How to Reduce IT Costs? Top 6 IT Cost Reduction Strategies

Introduction

The economic recession that we’ve been currently observing gives a hard time to all IT decision-makers. As they typically focus on delivering products, providing innovative ideas, and driving business results, now their priority is either avoiding layoffs and saving the team, IT cost-cutting, or even surviving. 

Switching to the crisis mode from regular operations requires major changes in the IT management strategy. For IT departments, it involves mainly reducing overhead, but also cutting costs of ongoing operations, finding solutions for increasing IT efficiency, and eliminating sources of low business value and waste. 

Here are 6 tips from our experts that will help you successfully implement and execute this approach.

Using outsourcing for cost savings

One of the most frequently used IT cost reduction strategies is outsourcing. The market is growing rapidly: according to Deloitte, IT outsourcing spending will reach $519 billion in 2023, which means a 22% increase over 2019's numbers.

Using outsourcing provides IT departments with a number of opportunities for cost reduction, including:

• boosting productivity within unchanged resources
• flexibility and scalability (the possibility to adjust resource consumption to ongoing needs)
• provided licenses, maintenance, and updates with no additional investments in the IT infrastructure
• access to skilled professionals proficient in the required technologies without recruitment, training, and onboarding
• established processes, standardized methodologies, and best practices delivered by the outsourcing company
• more efficient budgeting, financial planning, and resource allocation
• implemented efficient security measures.

Need more in-depth analysis of the cost of outsourcing?

If you want to explore the topic of outsourcing-related cost savings, proceed to “IT Outsourcing Costs Breakdown & Cost Savings Analysis”.

Operational cost reduction and maximizing operational efficiency

IT service management implementation for streamlined operations

Implementing IT service management (ITSM) is the next solution that contributes. It provides companies with a number of business and technical benefits, such as: 

• standardized processes, workflows, and frameworks that increase efficiency, streamline operations, and eliminate unnecessary tasks and waste
• proactive incident and problem-solving that leads to minimized downtime and reduced costs of emergency responses
• proactive risks identification and preventing recurring issues
• maintaining system stability and effective change management
• creating a service catalog that defines self-service capabilities for users and reduces the number of support tickets and manual interventions
• monitoring SLAs
• efficient asset and configuration management that helps to avoid unnecessary purchases, non-compliance penalties, expired licenses, and underutilized resources.

Automation and process optimization for increased productivity

Automation is one of the most promising IT cost reduction strategies that gain in popularity. According to McKinsey, at least one function is automated in 31% of organizations. The next 57% are planning to use automation to boost employee productivity and performance. Also, the number of automated jobs increases by 14% annually. And there’s definitely a reason behind it - it was proven that automation can boost global productivity growth by 0.8-1.4% every year.

On the micro-scale, these dependencies can be translated into a number of benefits for the product company, such as:

• reducing a significant amount of manual work
• increasing efficiency
• more accurate resource allocation and utilization
• reducing overhead
• improving processes
• faster incident resolution
• minimizing human errors.

Automation can be applied to a number of operations, including job scheduling, recruitment,  invoicing, software maintenance, coding, testing, and more. 

Software and licensing cost reduction

Software license audits and optimization

Software license audit is the way to recognize inefficiencies and plan optimizations. It can help to reduce IT costs by:

• ensuring license compliance and avoiding potential penalties
• eliminating unused, misused, or underutilized licenses
• providing a clear understanding of actual needs and requirements, which leads to more optimal decisions related to license purchasing and renewing
• providing arguments and power to negotiate with vendors
• enabling switching from traditional to more cost-effective solutions, such as cloud-based or subscription models.

Open-source software adoption and subscription-based licensing

Open-source software is one of the most efficient ways for IT cost-cutting. It can contribute to reducing IT costs by:

• reducing overheads (paying only for the resources you actually use)
• providing the ability to scale up or down anytime, according to the ongoing needs
• eliminating licensing fees
• reducing Total Cost of Ownership (TPO)
• providing high customization possibilities and adjusting the solution to the company’s unique workflows and processes
• providing access to constantly improved and updated solutions without additional investments in the development and maintenance process
• increasing security.

IT infrastructure cost reduction

Virtualization for cost-effective scaling

Virtualization is a process of replacing physical hardware with virtual tools and elements. It helps to reduce IT costs by providing:

• the ability to run multiple virtual servers on a single physical server
• efficient resource utilization and allocating them based on demand
• reduced risk of over-provisioning
• reduced physical space in data centers
• savings on infrastructure costs (power distribution, cabling, rack space, cooling systems, etc.)
• simplified Disaster Recovery and data replication
• improved testing and development environments.

Cloud adoption

Cloud adoption is one of the most frequently used IT cost-reduction strategies. Already in 2019, 94% of organizations used cloud computing. The solution provides companies with multiple benefits such as:

• streamlined data management
• increased team efficiency and productivity
• reduced upfront costs thanks to a pay-as-you-go model (paying only for consumed resources) and limited physical infrastructure 
• more efficient resource allocation
• reduced operational costs
• ability to focus on core business activities
• great scalability and flexibility
• reduced maintenance and support costs, as the infrastructure is handled by the cloud services provider
• decreased downtime and increased availability of services
• increasing security. 

Infrastructure consolidation and retiring legacy systems

Consolidating infrastructure can strongly contribute to IT cost reduction. Even basic changes, such as unifying the same operating system across various departments of the company, can significantly lower the costs related to integrations, plug-ins, tools, and required training.

