses heavily rely upon are kept as required, whereas resources that are not frequently utilised are consolidated.
Technological advancement now allows organisations to use shared IT services. Such an approach entails that shared and collaborative use of IT assets and services amount to the organisation.
Adapting business practices to such an approach is a feasible method that can be used for IT cost consolidation. This approach limits the number of IT assets and services being used by a business and can reduce expenses.
In addition to using shared services, businesses can adopt a cloud-first approach to consolidate IT costs. Such an approach entails that business prioritise the use of cloud resources as opposed to on-premise infrastructure to meet IT requirements.
Using cloud resources is a great way to reduce IT costs. Shifting to the cloud can also help organisations gain technical agility and flexibility. There are many cloud platforms business can choose from, however, understanding cloud migration is essential prior to making the shift.
Data Center Modernization and Consolidation
Organisations often need business and customer insight from time to time. Such data is used to develop business strategies that are beneficial for both the organisation and or customers.
However, the cost of operating large data centres is reported to be around $25 million per year. Data centre modernisation and consolidation efforts aim to digitise the data centres. Recent statistics have shown that such efforts can lead to cost savings of up to 20%.
Process automation refers to the use of technology to automate business processes. Although process automation is not directly related to IT, cost consolidation. However, it can help reduce the number of IT assets or services a business requires.
In addition, process automation can help minimise the need for human personnel. Both these can help reduce IT expenses. Furthermore, process automation can help businesses consolidate multiple IT operations into a single task which can further reduce IT costs.
Modern-day businesses rely on a number of applications that they use to complete daily operations. Each application has varying IT requirements from the other. Catering to such dynamic requirements can lead to increased costs.
However, standardisation of applications throughout the organisation or departments can help limit the requirement deviation. Such a scenario allows businesses to incur expenses or specified requirements that can help reduce IT costs.
Total Cost of Ownership (TCO)
Initial prices of IT resources often seem attractive to businesses at first glance. However, examining the TCO is a feasible method to determine the actual expense an IT resource will generate.
When measuring the TCO, it is important to consider costs pertaining to licence, training, adoption, and integration. Analysing costs using such an approach can help determine which resources should be consolidated.
Consolidated Security Solutions
Cyber threats are becoming increasingly common in today’s environment. Businesses, therefore, must ensure that adequate protection measures are in place. However, resorting to multiple vendors can help with cybersecurity solutions and can lead to increased costs.
Therefore, organisations should choose a consolidated security solution from one vendor. Microsoft Azure, among many others, is one of the best cloud platforms available today. However, businesses must know some of the best practices for security in Azure prior to making a decision.
As mentioned, IT costs encompass both internal factors, including IT professionals. Therefore, any attempts to consolidate IT efforts will include such individuals. To ensure IT cost consolidation, managers must analyse the role of each professional working in the IT department.
They must ensure that each individual performs tasks that can not be made more efficient if performed using virtual assistants or other technologies. Organisations can pool the IT staff and augment their capabilities with assistive technologies. This will create a more productive work environment and can help consolidate costs.
Innovation in business operations has been driven based upon advancements in IT and still is today. IT plays a crucial role in helping businesses over current challenges and plan for future ones. In addition, it helps businesses achieve goals and objectives with greater efficiency.
Although businesses remain committed to investing in IT, consolidating IT costs is a feasible approach that can be used to reduce expenses. IT cost consolidation combines IT resources to gain efficient functionality at reduced costs. Contact us now to learn how we can help you consolidate IT costs.
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