TCO and how to make it better.

Understanding the actual costs of IT across an organisation is crucial for CIOs to make strategic decisions, optimise spend, and demonstrate the value of technology investments. However, the complexity of today’s hybrid IT environments makes handling total costs challenging. To gain visibility into IT costs, CIOs should ask critical questions such as the breakdown of costs between on-premises infrastructure and cloud services, software licensing and maintenance, and any hidden costs not accounted for, such as security breaches or downtime.

To get a full picture of IT spending and find ways to make things run more smoothly, CIOs should look at the total IT costs for each business unit, the difference between what was planned and what was actually spent on IT for each business unit, and whether any business units consistently go over their planned IT costs. By analysing these costs, CIOs can identify areas of overspending or underspending, reallocate resources to units that effectively manage their budget, and inform future budgeting and spending decisions.

Monitoring spending patterns closely can help identify areas of overspending and areas for improvement. This proactive approach to budgeting and spending can help organisations mitigate future financial crises and ensure long-term sustainability. Additionally, suppose business units consistently need to work on their allocated IT budget. In that case, it is essential to identify the reasons behind this underutilisation and determine if excess resources can be reallocated to other units to maximise efficiency and value.

Fostering a more transparent and accountable IT spending culture within each business unit can be achieved by comparing budgets to actuals, analysing drivers behind overages, ranking business units, benchmarking against each other, and calculating ratios to identify outliers and areas of misalignment.

Statistic analysis can show spending patterns that are not typical and need to be looked into further. For example, financial services businesses have higher IT costs per employee because they have to meet regulatory requirements. Understanding the business context is crucial for interpreting these findings. Strategic pricing can drive or suppress demand for services BUs consume, and implementing showback models and chargebacks for IT services can help steer business unit demand.

Identifying duplicate business capabilities across different business units can streamline operations and eliminate redundancies. Cataloguing business capabilities, systems, and data can help identify areas of overlap. A project management office (PMO) can help align investment strategies and assess plans and architectures for overlap.

Application Portfolio Management should focus on the fully burdened costs of each app or service and allocate direct costs plus shared infrastructure and overhead to understand the total cost of ownership (TCO). Analysing application costs that scale based on usage for right-sized deployments can help organisations deploy the right-sized resources and avoid unnecessary expenses. Consolidating redundant apps and migrating users to a single, consolidated platform can save costs, streamline processes, and improve efficiency.

Vendor Management should analyse total IT vendor spending by function and category, including redundant contracts across vendors and multiple vendors providing the same service. Consolidating duplicate contracts and routing spending through approved channels can help identify potential opportunities for renegotiating contracts with vendors to obtain better terms or pricing. This analysis can also help identify potential opportunities for renegotiating contracts with vendors to get better terms or pricing. The goal is to improve efficiency, reduce costs, and enhance overall vendor management processes.

Cloud cost management involves understanding the fully burdened cost of cloud computing, including support charges, shared services, and overhead. It also involves analysing coverage and simulating pricing scenarios to optimise reservations and discounts. To get a good idea of the return on investment (ROI) of moving to the cloud, you need to think about the costs that come with supporting transitional hybrid environments and the costs that come up twice during transition periods. Setting up cross-charges for business units consuming cloud resources helps track consumption and effectively calculate the total cost of ownership (TCO). Negotiating reservations and discounts for cloud services can further optimise cost savings, ensuring the organisation maximises its return on investment (ROI) from cloud migration.

IT tower spending involves breaking down costs by IT tower (e.g., compute, storage, network) and IT function (e.g., infrastructure, apps, labour). Comprehensive visibility requires synthesising data across systems, vendors, projects, assets, and consumption. A structured questioning approach helps establish a solid foundation for maximising value and treating IT as a strategic business function. By thoroughly analysing data and conducting regular audits, organisations can identify patterns of overspending and take appropriate actions to optimise costs. This can include negotiating better contracts with vendors, consolidating resources across projects, and implementing cost-saving measures such as rightsizing cloud instances. Automated monitoring tools can provide real-time insights into IT operations, enabling proactive decision-making and efficient resource allocation.

Understanding the actual costs of IT within an organisation is paramount for CIOs to make informed strategic decisions and effectively manage technology investments. In today’s complex hybrid IT environments, gaining visibility into total costs can be challenging but essential. CIOs should inquire about cost breakdowns, including on-premises infrastructure, cloud services, software licensing, and hidden expenses like security breaches. Analysing IT costs per business unit, comparing budgeted vs. actual expenses, and identifying consistent budget variances can reveal overspending or underspending areas.

A proactive approach to budgeting and spending can mitigate financial crises and ensure long-term sustainability. Transparent IT spending cultures can be cultivated by comparing budgets, analysing overages, ranking business units, benchmarking, and calculating ratios. Statistical analysis can uncover unusual spending patterns that require investigation, and understanding the business context is crucial. Vendor management, cloud cost management, and IT tower spending analysis can streamline operations, identify redundancies, and optimise cost efficiency. Ultimately, a comprehensive approach to IT cost management empowers organisations to make data-driven decisions, enhance efficiency, and maximise value.

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