You’ll often hear people use the terms “cost optimization” and “cost cutting” interchangeably. You might even be guilty of this yourself. Interestingly enough, both terms actually mean completely different things and using them interchangeably is a misnomer.
So, what is the difference between “cost optimization” and “cost cutting?” Let’s take a closer look at these buzzwords.
What is Cost Cutting?
Cost cutting is the term you use when you need immediate, direct one-time actions with the purpose of reducing corporate expense levels. Cost cutting efforts include targeting an exact amount an IT organization is hoping to save, and setting a target date by which you’ll save it. This can include layoffs, pay-cuts and benefit reductions. In fact, 37% is the typical proportion of an IT function’s operational budget related to personnel, frequently making these options a first choice. But there are others, including:
Decommission software
Renegotiate contracts with vendors and check invoices.
Consolidate and virtualize servers
Implement a telecom expense management service
Implement a software license management strategy (for example, a managed software license pool that provides new employees with an existing license rather than a newly-purchased one)
What is Cost Optimization?
So, what is cost optimization then? Well, it’s a bit more complicated than cost-cutting. Cost Optimization involves an iterative and continuous effort throughout the organization, guided by overarching IT strategic goals that save money through efficiency, or provide a payoff or profit at the end (or both).
IT cost optimization efforts include verifying that IT spends are aligned with guiding strategies and implemented efficiently, making sure all products and services are competitively sourced and procured at the best available rates, and ensuring that service consumptions (mobile data usage and landline bandwidth, for example) are worth the costs associated with them.
A key difference in the two concepts is that cost optimization is typically an ongoing, evergreen effort, whereas cost cutting is a one-time effort designed to meet an immediate budgetary goal or limitation. While Cost Optimization is definitely a more holistic and intensive strategy, there are systems, tools, processes, and specialized expertise that can help your company stay on top of its efforts. The TechFides Enterprise Digitization and IT Performance Management services help IT organizations assess their performance, effectiveness, and efficiency, providing IT towers the capability to deliver world-class functionality and integration to the rest of their organization, while saving the overall business money by delivering in a cohesive, cost-effective manner.
Methods for IT Cost Optimization
Virtualization
This method can help you achieve significant cost savings by implementing virtual versions of physical hardware. Now you’ll be able to maximize server resources, quadrupling your minimal utilization levels by decreasing energy, hardware expenses, and your real estate footprint. TechFides can help make the most of what you have, and eliminate what you don’t need.
Outsource IT Services
Support accounts for 8% of the total costs associated with IT, which is why many companies opt to outsource instead. A 2016 study by Deloitte actually found that 72% of companies contracted out their IT staff — and 31% wanted to outsource even more. That’s because hiring freelancers has proven to reduce IT infrastructure costs and hiring expenses by 50% or more. TechFides partners with multiple companies that specialize in outsourced IT support, and can guide your organization’s decisions and criteria for requirements and vendor selection.
Standardize Your IT Infrastructure for Savings
This means ensuring consistency across all your company’s different hardware and software applications, helping to maintain compatibility. This could be something as simple as giving all employees the same computer, eliminating IT infrastructure costs and avoiding training fees. TechFides can help enterprises establish standardized processes and strategies across IT procurement, management, support, and more.
Consolidating Systems to Reduce Cost
This strategy emphasizes the critical importance of a cohesive, holistic IT strategy. Designing your delivery system from the top down, starting with high-level goals and deliverables, and moving downward to full granularity, ensures that every system, platform, process and job role has a defined purpose. When these components are added in a vacuum, the result is almost invariably inefficient. For example, “I manage the warehouse and I need a logistics tool” can lead to a quick, uninformed purchase which will likely result in an incompatible, bulky, inefficient tool and process that can’t integrate with other systems or share data with other functions. TechFides can give your organization the overarching structure and template to create an IT model that meets your needs, and grows organically and efficiently with your business.
Hybrid Cloud Implementation
Cloud storage has become quite popular for many companies looking to cut costs significantly. According to Cloud Security Alliance, 86% of companies already include cloud computing on their budget.
So why is this such a smart move? A move to the cloud helps companies save 15.18% of operational costs, 15.07% of total IT spending and 16.76% of IT maintenance. That, along with a reported 20% increase in process efficiency, makes it abundantly clear why cloud computing is such a popular choice. TechFides has partnerships with multiple cloud storage specialists, and we can demonstrate the benefits of a well-designed cloud architecture.
How TechFides Can Help
When it comes to cost cutting and cost optimization, you’ll probably see now that they’re completely different terms. But they all lead to one thing: saving money. It’s hard to know where to begin when there’s so many options to explore. TechFides can help. We help your enterprise save time and money by assessing your processes and how effective they are in meeting your deliverables. Through integration, scalability, automation, capacity management, and alignment, TechFides can help you start saving today.
