Cutting IT costs – finding the balance
Originally published in PublicTechnology.net
The holy grail for public sector CIOs is how to minimise their IT costs without endangering service quality.
This mandate to cut – expressed as ‘Save x%’ – is passed down to the various departments within an organisation where the horse trading begins. In order to protect front line, customer/citizen/patient facing services this often means that disproportionate cuts are made in the back office, including the IT department.
Unless done with great acumen, this can be akin to cutting off a hand to save the vital organs, with harmful consequences.
Sure – short term savings solutions are simple: just cut services, staff or delay capital projects. This may score points with the CEO but usually lead to downstream problems. Meaning that since technology now underpins the lion’s share of enterprise functionality, cuts can have unforeseen and detrimental results.
Take the IT project pipeline: new modernising systems that were ‘required’ but delayed 5 years ago when the economic crisis began, may have become ‘strategic’ 3 years ago. Now they are ‘critical’ yet are still languishing on the shelf.
So, if arbitrary cuts are not the way ahead – what is?
Modelling the options
The inter-relationship between staffing levels and the quality of services provided is obvious. Not so obvious is the impact of other factors like the complexity of an organisation’s IT environment (for example the percentage of old, legacy systems that are less efficient and take more time and money to maintain) or the maturity of an enterprise’s processes. An organisation that has adopted ISO or other best practice operating standards is typically more efficient and therefore achieves a better cost/quality ratio. However, without undertaking costly experiments in staff reduction or change management it is very difficult to strike the optimum balance between all these influences. What, for example, is the exactly right point at which you can reduce staff without impacting services?
Analysing all the parameters that affect the cost/service balance is rather like one of those perpetual motion pendulums: You tap one of the balls and it has a knock on effect on all the others. For each parameter – cost, quality, complexity, maturity, etc. – there could be as many as up to 100 attributes. Or put this another way, each IT service – the help desk, server support, data centre, networks & communication, printing, storage and so on – influences all the others by some percentage, so a change in one will have a knock-on effect across the IT universe.
The number of variables needed to create algorithms with which to accurately forecast an outcome are usually too numerous and complex to be done manually in real world conditions. This means that most attempts at achieving the optimum cost/quality balance are done with a ‘finger in the wind’. Of course, experienced management often get it just right. But without the tools, data and experience of modelling future outcomes, the trial and error approach can just as often lead to costly staff redundancies and customer service complaints.
The problem is that managers too often start their forecasting from the wrong place. If, for example, the IT department has already been weakened by cuts, then further reductions will simply lead to further underperformance. Before taking any action, a detailed assessment should be made of the current state of health. Only once an accurate baseline has been established can the process of modelling efficiency, savings and optimisation forecasts be undertaken.
The science of ‘what if’
The smart way to forecast staffing, savings, efficiency or enterprise transformation programmes is not to experiment in the real world. Rather, it is to use virtual modelling tools to create ‘what if’ scenarios that can forecast outcomes with remarkable degrees of accuracy. Providing of course that the data fed in is of a high quality to begin with – which brings us back to the importance of creating a baseline measurement of all areas, services and components of the IT operation (whether handled inhouse or outsourced). The advantage of virtual modelling is that decision-makers can assess a whole range of different possibilities and options without actually having to interrupt the actual IT and enterprise operation.
Applying this ‘what if’ modelling tool to the issue of cost savings would involve imputing 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 that savings can be achieved in areas not previously considered. Sharing services can, as an example, lead to a savings of 20% or more of the combined operational budget. Or conversely the set up costs may be more than the return on investment, or savings may not be realised for 3 or more years: either way the outcome can be forecast.
When new investment is needed
So far we’ve focused on the typical issues surrounding cost savings. But what about those transformation projects that have been sitting in the pipeline and can no longer be avoided as opportunity costs mount. As public sector organisations like the NHS are forced to do more with less, and as citizens and patients demand more and better servicing, the only solution becomes the new technology coming to market that promises much greater efficiencies.
But there is a Catch 22: Organisations need the savings that technology can bring, yet they haven’t the budget to make the investment. Or do they? Again, virtual modelling can pinpoint how and where efficiencies can be made in other areas that might be redeployed to project investment. It can work out the best business case presented by new procurement options like software licences vs. leasing; traditional vs cloud-based service provision and so on. Most importantly it can provide the ROI projections that determine whether the project has legs or not. Best of all, all of these projections can be arrived at with far greater speed and less cost than traditional feasibility studies.
So back to our original question: How to cut costs without compromising services? This article has tried to show how this question is really just the tip of a much bigger question. The real issue is how to go beyond short term savings towards the kind of transformational frameworks that will deliver long term savings while at the same time improving services and elevating the enterprise to a new level of efficiency and profitability. Too big an ask? Perhaps the real question is: What are the real costs of doing nothing?