This article provides guidance to those accountable for the IT budget on how to get the most value from IT while radically reducing costs by at least 25% by: 1. Establishing a service centric IT group focused on business priorities 2. Establishing governance framework to maximise benefits realisation, reduce risks & optimise resources 3. Reducing application development & support costs by utilising the latest technology innovations 4. Reducing desktop infrastructure and software costs by adopting cloud services and supporting BYOD 5. Reducing Data & Networking costs 6. Reducing Voice costs by adopting SIP trunking and eliminating ISDN based legacy infrastructure 7. Reducing infrastructure costs by virtualising services and utilising hybrid private/public cloud services

1. How to reduce IT costs by 25% at the same time
as increasing IT effectiveness
This article provides guidance to those accountable for the IT budget on how to get the most value from IT
while radically reducing costs by at least 25% by:
1. Establishing a service centric IT group focused on business priorities
2. Establishing governance framework to maximise benefits realisation, reduce risks &optimise resources
3. Reducing application development & support costs by utilising the latest technology innovations
4. Reducing desktop infrastructure and software costs by adopting cloud services and supporting BYOD
5. Reducing Data & Networking costs
6. Reducing Voice costs by adopting SIP trunking and eliminating ISDN based legacy infrastructure
7. Reducing infrastructure costs by virtualising services and utilising hybrid private/public cloud services
Service Centric
The key to keeping IT costs under control is to not view IT as a cost centre but rather a service centre.
Services must each have value to the business and costs that must be kept at a level below the related value.
This approach ensures work conducted within the IT group is both relevant to the needs of the business and is
done in an efficient and effective manner. The service based approach to IT enables future virtualisation of
those services and can be achieved by maintaining a register that lists all activities (services) done by IT. Each
service has related business objective(s) that it contributes to and who the key stakeholders are for each
objective. This is commonly referred to as a service portfolio. It helps maintain relevance and serves as an
important reporting tool in keeping business stakeholders informed on the status of all IT projects that are
aimed at improving KPI's associated with business objectives they are accountable for. Best practice
frameworks such as ITIL exist to assist CIOs in implementing service based IT.
An overview of ITIL is available here:http://www.itil-officialsite.com/AboutITIL/WhatisITIL.aspx .
Governance
Good governance is mostly about 2 key issues: establishing clear direction and ensuring adherence to that
direction. IT governance frameworks such as COBIT(http://www.isaca.org/COBIT/Pages/default.aspx ) and the International
Standard ISO38500 exist to assist CIOs in implementing and achieving adherence to governance principles.
Research shows that organisations with above average IT governance perform 20% better than those
following the same strategy without an IT governance framework (refer
http://books.google.com.au/books/about/IT_Governance.html?id=xI5KdR21QTAC).
A key aspect of governance is that a separate group should be responsible for governance to those actively
involved in the management of IT, those people should include key business representatives for whom IT work
is meant to benefit. This governance committee should focus on:
 Benefits realisation
o Appoint an organisational change manager whose job includes ensuring staff follow agreed
processes, use applications properly and keep data up-to-date.Prosci is an excellent change
management framework that helps to improve adoption and thereby maximise benefits
realisation. Prosci advocates that any change initiative needs to address all the following factors
in order: awareness of the need to change, desire to participate and support the change,
knowledge of how to change, ability to implement the change on a day-to-day basis,
reinforcement to keep the change in place. More information on Prosci is available
at:http://www.change-management.com/tutorial-adkar-overview.htm .
