Archive for the ‘IT Cost Optimization’ Category

Do I hear a collective sigh of relief? Finally, budgets are relaxing (just a little). Spending is back – but we are all still very careful. The long recession has left us with an important realization – long term, we just can’t spend money that we don’t have. This applies to government, to companies and to individuals.

But even if we can’t spend to our hearts’ content, even if we must cut, it doesn’t mean we should blindly cut across all areas of our budget. When you look at your personal budget, you probably keep “housing” and “food” as areas where you will keep spending – “education” too probably. But “travel” and “a shiny new car every 2 years” are likely areas where you can easily make cuts, without hurting your family’s well being.

The same is true for your company. There are areas where you WANT to keep spending. Any spending that will help grow the company and keep it ahead of its competitors is good spending. This is the spending that brings value. Then there are other areas where our spending doesn’t deliver much value. Now that we’re smarter, we know that these areas need to be changed.

Identifying areas where you can reduce waste without hurting your company’s growth – sure, it makes sense (how come we needed a recession to remind us to do that?), but if you try to do it manually, it’s easier said than done. It’s complicated enough to manage a household budget efficiently. To manage your corporate IT budget efficiently, you must be able to answer questions that are seemingly straightforward – but are in fact very complex.

How much are you spending on each IT service?

What are the cost drivers?

Are costs in-line with your industry peers?

What value do you get from your spend?

Your goal is to make sure every dollar you spend on IT brings value – significant value.

But is this goal achievable? I’m here to tell you it is, as long as you accept that IT cost optimization is not some special exercise you run once a year. It is an ongoing effort for your IT teams and business units to continuously identify opportunities to optimize IT costs.

Running a cost-effective IT organization isn’t easy. It requires ongoing tracking of detailed cost breakdowns against business services delivered. Automation makes it quite doable, by continually tracking costs against business goals and identifying potential areas for ongoing cost optimization.

Armed with this knowledge, you can make good business decisions about cutting IT spending that brings little value, while investing in IT services and activities that provide the greatest ongoing value as your business and technology evolves.

After three long years of recession, the days of the wasteful IT budget are over. While no one would suggest cutting across all IT budget items, potentially hurting business goals, companies must pinpoint the areas where they are being wasteful, eliminate that waste, and reinvest the savings in IT applications that contribute to business growth and innovation.

Of course, this is a complex task. The cost of a particular IT service to a particular business unit across the lifecycle of the service isn’t something you can calculate manually. Excel spreadsheets are awesome, but this is one area where they simply won’t do, and this is especially true in today’s complex IT environments that typically include shared services, virtualized data centers, and cloud computing services.

To get true visibility into the cost of IT, each business unit needs to combine data of how much it spends on IT services on an ongoing basis (not just the purchase price, of course); how it utilizes those services; and whether there are any viable, more cost-effective alternatives. It needs the ability to “play” with the numbers, checking the impact of those alternatives. And it needs to do this continually, on a daily basis, not just once in a while!

Needless to say, this is too labor-intensive to be done manually. This is where IT Cost Management (LINK to homepage) solutions become crucial. They deliver the detailed information about IT services costs, utilization, alternatives and business priorities needed to optimize IT budgets and invest in IT services that provide the greatest business value.

Once you deploy your IT Cost Management (ITCM) system, and have full visibility into your IT costs, take these five steps to optimize your IT budget:

1. Application Rationalization

Identify the right candidates for rationalization among the many applications in your IT application portfolio. This can be done by identifying applications that have high ongoing costs and low usage as candidates for end-of-life; by analyzing lower-cost alternatives (including SaaS-based solutions and outsourcing) for applications with high costs and low business criticality; and by reducing support levels for applications with high support costs and low business criticality.

2. Identify Virtualization and Consolidation Candidates

Virtualization: The goal is to identify the servers and desktops that offer the greatest opportunities for cost savings through virtualization. You will want to identify areas where cost savings from virtualization are high and business risk is low; virtualize servers with high costs, low utilization, and no business-critical applications; and proactively identify desktops with high support costs as candidates for virtualization in the next hardware refresh cycle.

