Cut Costs With A Virtual Model Of Your IT Shop
Published in TechWeek Europe
Before you lay off your IT staff, make a virtual model of the IT department and see what the effects will be, says Robert Saxby
CIOs want to minimise their running costs. But can they do that without hurting efficiency or quality of customer services? The mandate to cut – expressed as ‘Save x percent’ – is passed down to the various departments within an organisation where the great horse trade begins.
In order to protect front line services this often means that disproportionate cuts are made in the back office.
There are IT issues here which impact the cost/quality balance, and I think the best way to find the right solution is to use a management tool called ‘Virtual Modelling’.
For the CIO making short term savings is relatively simple: just cut IT services (to both internal and external customers), reduce staff, reduce or don’t renew SLAs and delay capital projects.
But in the long-term these decisions may be counterproductive, because technology now underpins the lion’s share of enterprise functionality. Many IT projects are on hold following the 2008 crash – but what about that new data security system? With cyber-attacks and corporate data raids on the rise, this is an investment that could be vital.
And what about modernisation, legacy replacements, standardisation and cloud migration? They might have seemed optional a few years ago. Now, they may be critical to survival but remain on the shelf because their long-term impact is not recognised.
How do you know the cost-performance balance of technology? The relationship between the number of staff and the quality of a company’s internal and customer support may be fairly obvious – although even this is often a process of trial and error involving expensive fires and rehires before the optimum balance is found.
For IT there are other influencing factors such as platform complexity.
Legacy systems may run core business applications, but are usually difficult to integrate with new applications and expensive to maintain.
Process methodologies are another issue: an organisation which has adopted ISO or other best practice standards is typically more efficient.
Choosing where to cut without causing damage is a bit like one of those perpetual motion pendulums where you tap on one sphere and it has a knock-on effect on all the others. Each IT service – the help desk, application server support, the data centre, networks & communication, printing, storage and all the rest – influences all the others and a change in one will have a knock-on effect across the IT universe.
Algorithms to forecast outcomes is too complex to be done manually in real world conditions, so mostly people just put a ‘finger in the wind’. Experienced management can do it by trial and error, but this can lead to costly staff redundancies and customer service complaints.
You need to get the right data to create ‘what if’ scenarios and accurately forecast the outcome of changing any given parameter.
Don’t start from here
The problem is that many in the C suite start their forecasting without taking an accurate baseline, and just trying things out on the actual organisation.
The smart thing would be not to experiment in the real world but to test a whole range of variables first, using virtual modelling tools to create ‘what if’ scenarios to forecast outcomes. This only works with good data of course – which brings us back to the importance of baseline measurements of all areas, services and components of the IT operation.
Virtual modelling lets decision-makers assess a range of diverse options without having to interfere with actual operations and processes.
For example, you could ask questions like ‘If we reduce staff by X what can we save and what levels of service quality could we realistically achieve?’ OR “If we reduce our SLA level from premium to standard, what additional inhouse staff would be needed to compensate and what would be the overall savings, if any?’ ‘If we rationalise our IT services by merging with another organisation or region, what are the restructuring costs and will it lead to overall savings and greater efficiencies?’
Having run all the options through the modelling process it may turn out that no further cuts are either necessary or advisable. Or it may be discovered that savings can be achieved in areas not previously considered.
It might turn out that sharing services, and rationalising IT support across various locations could save 20 percent or more of the collective operational budget. Or conversely it might happen that the reconfiguration costs are higher than the return on investment, or the savings are not realised for several years. Either way, virtual modelling enables the outcome to be forecast upfront.
What about when new IT projects, clogging up the pipeline, can be put off no longer? As organisations are forced to do more with less, there comes a point where the only solution is to bring in new, efficiency-creating technology.
The Catch 22 is that a company may need new systems but not have the capital. Again, virtual modelling can pinpoint how to tighten budgets in one area and redeploy the money. to investment. It can also provide ROI projections and a business case that will either make sense (or not) to the stakeholders. Best of all, using virtual modelling these projections can be arrived at speedily and at a fraction of the cost it would take to do a feasibility study using a traditional management consultancy.
Back to our original question: How to cut operational costs without compromising in-house IT support and customer services? The real issue is about going beyond short term, ‘lowest-cost’ thinking to consider the kind of transformational frameworks that will deliver savings, efficiency optimisation, competitive edge and a better bottom line. Is this too big an ask in today’s climate? Perhaps the real question should be: What are the real costs of doing nothing?