 Risk optimisation
o From my experience the greatest risk in IT is the cost related to projects that should never have
gone ahead in the first place because they either have no relevance to assisting the business to
achieve their goals, or they represent a duplication of existing functionality elsewhere and were
created for political reasons. It is the job of the governance committee to ensure projects never
get started unless they are directly related to achieving organisational goal(s).
o Never start any development project without a clear understanding of what resources and
processes are required to support it post deployment.Gartner research has shown that if you
How to Reduce IT Costs by 25%
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11th Dec 2013
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2. own an application for 15 years, the cost of the initial project will be, on average, 8% of the 15
year “total cost of ownership”. In other words, 92% of the cost of an average application is
maintenance and support after project completion.
o Reduce application development costs by adopting an agile approach. The key aspect is to
rapidly develop prototypes that users can interact with and provide feedback on, rather than
focusing on lengthy requirements capture documents that are rarely understood or useful.
o Create a Risk Register and ensure the items in it are managed proactively. A free template you
can use for Risk Management is available here: https://app.box.com/s/p7tns5kbrliny06mnouu .
 Resource optimisation
o Each application, data entity and process should have a single accountable owner. All staff
should know or be able to rapidly find out who these owners are. These owners are responsible
for maximising adoption, data accuracy and completeness. This increases accountability and
decreases duplicated effort.
o Define Metrics for each key process such as fault turnaround times, bill distribution times and
volume of billing disputes. Develop a plan for improving each of these metrics.
A more complete overview of governance best practise is available here:https://app.box.com/s/k6ab616y8pi5lbf461fg
Application Development & Support
Application development and support costs typically consume 40% of the IT budget. Innovation in this space
has moved fast in recent years with huge savings and agility improvements now possible by using tools and
approaches such as the following:
 Creating and customising mobile applications can now be done completely free via a new tool recently
launched called „GoBizMo‟(http://www.gobizmo.in) . There‟s just an ongoing subscription fee per user per
month after it is published and being used.
 Web sites do not have to be developed any longer but instead can be created from templates
downloadable from Bootstrap for less than $20 (http://getbootstrap.com/).
 Spending large sums of money on customised CRM applications may be a thing of the past now that
LinkedIn have entered the CRM arena. LinkedIn can either be used as a CRM in its own right or
integrated with your existing CRM and used as the source of leads data. They have released new apps
that allow users to build their own CRM database at no cost. These new apps include (in my personal
order of preference) „LinkedIn Contact‟, „Evernote‟, „InMaps‟ and „Tripit‟. If using LinkedIn as your CRM
is not your preference, then both SalesForce and Microsoft Dynamics offer cloud based CRM
applications that eliminate any infrastructure costs and significantly reduce risks of cost blowouts.
Desktop infrastructure and software
Fully managed desktops via the Cloud (also known as „desktop as a service‟ or DaaS) are now not only
possible but are increasingly being adopted by small businesses right up to large public corporations. Amazon
Web Services is revolutionising the industry by providing low cost fully managed desktops in addition to a
broad range of virtualised services and apps that can be operational in minutes. Microsoft 365 and Google
Desktop also offer cloud based desktop platforms that include email, word processor, spreadsheet, database
and web site applications. DaaS requires no upfront capital expenditure and is far cheaper to maintain and
faster to deploy than the alternatives of rich desktops, terminal services or in-house purchased Virtual Desktop
Infrastructure. It also greatly reduces help desk support services as repairing a desktop is as simple as
refreshing it with a new virtual machine. Data security concerns are mostly unfounded as the data resides in
the corporate data centre which is likely to be more secure than the device itself. If the device is lost, then the
data is still secure. Further the risk of viruses from desktops infecting the corporate network is reduced.
Bring your own device (BYOD) provides an opportunity for staff to have their own preferred hardware &
software choice, thus increasing productivity. It also greatly reduces the cost of hardware that would have
otherwise been bought by the employer. It also reduces support costs. According to a recent study by Cisco,
the most significant savings are associated with “employees using their own mobile devices, software, apps,
and cloud services to find new ways of working. An astounding 53% of BYOD workers have increased their
productivity through employee-led innovation, and 38% are saving 30 minutes per week or more”. The study
concludes that a comprehensive BYOD approach would yield net annual gains of $1,650 per mobile employee
per year. Referhttp://www.cisco.com/web/about/ac79/docs/re/byod/BYOD-Economics_Econ_Analysis.pdf .