Consolidation: Once you have a good understanding of total cost of ownership and service level requirements and an ongoing visibility into complex cost drivers such as power and cooling requirements, support costs, security requirements, and administration costs, and can compare those against service level requirements and the application’s importance to the business, you can put together a smart consolidation strategy. Generally, you should look for servers and desktops with high cost/CPU that are approaching end-of-life and consolidate those first.

3. Defer Upgrades and Hardware Refresh

When business benefits do not significantly outweigh the costs, upgrades should be deferred. Use your ITCM system to identify upgrade candidates such as servers and applications with low total costs and low business criticality and defer upgrading those. In addition, check potential operating cost savings from replacing aging servers and storage systems instead of upgrading them.

When it comes to refreshing hardware components, find the systems that cost the most to operate and would benefit the most from a refresh. In addition, prioritize refreshes by investigating utilization patterns to determine high-use hardware with many different users and high business criticality.

4. Identify End-of-Life Candidates

With hundreds or thousands of applications running in the typical IT infrastructure, it is difficult for IT managers to notice when an application’s usage has declined. Identifying applications that are end-of-life candidates requires an understanding of the application’s value to the business, its usage patterns, and the cost of support and maintenance.

Use your ITCM system to identify applications that have high ongoing costs and low usage, or low business criticality. These are good candidates for end-of-life. You should also check alternatives to end-of-life, including SaaS-based solutions and outsourcing, or providing lower levels of service to end-users.

5. Reduce Service Levels

Often, IT services experience a reduction in demand as the application ages, even though they are still important to the business and are not good candidates for end-of-life. Scaling back service levels for these applications can result in significant savings.

Use your ITCM system to analyze “what-if“ scenarios to estimate savings from reductions in service levels. Then rank applications based on importance to the business and migrate low-criticality applications to lower support levels.

The tips outlined here for IT cost optimization are fairly straightforward. But without the deep visibility into your IT costs that an ITCM system allows, and the ability to analyze different “what-if“ scenarios, it’s nearly impossible to achieve the significant cost savings that can result from following them.

Virtualization offers organizations a great way to achieve operational efficiency and cost reduction, via improved utilization and reduced power consumption. Virtualization can significantly reduce data center power and cooling requirements, and in some cases can even allow organizations to avoid physical expansion or relocation.

Virtualization: Part of a Larger IT Cost Optimization Plan

However, it’s important to realize that there are many misconceptions around the actual cost benefits of virtualization. Before jumping into a virtualization initiative, you should create an overall cost reduction strategy that incorporates your company’s entire IT operation, and carefully calculate virtualization cost savings.

The goal is to identify the servers and desktops that offer the greatest opportunities for cost savings through virtualization. You will want to:
1. Identify areas where cost savings from virtualization are high and business risk is low.
2. Virtualize servers with high costs, low utilization, and no business-critical applications.
3. Proactively identify desktops with high support costs as candidates for virtualization in the next hardware refresh cycle.

Virtualization is just one part of an overall approach to IT cost optimization that includes many other considerations, including application rationalization, consolidation without virtualization, deferring upgrades and hardware refresh, identifying end-of-life candidates, and reducing service levels.

Hidden Costs of Virtualization

A common misconception is that server virtualization always saves money, by reducing the number of servers, and therefore reducing overall hardware and maintenance costs. But that’s not always the case.

Consolidation and virtualization could result in reducing the number of physical servers but increasing complexity and requiring process changes (since more of the company’s critical applications will be running on fewer servers), so the new environment could end up requiring the same – or even greater – levels of management than before.

In other words, virtualization in itself doesn’t always save money in the long run, due to increased management costs involved with running a virtual infrastructure.

In addition, since the entire purpose of server virtualization is to reduce the number of physical servers, this means that one outage will affect more applications and more users, and result in a greater cost to the organization. This is why it’s important to identify the best candidates for virtualization, and avoid “blindly” virtualizing across all servers.

Another hidden cost of virtualization is storage costs – many companies do not anticipate the impact storage would have on their server or desktop virtualization costs. This often results in businesses having to delay the rollout of their virtualization initiatives.

Virtualization Savings Achieved When Virtualization Is Part of a Larger Initiative

It’s not that virtualization never saves organizations money. It does. But real virtualization cost savings are often achieved not just from virtualizing, but when overall complexity and spending are reduced, via the steps mentioned above, including application rationalization, consolidation without virtualization, deferring upgrades and hardware refresh, identifying end-of-life candidates, and reducing service levels.

