Cost-Cutting Fundas (a.k.a. Fundamentals)

Thursday, February 28, 2008

U.S.-based IT organizations should not wait for an official declaration that a recession has begun before undertaking IT cost-cutting efforts, according to Gartner.  IT leaders should set up ground rules for complying with cost-cutting mandates.  One way to achieve this is to follow a 6-step plan that Gartner previewed today and will discuss at length at the upcoming Gartner Symposium/ITxpo 2008…..Gartner believes that as concerns increase for the near-term health of some of the world’s largest economies, those responsible for IT budgets can expect to receive mandates from senior executives to cut IT costs as part of an enterprisewide cost-cutting program.  It recommends that organizations begin establishing ground rules for complying with such a cost-cutting mandate by following a six-step plan:

Step 1: Don’t Wait for the Cost-Cutting Mandate from Management. History proves that many organizations wait many months after a start of a recession to be informed that the recession has begun.  Owing to the uncertainty and profound time-lag connected with the start and end dates of a recession, Gartner advocates preparing a cost-cutting team now rather than waiting for official notification.
Step 2: Choose the Best and Brightest IT People for the Team. Gartner recommends that top performers are assigned to lead IT cost-cutting programs and that all other duties from their day-to-day tasks are removed for the duration of the cost-cutting assignment.  Year-end financial bonuses should be based exclusively on the amount of money the team saves in 2008.
Step 3: Don’t Allow Finger-Pointing or Second Guessing. Cost-cutting teams need to assume that everything that was done in the past was the right thing to do at that time and not dwell on earlier decisions.  They should identify the target for cost-cutting, perform the appropriate action and move on.
Step 4: Enlist an Internal Auditor as Scorekeeper. If cost-cutting is to be accurately reflected in the IT and wider enterprise budget, then the appointment of a relatively senior accountant or auditor is crucial.  They should ensure that any savings identified by the cost-cutting team not only leave the IT budget but actually leave the expense pool of the entire organization.  The auditor’s list of savings will also provide an official record of the team’s performance.
Step 5: Report Results on a Weekly Basis. Senior management should not be kept guessing about the progress made on reducing costs.  During tough economic times, the IT cost-cutting team should provide a weekly report that depicts savings achieved since the last weekly report along with aggregate year-to-date savings.
Step 6: Identify a Liaison from the Legal Department. IT cost-cutting teams will almost certainly encounter legal issues pertaining to contractual obligations such as maintenance contracts and penalty clauses.  Quick access to legal guidance will be invaluable so that all team members can quickly arrive at cost-cutting solutions without increasing the liability of the company.

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