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3. Data & Networking
Data networking costs typically consume 10% of the IT budget. Price erosion in this market has increased
significantly over recent years with increased competition. You should negotiate with your supplier each time
you come out of contract and insist on a per Mbps unit cost reduction of 15% to 20% per year. There are also
other ways of both reducing your total spend and decreasing variability in spend by choosing pricing plans that
include percentile billing, bursting, temporary turn-up and turn-down capabilities, and shorter contract duration.
Make sure you negotiate and change supplier if you don‟t get what you want.
Voice
Voice costs typically consume 10% of the IT budget. Fixed voice prices are in heavy decline with 5% reduction
in unit prices per year but more importantly technology innovation has enabled businesses to slash their
legacy PABX costs by adopting SIP trunking. SIP trunking enables consolidation of all PABX equipment to a
small number of redundant locations with older equipment retired. Most corporate deployments use Ethernet
for corporate WAN networks and multiple ISDN lines for voice. With SIP Trunks the voice traffic converges on
to the Ethernet network, without impacting the performance of your WAN. This not only reduces the monthly
fee on ISDN line rentals but also ensures that your growing voice needs will be met. Savings of 20% per year
compared to legacy ISDN based services should be expected.
Infrastructure & OperationsVirtualisation
Infrastructure & Operations costs such as servers and energy consumption typically consume 25% of the IT
budget. These costs can be slashed by virtualising and migrating to a cloud based solution. The roadmap to
achieving full cost reduction and agility improvement is typically done as follows:
Step 1
Step 2
Server
Virtualisation
Distributed
Virtualisation
Step 3
Step 4
Step 5
Private Cloud
Hybrid Cloud
Public Cloud
- Agility
- Reduce #
servers
- Agility
- Reduce CAPEX
- Reduce downtime
- Reduce OPEX
- Self serve (IT as a
service)
- Usage monitoring
- Business unit
charge-back
- Flexibility
- Lower costs for
peak loads
- Service levels
- Maintaining both
provides fall-back
options
- Eliminate CAPEX
- Extra flexibility &
agility
Step 1 is to Virtualise Server Infrastructure. The main objective initially is usually to reduce the number of
servers and thereby reduce capital expenditure.
Step 2 is Distributed Virtualisation. Creating a catalogue of services that can be offered to consumers via a
self-service interface such as a portal is a key next step to virtualisation. In order to realise the full agility and
cost saving benefits this step requires related changes to processes, technology architectures, tools/systems,
and staffing levels & their skills needed.
Step 3 is Private Cloud. This stage is a means of taking the servers that were virtualised in Step 1,
centralising data centre resources internally, and leveraging off this infrastructure to drive business flexibility.
Organisations typically start with development, training and test environments and then move on to other
business services. Private clouds better enable usage monitoring and hence the ability to perform business
unit charge-backs for services consumed.
Private clouds are rapidly becoming mainstream. According to Gartner almost half of large organisations now
have one with 75% expected by the end of 2014. The main driver for most organisations is agility, not just cost
control.
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4. It is predicted that most private cloud services are likely to become hybrid over the next few years. Therefore
private clouds should be designed with interoperability and public cloud computing in mind and the technology
platform(s) chosen should allow for future expansion in scope of services.
Step 4 is Hybrid Cloud. Hybrid cloud deployments typically use public cloud for development, test and
training services (services that typically require great agility) and private cloud for mission critical services
(services that require greater control and accountability). The other common approach to hybrid clouds is to
use public cloud services when private clouds near full capacity usage – ie. as an „overflow valve‟.
Interoperability is very important at technology, process, architecture and service levels. Standards also
become critical, especially Service level Agreements (APIs) and Automated Programmatic Interfaces (APIs).
Step 5 is Public Cloud. Outsourcing to the Public Cloud can be done at several different levels that are
broadly categorised as either IAAS, PAAS or SAAS. The following diagram illustrates the respective scope of
what is being outsourced to an external cloud services provider at each of the 3 levels.
