5 Powerful IT Cost Optimization Strategies for Effective Business Growth

Learn five proven strategies to optimize your IT costs, reduce total cost of ownership, and maximize business value.

In brief:

• Align spending with business objectives to eliminate redundant systems and maximize resource efficiency for IT cost optimization.
• Evaluate your IT costs and investments using standardized criteria: return on investment (ROI), technical feasibility, security impact, and business value.
• Manage asset lifecycles strategically from acquisition to disposal to extend value and reduce replacement costs.
• Use a structured approach to identify problems, develop solutions, anticipate barriers, assess risks, and plan long term.
• Lower IT costs by implementing tools that serve multiple departments and strategically outsourcing maintenance.

To maximize technology costs and prevent inefficiencies, you must align your IT expenditures with business objectives. Without this strategic alignment, organizations risk wasting significant portions of their IT budget — which ranges from five percent of revenue in consumer industries to upwards of 19 percent in software companies — on redundant systems and underused tools.

However, regardless of how much you dedicate to IT, getting the most out of your expenditure depends on an IT cost optimization strategy.

As chief information officer (CIO) expert Troy Gibson, explains that without this cost optimization, “You’re going to spend way too much on IT, and the business will be less efficient than it could be.” For example: “You’re going to have five ERP systems or two CRM systems, and you’re not going to get the benefit [you need] from the tool.”

Combating inefficiencies may seem straightforward at first: Try to spend less while getting more. But it can be hard to know where to start and which IT asset management best practices to incorporate.

Here is your guide to building an IT cost optimization framework.

Understand IT Cost Optimization

According to Gartner, to maximize IT’s value, CIOs need to take a strategic and programmatic approach to IT cost optimization that “reduces waste, improves operational performance, and reinvests in initiatives that drive business outcomes.”

IT cost optimization is the process of getting the most value for your IT spend, specifically ensuring that each expenditure directly helps your business achieve its goals.

Often, the scope of an IT investment strategy is based on the outcomes you expect to achieve. For instance, a manufacturer may need to collect data from machines on their assembly line, analyze it, and then use it to optimize their efficiency. In this case, the investment in IT may be heavier simply because the outcome, operational efficiency, will have such a significant impact on the organization’s bottom line.

We find that companies that use budget management services are able to gain access to industry experts who deeply understand of their tech and business needs. By using professional services to optimize your IT strategy, you make it easier to foster efficient technology life cycles.

We’ve worked with clients to:

• Develop IT roadmaps that directly support specific business objectives
• Create business cases for projects that make it easy to justify investments to decision-makers
• Form strategic approaches to IT portfolio management that ensure consistent value delivery for years

The Impact of AI and Cybersecurity Tools on IT Cost Optimization

Implementing artificial intelligence (AI) can often result in far more efficient IT systems simply because it can automate routine actions and even decision-making processes.

For instance, you can use AI to analyze data produced by your business software or equipment. In minutes, AI can take a huge dataset, identify ways to improve your operations, and recommend ways to do so.

Similarly, modern cybersecurity tools can often perform multiple critical functions, allowing you to avoid investing in additional solutions.

For example, an older firewall may have only been able to filter traffic based on a strict set of predefined rules. But next-generation firewalls (NGFWs) can do far more. In addition to filtering out traffic from specific sources, they can automatically identify and block sophisticated attacks by analyzing the patterns of traffic moving through your network.

Create an IT Cost Optimization Framework

According to IBM, “With global IT spending set to reach USD 5.74 trillion in 2025 (up 9.3% from the previous year), CIOs and CFOs are under increasing pressure to deliver high-performance systems while controlling expenses.”

An IT cost optimization framework is necessary to standardize criteria that you can apply to all of your potential investments. It may include metrics such as:

• The project’s financial viability. How long will it take for the investment to provide an acceptable ROI? What is the total cost of ownership, and do you have the budget to shoulder it?
• Technical feasibility. Will implementation require a lot of work or hiring additional staff?
• Security and privacy concerns. Does it help or hinder your cybersecurity program, perhaps by introducing additional vulnerabilities?
• Quantifiable business impact. What effect does the investment have on efficiency or productivity? Is it measurable, and does its effect surpass a pre-determined threshold?

Asset Life Cycle Management

Your IT business value maximization strategy is intrinsically linked to asset lifecycle management because by extending each asset’s life, you can save money on buying new components.

Managing your assets’ life cycles involves:

• Building acquisition strategies that take into account evaluating the best options, testing and choosing the most effective service contracts, when applicable
• Optimizing deployment, which includes minimizing business downtime and choosing when to bring in outside experts when you have a relatively short deployment runway
• Maintenance planning, which often involves deciding who will oversee and perform maintenance and how these responsibilities will affect their daily workload
• Deciding end-of-life planning and responsible technology disposal that aligns with your organization’s replacement and disposal costs.

