How to cut IT costs without hemorrhaging

With no fat left to trim, how can IT managers keep cutting costs without damaging core services?

Many industry professionals say implementing processes around IT cost management or deploying chargeback technologies can provide the insight that IT and business teams need to better understand how to spend what's left of budgets. These systems can help identify what services IT offers, how much those services cost to deliver, which services are most in demand by the business, and how to intelligently reduce expenses without hampering innovation.

Read "What not to cut from IT budgets: Staff"

"Cost cutting is not over yet for 2009; 75% of companies right now are thinking about it, so cost management should be on many CIOs' minds," says Barbara Gomolski, managing vice president at research firm Gartner.

Cost management isn't solely about cutting expenses. It encompasses a set of processes designed to identify services and curb spending on unnecessary or less critical resources. Best practice frameworks such as ITIL have guidelines around cost management as well as IT chargeback, which is a different discipline that involves IT departments assigning a price to each service and billing departments for the services they consume. With such cost transparency, IT can prove its value to the business, and show those it serves what their application or service demands ultimately cost the business.

Click to see: Pie chart showing how businesses are charged for IT expenditures

"Chargeback could be considered a kind of behavior-modification tool. We wanted people to know what the price of services were, because if they knew how much it could cost their department, they would be more cautious about requesting less critical services," says Jake Seitz, enterprise architect at The First American Corp. in Santa Ana, Calif.

Clarify IT costs

IT departments struggling with fewer resources might not be in a position to implement a full chargeback system, but many can begin the process of tracking costs and developing a service catalog, industry watchers say.

By putting existing asset and performance management tools to work -- add perhaps importing data into a spreadsheet or other document -- IT managers can begin to see what departments or end users require which services and start to calculate what IT resources are required to deliver the services.

"An intermediate stepping stone is reporting. That means providing periodic reports to their end users showing resource consumption and using this as a means to have discussions to address excesses," says Cameron Haight, research vice president at Gartner.

Finance teams should also be brought into cost-management discussions to better illustrate for end users how their demands directly impact the company's bottom line.

"Measuring costs helps us manage expenditures and gives us a baseline to compare alternative service-delivery options, including outsourcing," says James Kritcher, vice president of IT at White Electronic Designs in Phoenix. "With current economic conditions, senior management may suspect that the IT spend is not in line with the perceived value. The challenge for IT is to demonstrate the value lost if the IT budget is cut."