Examples of suppliers:
Applications (eg. CRM, Gmail, Yahoo mail)
Software as a Service (SAAS)
Virtual desktop
Communication
Games
Software as a Service
SAAS
Social media (eg. Facebook)
Runtimes eg. Java
Security & Integration
Development tools
Web Servers (eg. Tomcat)
Platform as a Service
PAAS
Platform as a Service (PAAS)
Operating systems (eg. Windows, Linux)
Databases (eg. Oracle, mySQL, SQL)
Servers
Virtual Machines
Server Hardware
Storage (hard discs)
Infrastructure as a Service
Infrastructure as a Service (IAAS)
IAAS
Load balancers
Firewalls
Network
Utilising a Data Centre for IAAS physical server infrastructure
Outsourcing to the Public Cloud by directly purchasing IAAS Space and/or Racks within a modern Data Centre
can result in huge cost savings. You should insist that your Data Centre supplier is accredited to Tier 3 or 4
standard by the Uptime Institute, is carrier neutral, has an actual uptime track record of 100% over the past 12
months, has 24X7 monitoring and security, has clearly defined and simple processes, is financially secure and
has a power usage efficiency (PUE) ratio of less than 1.2. The majority of older data centres will have a PUE
of at least 2.5 which translates to much higher fees to you and higher impact on the environment. The latest
generation Data Centres that utilise Bladeroom technology, fanless server designs, increased density and the
latest generation CPU‟s that are designed specifically for power consumption reduction are massively more
efficient and cheaper than what an organisation can typically achieve with their own private data centre. The
end result can mean as much as a 43% saving per year in energy costs. Refer to the following Metronode site
for details of potential savings:http://www.metronode.com.au/our-design/benefits/financially-sound/.
One of the major benefits of consuming services from the public cloud is that if you have currently got a private
data centre that is inefficient and well behind latest practices, then buying from the public cloud enables you to
take a major leap forward to virtualisation without spending significant effort or dollars yourself. If you already
have a high degree of virtualisation then public clouds can still offer significant value via load sharing and
automation. Infrastructure deployment times can be reduced from weeks to hours.
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5. Utilising a SAAS supplier
If you for example use SalesForce as your CRM then that application is hosted in the public cloud and where
the data resides is not something you need to be concerned about directly, but instead you need to focus on
an SLA that covers all your requirements that may include location of data storage being local for sovereignty
reasons, performance times, data restoration times, etc. This greatly simplifies the services that your IT team
need be concerned about, increases agility and eliminates capital expenditure.
Conclusion
Anyone accountable for leading an IT team should first focus on aligning the activities conducted within the IT
group on what matters to the business and eliminate any work or money being spent on projects that do not
clearly add value to the business. This is best achieved through service based frameworks such as ITIL. Once
this has been achieved then the next step is to establish adequate governance to reduce risks and ensure IT
is complying with their directives. An effective governance framework will both reduce risks and enhance
performance. Once both service based IT and governance is in place thenthere are a range of innovative
initiatives such as virtualisation that can slash costs by at least 25% overall without any impact on the scope or
quality of services supplied to the business.
Sean Chamberlin is a senior IT Manager and expert in leading
transformation/turnaround projects.He has managed IT, Marketing&
Finance teams, being qualified in all 3 disciplines, in addition to being an
accredited Enterprise Architect.His experience includes working for the
largest company in the world (Exxon Mobil), the largest Telco in Australia
(Telstra) and one of the largest global chartered accountancies (Ernst &
Young). He has also worked for 4 start-ups before founding the
management consultancy ‘Strategy Implemented’, becoming the inaugural
CEO.
www.nextgengroup.com.au
sean@chamberlin.biz
Sean is currently employed by Nextgen Group establishing their Business
Intelligence, Inbound & Outbound Marketing capabilities.
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