Infrastructure consolidation and retiring systems come with a number of benefits, such as:

• reducing maintenance and operational costs associated with managing multiple hardware and software environments
• saving space and energy
• limiting the need for specialized staff, licenses, and integrations of numerous systems and solutions
• enhanced security and compliance.

Security cost management

Risk-based security investments and prioritization

In 2023, when the risk of security breaches and data leakages is higher than ever, cybersecurity became a top priority for a number of businesses. Obviously, it’s better to prevent than to cure, and risk-based security investments can help to reduce IT costs by: 

• avoiding severe consequences of cyberattacks (DDoS, phishing, ransomware, etc.)
• efficient resources allocation in the most critical security areas
• fast and cost-effective addressing of specific risks
• ongoing revealing and improving the weaknesses of the IT infrastructure
• ensuring business continuity and fast disaster recovery
• meeting compliance requirements and avoiding penalties.

Cost-effective cybersecurity measures and employee awareness

As the majority of breaches are the results of human errors, education is critical to maintaining cybersecurity. Increasing employee awareness by providing training about cyber threats, as well as implementing cost-effective cybersecurity measures (firewall protection, antivirus software, intrusion detection systems, and more) can help you to reduce your IT costs by:

• reducing the likelihood of various security incidents (such as malware, phishing, DDoS attacks, and more) that can result in significant financial loss
• detecting security breakage attempts as early as possible
• ensuring fast incident response (thanks to proactive monitoring, log analysis, and security event correlation)
• limiting the number of human errors causing phishing and malware attacks
• preventing unauthorized access and data leakage.

Effective budget monitoring and analysis

Establishing key performance indicators (KPIs) for cost reduction

Establishing the right key performance indicators (KPI) can reduce IT costs by:

• optimizing performance thanks to careful monitoring and measuring of IT processes and systems
• reducing the need for additional software, hardware, and IT resources
• eliminating waste and inefficiencies in resource allocation (thanks to tracking server capacity, storage usage, network bandwidth, etc.)
• identifying recurring issues, improving the overall incident management process, and reducing the severity of incidents
• avoiding system downtime
• verifying value for investments by managing vendors’ performance and SLAs
• negotiating contracts, eliminating underperforming vendors, and optimizing service levels
• increasing user satisfaction thanks to collecting feedback, constant improvement of ticket resolution, and identifying areas for improvement.

Regular monitoring, analysis, and adjustment of IT budgets

Last but not least, regular monitoring and adjustments of IT budgets can significantly contribute to IT cost-cutting by:

• increasing cost visibility and improving understanding of cost structure
• identifying areas of overspending and cost inefficiencies
• providing more efficient cost controlling
• prioritizing projects and efficient resource allocation
• evaluating performance in critical IT areas
• detecting the potential for further cost optimization.

Risks of IT cost reduction (already with mitigation strategies)

Reducing IT costs can bring several risks, particularly in areas such as data security and privacy, operational changes and automation, and software license optimization. Let’s take a closer look at those areas.

Data security and privacy

Risk: Cost reduction efforts may compromise data security and privacy, leading to unauthorized access, data breaches, or non-compliance with regulations.

Mitigation strategies:

a. Implement robust data security measures, including encryption, access controls, and regular security audits.

b. Conduct thorough risk assessments to identify potential vulnerabilities and prioritize mitigation actions.

c. Ensure compliance with applicable data protection regulations (e.g., GDPR, HIPAA) and industry best practices.

d. Educate employees about data privacy and security protocols, including the proper handling of sensitive data.

e. Regularly monitor and update security protocols to address emerging threats.

Operational risks during process changes and automation

Risk: Implementing process changes and automation can introduce operational risks, such as system disruptions, errors, or inadequate training.

Mitigation strategies:

a. Develop a comprehensive change management process that includes risk assessments, testing, and stakeholder communication.

b. Conduct pilot tests or proof-of-concept projects before implementing changes at scale.

c. Provide adequate training and support to employees to ensure they understand and adapt to new processes or automated systems.

d. Establish effective monitoring and error detection mechanisms to identify and address operational issues promptly.

e. Maintain open lines of communication with stakeholders to gather feedback and address concerns during the transition.

Risks related to software license optimization

Risk: Inadequate management of software licenses may result in compliance violations, legal issues, or unexpected costs.

Mitigation strategies:

a. Conduct a thorough software asset management (SAM) process to inventory and track software licenses across the organization.

b. Establish a centralized license management system to ensure accurate record-keeping and timely license renewals.

c. Regularly review software usage and license entitlements to identify underutilized licenses or opportunities for optimization.

d. Stay updated on licensing agreements and terms to avoid unintentional violations.

e. Implement software license compliance training for employees to promote awareness and adherence to licensing policies.

In all these areas, it is crucial to maintain a proactive and holistic approach to risk management. Regular monitoring, continuous improvement, and engagement with relevant stakeholders will help mitigate risks effectively while achieving IT cost reduction goals.

Conclusion

So, how to reduce IT costs? Efficient IT cost reduction strategies typically combine a variety of measures and tools. Although implementing the tips listed above is truly promising, it might be challenging to introduce them all at once.

However, there is a recipe for efficient IT budget optimization in multiple areas: outsourcing. An experienced outsourcing partner will be able to combine the tips listed above and provide you with a mix of cost-saving approaches. They will not only provide you with requested services and operations but also help to structure your processes, implement efficient tools and technologies, and improve your overall key metrics. This leads to both cost reduction and improving the quality of your services, which translates to higher customer satisfaction. 

If you’d like to learn more about IT outsourcing opportunities, feel free to contact us. As an experienced IT outsourcing company, we will be able to advise you on top IT cost reduction strategies that will correspond with the specific needs of your organization.