After virtualizing, it’s crucial to keep monitoring costs by measuring and managing the true total cost of virtual servers. You need full transparency into the total cost of physical and virtual desktops to both corporate IT and the business units that must pay for them. With detailed cost benefit information, teams can continuously optimize desktop virtualization and cost. Costs must be allocated as directly as possible, since a small number of servers is often responsible for a big part of total costs.

Don’t view virtualization as a one-time project with a surefire return in terms of cost savings. Rather, view it as part of your company’s overall cost saving strategy, and consider long-term implications prior to starting any virtualization initiative. Once you have virtualized, continue measuring and monitoring virtualization costs closely, to make sure they don’t spiral out of control.

How do you allocate your IT spending? Where does the money go? Does 80% of your IT budget go to maintenance of existing internal IT operations? If so, your company risks being left behind – and you, the CIO, are risking your career, says Bob Evans.

It was easier in the past – a big chunk of IT budgets used to go to maintenance, and CEOs generally accepted that. Keeping core operations running smoothly was a top priority. Innovation wasn’t a huge concern.

But in the post-Great-Recession era, things have changed. Today’s market is customer-centric and revenue-centric, and IT cannot ignore that. Competition is fierce, and companies are investing heavily in innovation and growth. You simply can’t allow your company to allocate just 20% of its IT budget to supporting and advancing business goals. If you do, you will quickly be labeled as slow, out of touch, unappealing to new customers. You will get crushed.

With your competitors continually optimizing and accelerating operations, you need to find new ways to make your IT budget stretch and achieve more than ever with essentially the same budget – while IT budgets are not shrinking anymore, they are not growing very fast. Certainly not as fast as business needs and demands.

So you must work to reduce your maintenance costs and free as much of your IT budget as possible for advancing business goals. To find potential areas where you can achieve continual cost reduction, use IT Cost Optimization tools. Those will enable you to lower costs, gain predictability into spending and achieve accurate, fact-based planning. Get maximum value from your IT spend in 2011, and do it continually – this is not a one-time exercise in finding where to cut.

Today’s businesses don’t want to keep the status quo. Organizations today want to grow, become better, more attractive to customers. They want to lead. IT can and should have a big part in enabling business growth. Your CEO rightly demands visibility into IT costs, alternatives and better planning capabilities. She wants to gain clear predictability into IT spending and profitability. IT Financial Management provides the visibility and predictability that enable you to improve value and use your IT budget to support business goals.

Phew. We can all sigh a collective sigh of relief. After three long years, the dark days of budget slashing and cost cutting are officially over, according to analysts at Forrester Research.

Of course, this is not to say that your job as a CIO will become boring in 2011 or that it will lack challenges. On the contrary. In 2011, instead of cutting costs, CIOs will face a much more interesting, less painful but just as complex task: the task of optimizing IT costs.

Because even though IT budgets are now growing, the need to optimize IT spend and make sure most of it goes to innovation and growth, is stronger than ever. As companies emerge from the Great Recession, competition will be fierce. Now out of quiet, low-key survival mode, in a customer-centric market, companies will have to innovate and be faster and more accommodating to customers than ever before.

In 2011, companies will have to run a cost-effective IT organization, getting the most value from their IT spend and making sure most of it is spent on innovation and growth rather than on maintenance. Think you can do this manually using Excel? Think again. IT cost optimization is extremely complex. It’s not something you do once a year, trying to find where you can cut costs, then forgetting about it.

Getting the most out of your IT spend requires ongoing tracking and fine-tuning. You want to regularly track detailed cost breakdowns against business goals, continually finding where you can save and how you can shift as much of your IT budget as possible to support business goals.

Achieving continual cost reduction in some areas will enable you to invest in more important areas. Finding good candidates for virtualization and consolidation, technology end-of-life or refresh, deferral of upgrades, support reduction, and more – all of these will enable you to better allocate your IT budget and avoid spending so much on internal maintenance that you don’t have enough left to invest in innovation and growth.

In 2011, IT cost reduction is thankfully not much of an issue anymore. But to remain competitive, you must continually optimize your IT costs, and make sure your precious IT budget is used in the most effective way.

