CXO

How to 'cut' 10 percent now and save staff later

IT managers should have a plan on how to reduce expenses, before the order comes down. Here are key strategies to use, and places to look, when you are searching for ways to cut costs before you have to cut staff.


It is a reality in today's uncertain economy that IT managers who haven’t made contingency plans for cutting expenses may be forced to cut staff. But there are steps you can take to be prepared when the order comes to trim costs. If you present alternatives, you may be able to keep the team intact. Here are some key cost-cutting strategies to help you form an alternate plan.

Plan now to cut 10 percent
Expect the unexpected: If you haven’t been asked to reduce your department expenses yet, you will one day. It should not be a surprise to you when it happens. Even if you think your company is doing great, you probably aren’t aware of all the financial challenges that face your company.

Draw up a plan: Run a simple scenario today on how you would carve out 10 percent of your IT department expenses if you had to. Planning for it now will pay off later, when the call comes and you don't have to scramble to produce a plan.

Budget for surprises: A smart IT manager budgets for unexpected issues. You will find that when you include some amount of buffer in your plan, you can grab “low-hanging fruit” expenses that may be needed but aren’t critical to your operation.

Create leverage-value awareness of IT: The best way to avoid getting the budget-cut call in the first place is to create “leveraged” value for the company with your IT department. IT has an ability to implement projects that have significant revenue and expense improvement benefits to the company. Those benefits are likely to exceed the mandated 10 percent cut. Establish a track record of improving company performance from IT initiatives and track your team and your projects. You must demonstrate your department’s enabling ability to help the company achieve more.

How IT can help reduce expenses
Let's focus on two ways an IT department can help the company save money, or reduce expenses: Decreasing costs within your IT department and implementing IT solutions that lower expenses in other departments, improve employee productivity, or improve purchasing power.

Improving the productivity of other departments is by far the greatest opportunity you have for cost savings. Let’s take an example. A large healthcare billing department made up of predominately clerical employees has a high turnover rate. Automate the billing and reimbursement functions and you can reduce a billing organization’s labor expense by 30 percent or more. That means the department can reduce staff by 30 percent or can add 30 percent more business volume without adding people. Either way is a big deal for senior management. An organization of 100 people just saved about $1,000,000 a year in labor expenses, and that’s right to the bottom line.

An IT manager should always be looking for opportunities that help the company’s financial picture. By doing so, your department has a value to the company that can shield IT from cost cuts.

Identify cost-savings items
Explore the following areas to find other categories where IT can help lower operating expenses:

Purchasing standards: In a company with many divisions and remote offices, look for standards and a single source of purchasing for PC equipment, software, supplies, etc. Standardizing increases your purchasing power and reduces your technical support requirements. I joined a company once that was buying “cheaper” PCs from a small company. The reality was the company was buying PCs at a higher price than what we could buy from Dell already loaded with the software image to meet our needs. Buying from Dell would also allow us to ship them directly to remote offices. The cost benefit included a standard image, lower purchase price, higher reliability, free shipping, and lower support cost.

Telecommunications costs: Most companies have an opportunity to reduce their phone expenses. Telecom carriers charge for many different services including:
  • Voice (local and long distance).
  • Phone credit cards.
  • Data communications through high-speed data lines, VPN connections, and data circuits.

WAN data circuits: Review all of your company’s WAN data circuits and verify that you have contracted for the capacity you truly need. A large WAN probably has individual circuits with more capacity than needed.

Another important area to examine is whether you really need a WAN with dedicated circuits. Many business applications are conducive to modifying the user interface of the business application and implementing an ASP approach. In the right situations, using the Internet for moving data will save a bundle.

Overnight mail and postage: Postage can be a significant expense. Look for opportunities that eliminate the requirements for normal mail and overnight mail or reduce the cost by automating the process. A couple of examples from my past include the following:
  • Contract with a bulk mail service and combine your mail with other companies to get the lowest postage rates possible.
  • Automate billing processes to send large volumes of healthcare bills (claims) electronically. This eliminates the postage and decreases the time to receive payment.
  • Implement an automated report distribution program like Optio. Instead of printing and mailing reports to remote offices, Optio allows you to send the specific report electronically to the appropriate recipient via e-mail, FTP, or to the intranet for access through the network. It saves labor in assembling paper reports for distribution and eliminates paper and postage.

Leverage your company intranet: Your company intranet can help many departments save money. For example, let’s take the human resources department and payroll:
  • Put the employee handbook on the intranet and allow the HR department to make changes once, send an e-mail about the change, and be done with it. No more publishing employee handbooks, assembly and collating work, and paying for postage to send new revisions out. We justified the implementation of a company intranet in one company based on the HR department savings alone.
  • Put the approval form and process for employee adds, changes, and deletes on the intranet and eliminate paper and postage, and reduce the time it takes to get it through the system. Be sure it’s secure because of the confidentiality nature of the information.
  • Operations departments can benefit by putting their policies and procedures on the intranet. Benefits are reduced labor, lower postage costs, and up-to-date information.

Review systems downtime: Systems downtime has an indirect expense tied to it. Calculate downtime costs to determine the real cost of downtime.

Eliminate redundant business applications: Companies evolve and often continue to operate redundant business applications, especially if there were company acquisitions. Review your environment and eliminate obsolete or redundant technologies. You will decrease ongoing support costs and potentially eliminate hardware and software maintenance.

Consider a virtual office: I’m convinced that within the next decade, most of us will work from home at least half the time. Virtual offices can reduce the requirement for office space and equipment related to having an employee on-site such as phones, desks, etc. Before you try it, do some research and put processes in place that measure performance effectively.

Conduct an expense audit
Companies such as Profit Recovery Group offer auditing services to reduce expenses for your company on a contingency basis where they are paid when you realize savings. They approach an audit in three areas:
  • Bill review: Errors are identified and processes are implemented to reduce expenses going forward. This turns up phone lines that are active but not being used. It also identifies abuse of 411 information calls and auto-connect, other items that run into the thousands of dollars when left unmanaged.
  • Contract review: Combined with the bill review, a determination is made as to what services you really need vs. what you’ve been getting billed for. Contracts are renegotiated with the telecom companies.
  • Expense recovery: After the bill review and contract reviews are completed, PRG works through the last 12 to 18 months (sometimes more) to identify erroneous charges that your company paid for. They go after the money and are paid a hefty percentage of what they recover, but anything you get back is upside.

Mike Sisco is CEO of MDE Enterprises, an IT management training and consulting company in Atlanta. For more of Mike’s management insight, take a look at MDE’s IT Manager Development Series.


Do you have other money-saving tips?
Have you found a great way to cut costs in IT? Do you think this article was helpful? Send us some mail or post a comment.

 

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