A survey found 41% of CIOs have been tasked with delivering significant IT cost reduction as part of their annual agenda.
As the demand for IT services continues to rise, so do their costs. While every organization’s technology matrix varies in complexity, performing an IT cost reduction analysis can shed light on ways for reducing costs and adopting a long-term IT plan.
To help aid you in this quest, we’ve compiled ten tried-and-true IT cost reduction levers along with essential insights into how MSPs can save your organization anywhere from 15- 50% on IT costs.
In this article, we’ll also cover:
- Common IT costs
- The deployment of IT cost reduction ideas
- How MSPs provide an IT cost reduction framework
Common IT Costs
Maintaining IT infrastructure and operations significantly drives up operating costs, but it is a critical demand for every business regardless of size. While every organization’s IT demands vary, here are standard expenses you’ll find in any IT budget:
Ongoing expenses
- Recruiting and staff acquisition
- Internal staffing
- External staffing (such as staff augmentation)
- Servers
- Client computing devices
- Network infrastructure
- Support contracts
- Software licenses
- Subscriptions
Project expenses
- Consulting expenses
- General and administrative (like temporary office leave)
- Software
- Hardware
Depending on your organization’s size, region, and industry, businesses’ IT spending ratios ranged between the 25th and 75th percentile. Here are a few spending figures (from 2019):
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IT Spending Ratios |
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| IT Costs as: | Discrete Manufacturing | Financial Services | High Tech | Retail | Healthcare |
| Per User | $3,733 – $9,864 | $13,772 – $26,667 | $6,191 – $11,653 | $3,913 – $14,685 | $3,157 – $6,143 |
| Per Device | $4,658 – $9,395 | $12,171 – $23,882 | $5,452 – $9,218 | $4,806 – $13,533 | $3,280 – $7,273 |
| Revenue % | 1.4% – 3.2% | 4.4% – 11.4% | 2.6% – 4.7% | 1.2% – 3.0% | 3.0% – 5.9% |
Using the IT cost reduction ideas below can help save your organization money when using a managed service provider.
10 IT Cost Reduction Initiatives
IT costs compose a considerable portion of an organization’s capital expenditures.
While there are many methods for cutting costs, business and technology leaders may find the most effective solutions through these ten IT cost reduction measures:
1. Cut Down Personnel Costs
IT staff wages consume a considerable sum of an organization’s IT budget. Ensuring your business has the IT skills needed during slow and busy periods can be challenging and result in stay-awake recruitment problems.
Another way organizations can reduce headcount and cut expenses is by hiring a managed IT services provider in place of, or to augment your current team.
2. Reduce (Employee) Turnover
Reducing your company’s turnover rate can save money too. At times, companies can spend upwards of 6 to 9 months of an IT employee’s salary to find and onboard replacements.
A few strategies to reduce turnover would be to create a more rewarding work-life balance with room for advancement and improving company culture.
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Find out how a logistics company slashed IT costs by 23% and improved ticket resolution times by 46% |
3. Move to the Cloud to Reduce Technology Costs
Cloud adoption can cut many costs from IT budgets, such as server maintenance, technology upgrades, and software licenses. Additionally, companies must pay for power and cooling costs in addition to the staff to manage the systems.
Companies can seamlessly move business operations to the cloud, taking advantage of reduced expenses with better IT cost control. That lets you leverage the cost optimization of the cloud, consolidating myriad expenses into monthly cloud costs.
4. Reduce Technology Cost Through Virtualization
Virtualization is the process of replacing physical IT hardware with virtual components. When companies virtualize their IT components, they can reduce dependence on physical servers.
Compared to traditional infrastructure, virtualization has a higher utilization level for maximizing server resources of about 60% compared to 15%. Even building a small cloud in-house allows better use of hardware resources.
As a whole, virtualization is an effective process for maximizing IT savings through reduced energy consumption and hardware expenses. However, make sure you work with an experienced IT company to minimize technical debt and recurring issues.
5. Software-Defined Data Center (SDDC)
Software-defined data centers can significantly reduce the rigours of cost management through their virtualized infrastructures, resource pooling, and more.
Businesses that use an SDDC don’t have to store IT equipment, meaning they no longer have to cover hardware expenses or employees for system maintenance.
There are numerous IT services like networking, computing and telecommunications that can be hosted on an SDDC as well.
6. Hybrid Cloud Optimization
Hybrid cloud optimization is the most popular form of cloud computing as it allows for superlative workload distribution across public and private ecosystems. A recent study found that 92% of enterprises have already embraced a multi-cloud IT strategy.
Migrating to a hybrid cloud environment is advantageous with improved process efficiency, scalability, and cost savings.
7. Use Open Source Software
Many CIOs have started exploring open source software to reduce software licensing fees, annual maintenance costs, and vendor lock-ins.
When using open-source software, companies gain free software, community support, access to source code, and can save about three percent in costs. That said, open source can introduce other challenges, making it unsuitable for most business use cases:
- Additional steps in workflow for non-standard solutions
- Lack of expert technical skills
- Potentially insufficient technical documentation
- Greater administrative overheads
8. Consolidate Software for IT Cost Reduction
Consolidating software doesn’t just reduce per-seat costs, it can reduce hardware maintenance and demands too.
Using a managed service provider is advised as they’ll handle the entire process and test the functions of your systems following implementation. The process can be time-consuming and letting a partner do it will allow you to allocate resources elsewhere in the business.
9. Reduce Expensive Hardware Use
It may not sound ideal for companies to reduce capacity or opt for less specialized systems, but it can be extremely effective at slashing costs without affecting business operations.
It’s not uncommon for businesses to be encumbered with technologies they can’t take advantage of. Add to that overly complex systems that can require having full-time staff just to run it, and the ROI suddenly looks relatively poor.
10. Renegotiate Vendor Contracts
Just because your company has signed a contract doesn’t mean you can’t open negotiations with vendors and suppliers for renegotiation. As with most suppliers, they’ll likely wish to keep you happy, giving you leverage at renewal time.
That’s where working with an MSP can improve the bottom line. You’ll be able to leverage market intelligence as well as industry partnerships for better terms and pricing. MSPs are also able to negotiate custom service levels with providers, which means you pay only for the services you need.
Reduce Technology Cost Without Compromising Capability
At Fusion Computing, we help businesses like yours gain visibility into IT spending, streamline IT solutions, and realize cost savings. Take advantage of over 20 years of experience to find cost-effective IT solutions that align with your business needs. Book an IT assessment today and find out how much we can help you save.
