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31 October 2006

Where to find cost savings - for free

By Andrew Clifford

The Minimal IT cost model shows you where to look for IT cost savings. You can try it for yourself for free.

Last week I introduced a cost model that showed cost savings of between 20% and 60% of annual IT spend. This week I will explain the model in more detail.

See the Minimal IT Cost Model to try the model for yourself.

The model breaks down your IT spend to see where to look for IT cost savings. It is a simple model, but not simplistic.

  • It looks at both the quantity of IT and the efficiency of IT.
  • It looks at total IT spend, not just spend in one area.
  • It shows you how large the potential for saving is. This tells you whether or not it is worth investigating, and where to look.
  • It reflects the realities of IT. You can not change some things, like the need to put a PC on every desk, or the fact that you do more maintenance than new development.
  • It does not make assumptions for you. It takes your assumptions and shows you where potential savings can be found.

The inputs to the model are simple.

  • Costs, broken down into four categories: hardware and software spend; support staff spend; project spend; and other costs.
  • Important ratios: how much of your IT quantity is entirely dictated by business scale (such as a PC on every desk); how much of your project work is new; how much of your project time is spent on analysis.

The model asks your assumptions about important cost factors.

  • What proportion of your projects are abandoned, both before and after the start of development.
  • What proportion of functionality is not used.
  • How much duplicate functionality you have, and how complicated your IT is.
  • The savings you think you can get from improvements in hardware and software sourcing (such as commodity hardware and free software), and improvements in working methods (such as agile methods).

The model split your costs down by the ratios, and then applies your assumptions to find potential savings. Here are the potential savings it looks for:

  • Avoid wasted effort by detecting projects that are likely to be abandoned.
  • Reduce hardware and software spend, services, and maintenance, by reducing the amount of unused, duplicated and complicated functionality.
  • Reduce hardware and software spend by improving sourcing.
  • Reduce project spend by improving methods.

I don't know what the model will show you. In the organisations I am familiar with, and the assumptions I think are reasonable, the model shows that the really big factor is reducing the amount of existing IT, more than reducing unnecessary project work. It might be the other way around for you, or show nothing at all.

I have found the model very thought provoking. Of course it is only a simple model, and you could pick holes in it. But I have found the potential for savings it shows is too big to ignore. Try the cost model for yourself, and see what potential for savings it shows you.

Next: StupidClever


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