5 Strategies for Maximizing Business Value Through IT Cost Optimization

Your technology asset management program will benefit from these five strategies, primarily because they enable a systematic, replicable approach that applies to many IT assets:

1. Identify the Problem

Here are some common problems organizations identify as they begin optimizing their IT costs:

• Lack of alignment between IT and the business. An IT asset may have little to no impact on the organization in reaching its goals.
• No shared vision on how IT can help. For example, it’s common to have misunderstandings about IT’s role in decisions about how to use the cloud.
• Lack of focus on business benefits. Some organizations get caught up in purchasing IT tools simply because others use them or they are “hot” at the moment, without considering the business benefits.
• Lack of business case. An IT tool may provide excellent features, but it may not align with specific use cases that apply to your organization.
• Lack of benefit realization focus. While business goals should drive IT purchasing decisions, the actual, tangible benefits that the solution delivers ultimately justify its purchase.
• Lack of project prioritization, including resource allocation. Trying to tackle many projects at once dilutes your resources, as well as each project’s effectiveness.

2. Identify the Solution

Your solution should be an IT strategy guided by a specific business focus. For example, a financial services company may be considering an investment in a new customer relationship management (CRM) tool. Decision-makers need to identify the business focus the new CRM will support.

For instance, the focus could be on onboarding new clients. Or maybe the focus is on maintaining existing clients through deeper, more personalized interactions.

3. Identify Barriers You May Face While Pursuing the Solution

Some common barriers include:

• A lack of experience developing business use cases. Some IT folks are adept at getting the most out of an asset’s technical capabilities, but they lack experience in using it to achieve business outcomes.
• Lack of user buy-in when it comes to the benefits of the IT investment. Users need to know the juice is worth the squeeze. Otherwise, they may feel an IT asset is more of a toy than a tool.
• Lack of user buy-in toward prioritizing and allocating resources. For example, some may not want to adjust their daily responsibilities to maintain a new IT investment.

4. Analyze the Risks

Even though the risks associated with an IT solution vary, here are some that organizations commonly have to consider:

• Overspending on IT. New investments may push you beyond your IT budget’s boundaries.
• Lack of payback on the investment. You have to quantify how the investment will generate sufficient payback and a reasonable timeline decision-makers can expect.
• Project management issues. These may include project hang-ups or failures, as well as shifting priorities as a project unfolds.

5. Identify the Broader Issues at Play, Both Now and in the Future

IT is becoming increasingly important to business operations, so it’s crucial to pinpoint the broader issues at play, such as:

• How an asset makes your organization more competitive
• Whether an asset supports efforts to modernize operations using data integration, now and down the road
• How an investment impacts your overall cybersecurity. Will it require more or less work for those tasked with keeping your data and networks safe?

Techniques for Reducing Total Cost of Ownership

Reducing your total cost of ownership (TCO) depends on investing in tools that serve the purpose of multiple business units. In that way, your cost of ownership gets spread across a wider swath of your organization.

Gibson breaks it down this way: “If I’m a business unit, I can move more quickly [when I have a new IT tool.] There’s no question in my mind. But if every division does that, you end up spending way too much in total. This is why governance not only has to include division leadership, but also the input of the CFO and CEO, because no one [else] is going to make the tough decision to say, ‘You can’t buy that.’ But there’s certainly a balance there between trying to get them to move quickly and not spending like crazy and having every division have their own toolkit.”

In addition to factoring in the needs of multiple facets of your business, you can also reduce your TCO by:

• Using data-driven decision-making as you manage vendors. Use concrete metrics to compare vendors with other alternatives, such as time to resolution for issues and the frequency of service outages.
• Optimizing your infrastructure. In many cases, optimizing your infrastructure involves using network technology that supports fluent, consistent service. Fiber optic connections, segmented networks, and SD-WAN can all improve your IT assets’ performance, reducing your TCO.
• Hiring outside services to manage or maintain an IT investment. This often costs less than hiring new staff or taking current staff away from important responsibilities.

Measuring ROI of Technology Investments

Measuring a technology investment’s ROI may not be as straightforward as quantifying the ROI of a new vehicle or piece of machinery. To make sure your ROI analyses don’t suffer from blind spots, you may want to factor in:

• Intangible benefits. For example, improved customer satisfaction or smoother collaboration between employees.
• An investment’s long-term impact. Sometimes, the full benefit of an investment may take several years to realize. For instance, hiring a managed services provider may save you hundreds of thousands on your payroll, but not until a few years have passed.
• The need for a comprehensive attribution chart. Some IT costs yield multiple benefits across various aspects of your operations. For example, a subscription to an enterprise resource planning (ERP) platform may result in tangible benefits to a dozen different departments.
• The importance of delineating all costs. When evaluating your cost of IT infrastructure, in addition to the cost of hardware, you may also need to consider labor, overtime pay due to meeting implementation deadlines, or the cost of maintenance or future upgrades.

Optimize Your IT Costs for Long-Term, Sustainable Programs

Cost-effective IT solutions are those that directly support your organization’s revenue generation strategy. They are more than useful tools. Rather, they should be a straightforward link between IT costs and how they make your company more money.

By thoroughly analyzing IT expenditures’ ROI, you can develop a benefits realization strategy that motivates decision-makers to purchase effective solutions and make informed hiring decisions.

You can launch your IT cost optimization strategy now by creating a list of the tangible, profit-driven benefits of current and potential programs, people, and technologies. In this way, you can start aligning your IT department’s initiatives with your organization’s goals — and justify critical technology investments.

We understand the pivotal role of IT in driving business value. We can work closely with leadership and IT teams to align technology with business strategy and help you discover the ROI that cutting-edge technologies can offer. Let’s Talk