CIOs need to follow a "cost optimisation framework" to help determine where to reduce IT and business costs due to the economic fallout of the COVID-19 crisis, says Gartner.
The analyst firm says the COVID-19 crisis has put pressure on CIOs to do more with less and make difficult decisions.
“Cost optimisation ideas are typically weighed almost exclusively on their potential cost savings, without considering the effects such proposed cost savings may have on the business,” says Cesar Lozada, senior principal research analyst at Gartner.
“This is equivalent to prioritising new initiatives based only on their potential benefits without concern for their impact. Using potential benefit as the only decision criterion could result in a prioritised list of initiatives that could yield savings, but could also be risky, have negative impacts on the business or most likely fail," he explains.
Chris Ganly, senior research director at Gartner, says in order for companies to achieve the most sustainable business outcomes, executives must ensure that cost management reaches beyond mere cost cutting, spending freezes or staff reductions — which is usually short-term thinking.
"Organisations should approach cost management as an expansive effort that can have immediate and long-term significance to business performance," he says.
"Cost management demands a mix of approaches and improvements that touch every part of the organisation if it is to truly serve the enterprise.
Gartner recommends that CIOs and IT leaders focus on six areas when evaluating the costs, benefits and viability of different cost optimisation initiatives.
Potential financial benefit: Establish to what degree (small, medium or large and positive or negative) cost initiatives will impact the bottom line. Leaders should ask questions such as “how much will the enterprise save if the action is implemented” and “how does the action affect enterprise cash flow”.
Business impact: Determine what impact an initiative will have on your employees and day-to-day business operations, such as if an initiative will have a negative impact on productivity or a product launch.
Time requirement: It will take time for the enterprise to realise the cost savings and improved business value from cost optimisation initiatives regardless of the method. The question CIOs must ask is what that time frame needs to be (weeks, months or longer-term).
Degree of organisational risk: The effectiveness of the cost optimisation initiative partly depends on the ability of teams to change and adapt to the new reality. Leaders capable of articulating the benefits of the cost optimisation initiative with minimal changes to organisational processes will be able to demonstrate how impactful the business outcomes would be by providing a foundation for success.
Degree of technical risk: To mitigate technical risk, CIOs must assess how the cost optimisation initiative will be integrated within their current operations and enterprise architecture. Delays caused by or attributed to the initiative could result in a loss of service delivery or productivity.
Investment requirement: Before any cost optimisation project or initiative begins, the executive board must support and agree to fund it. CIOs must present a business case showing how the cost optimisation initiative will improve business processes, productivity, time to market and the like, as opposed to continuing with the status quo. It is essential that the level of investment required be evaluated before any savings can be realised.