What should you pay attention to when managing the cost of storage? Is unit cost enough? Your SAN storage may be $1 per GB and your DAS may be just $0.8 per GB. Should you conclude you need to move to DAS only?

You may want to look into what “gigabytes” you are measuring. Are you counting all physically installed storage, are you counting storage allocation, or are you counting only the storage that you actually use?

This is a very important aspect of cost optimization of storage. You must take into consideration actual utilization! DAS typically has lower unit cost but also lower utilization, while SAN usually has higher unit cost but also higher utilization.

Every business has its own dynamics that drive unit cost and utilization. When trying to optimize, you must calculate the actual unit cost, factoring in utilization, in order to truly  know what is best for your business.

I am willing to bet this is the only place on the Web where you will find these two subjects discussed jointly.

I owe you additional efficiency ratios, but before I get to that, I am happy to share with you the birth of my third daughter, last week. As you probably gathered from reading my blog, my wife is into organic, natural stuff and as such insists on having her babies at home. As a supportive husband and a responsible guy, that makes me a “professional midwife.” So, just like with our first 2 daughters, I had the pleasure of personally delivering my babies at home. By now I am considered an expert.

Luckily, this time, the real professional midwife made it on time (unlike with my second daughter) so I had the comfort of backup if I screw up. All went fast and smooth.

While we are discussing a personal subject that needs to be done in an efficient way, it is probably a good idea to share with you efficiency ratios I typically see when managing personal computing: desktops, laptops, e-mail , mobile devices and so on. Usually not a huge portion of IT budget, anywhere from 5-10%, but still an area with potential for a lot of waste and customer satisfaction issues, so please don’t ignore it.

Here you go:
♦ Total Cost per PC
♦ # of PC’s/Corporate FTE
♦ # of PC’s/Personal Computing Support Personnel
♦ % of Laptops/Desktops
♦ # of Email Mailboxes/Corporate FTE
♦ # of Mobile Devices/Corporate FTE
♦ # of Total Printers/ Branches or locations
♦ % of Virtual Desktops/Physical Desktops

An important aspect of running your IT shop in a cost-effective manner aligned with business objectives is to measure efficiency ratios or metrics.

This, as everything in business, keeps you and your team in line with your plan and most importantly, gives you perspective, or in other words tells you how you compare to the herd, a general one or a more industry-specific one. This seems funny but it is extremely important in knowing where to focus your improvement efforts and where not to waste time.

What to measure is a very good question and the answer varies from business to business, but I will try and share our experience on what matters and what is most commonly used.

I will start with general Enterprise IT efficiency ratios, and in future posts will expand to specific areas within IT.

IT Spend as a % of Total Revenues
IT Spend as a % of Operating Expenses
IT Spend per Corporate FTE
IT FTE count/Corporate FTE count
IT Contractor Usage (% FTE In-house vs. Contractor)
IT Capital spend as a % of Total IT spend
IT Operation spend as a % of Total IT spend

As to what are the specific industry values one should expect for each one of these, that varies from industry to industry and probably requires a longer conversation than this post.

Hope this helps.

My guys did it again. They never fail to amaze me.

Some time ago, we appointed a team to be dedicated to building out-of-the-box cost optimization solutions. Today, I reviewed the use of the solution by one of our customers. The benefit they got was unbelievable! I won’t mention the name of the company – I am sure you will understand why – but this is a multi-billion dollar, well-run US Retail Company.

Our Server Cost Optimization solution automatically discovers potential cost savings that an IT organization can achieve with server consolidation, virtualization, reduced server levels, migrating to less expensive platforms, and other strategies. For each strategy, the solution shows total potential monthly savings and provides explicit install, move, add, and change (IMAC) recommendations linked to specific servers.

This company had 8,000 servers and a total monthly spend on servers of $8M. After 8 hours of uploading the data, our solutions identified that average utilization is 25%. They also identified potential monthly savings of $1.1M from consolidation, $700K from virtualization, $200K by reducing service levels and $150K by moving UNIX to Linux, all of which add up to over $10M of savings on an annual basis.

Our Server Cost Optimization solution is not just about high-level average savings. It actually gives specific recommendations as to what servers to consolidate, which to virtualizes, reduce service level, change platforms. I don’t know about you, but this excites me. Real value to real customers!