Latest News

Save the IT Department by Linking Budget Cuts to Decreased IT Services

Enterprises buckling down on spending will target projects and freeze hiring, but for many IT departments the cuts won't stop there. To avoid debilitating hatchet-like cuts, IT must learn to manage service levels and communicate the consequences of IT budget decreases on business services.

Enterprises buckling down on spending will target projects and freeze hiring, but for many IT departments the cuts won't stop there. To avoid debilitating hatchet-like cuts, IT must learn to manage service levels and communicate the consequences of IT budget decreases on business services.

Executive Summary

The IT department whose role was vaguely described as keeping the lights on must now work with the business to identify exactly whose lights should remain on, and how bright those lights need to shine.

This research note will examine:

  • The role service level management will play in budget cut scenarios.
  • Challenges in relating real budget savings to the management of IT services.
  • Recommendations for IT service level reductions.

Proactive evaluation of Service Level Agreements (SLAs), increased resource flexibility, and improved communication with the enterprise about budget cuts will demonstrate a higher level of accountability for IT spending and facilitate the reduction of service cuts.
Optimization Point

Those IT departments that can tie costs to services will be more likely to survive IT budget cuts. Sustain the department by identifying and communicating to CEOs and CFOs the relationship between the IT budget and service levels. The need to cut large chunks from the IT budget in a short timespan puts IT in danger of compromising on core services because of indiscriminate cuts that may have long-term, negative affects.

Info-Tech Research Group's recent Impact Research report on the economic downturn, 'Opportunities & Challenges in IT Cost Reduction,' identified the two most common IT cost reduction techniques as layoffs/retirement and vendor management. In enterprises hurt by the economic downturn, IT will inevitably have to cut back on staffing and vendor solutions. However, where IT has the ability to quickly determine the impact of budget cuts on service levels, it may be able to lessen their effect.

Key Considerations

The challenge for IT decision makers faced with immediate cut back requirements is to cut spending without reducing IT's ability to deliver core services. The key is to link cuts directly to IT service levels. The process of tying costs to services achieves the following goals:

  • Allows IT to make precision cuts with predictable outcomes.
  • Communicates the consequences of IT budget cuts to business stakeholders.
  • Develops service efficiencies that ease the burdens caused by decreased IT resources.

Assessing service levels with the business means examining areas that can potentially be cut back. For example:

  • Do all employee desktops require daily backup?
  • Do all business units require the same level of accessibility when it comes to application change requests?
  • Do end users require a 24-hour help desk?

A frank discussion of current service levels with business unit stakeholders should help uncover areas where the business is willing to cut back services. The aim is to portray IT services as a series of dials. Dialing these services up and down affects both the inputs and the outputs, as shown in Figure 1 below.

  • Service inputs. Inputs represent the "raw materials" of IT service.
  • Internal inputs. Internal operation inputs include IT operational costs (comprised largely of IT salaries).
  • External inputs. External inputs are comprised of vendor solutions and outsourced services.
  • Service outputs. Service outputs are the actual services offered to end users.
  • Service levels. Determine the IT service level to which the business and IT can agree, including level of availability, quality, and scope of service.

IT leaders can meet the challenge of improving service management during times of economic uncertainty by:

Increasing flexibility. Bridging the connection between varying service levels and supporting assets.

Improving communications. Creating a visible connection between decreased outputs manifested as IT services, and inputs limited by IT operational costs.

Why Internal Service Level Agreements Matter

Internal Service Level Agreements (SLAs) provide a baseline for service levels. With current service levels defined, IT can clearly explain how services can be scaled back to meet budget reductions. IT departments that already have a high level of transparency will have an easier time with this argument.

The fact remains that many IT shops still don't have an internal SLA with the business.

See Table 1 below for some examples of considerations that should be revisited when assessing current services for potential cutbacks.

Table 1. Components of an SLA

Source: Info Tech Research Group

Service Level Items Description Sample Considerations

Service Privileges Dictates which level of employees within each department are covered for which tier of IT services. Do IT interns or co-ops need orporate e-mail accounts? Is daily backup required for all staff? Is support for mobility devices and VPNs limited to the appropriate end users?

Service Availability Hours of support. Can help desk hours be scaled back from 24 hours to 12, or even 8 per day?

Applications and Hardware Supported Specifies areas for which IT provides support and the extent of that support. Prioritize which applications warrant ongoing maintenance and support and which can be frozen.

Service Quality Indicators include availability, mean time between failures (MTBF), and problem resolution time. External: When dealing with contracted service providers, the business pays for higher levels of quality. For example, five versus six nines. Are these levels justifiable?

Internal: Does the SLA guarantee IT response time? At which level is this dictated and at what cost to the enterprise?

Looking for more guidance on developing an SLA? Download the Info-Tech Advisor template, �Internal Service Level Agreement.

Challenges in Achieving Real Dollar Savings

Assigning costs to IT activities and dialing back on services may or may not result in immediate savings. While the help desk example translates to instant savings, other service cuts may not link to immediate budget cuts as easily.

Not all IT services can or should be tiered. There is very little to be gained by offering different levels of network availability to different departments that share the same network. Networks are either up or down and the availability will cost the same amount of IT hours in the long run. The same could be said for most IT infrastructure costs.

Some costs are difficult to estimate. Many IT departments lack the ability to collect metrics. For example, without estimating the number of help desk tickets handled by employees, it will be difficult to demonstrate the amount of staff required to maintain current help desk service levels.

Fixed costs can't be saved. Fixed costs associated with IT services may be estimated, but offer little flexibility when it comes to shifting service levels. This means that while long-term planning for fixed assets can help reduce long-term cuts, they have little impact where immediate cuts are required.

Sunk costs are not worth assigning. There is no point assigning costs to expenses that have already been spent. In fact, the more use the enterprise can get out of prepaid resources, the better.

It's important to keep in mind that while not all efforts to reduce service levels have immediate and liquid value, there is still value in tightening up on service level management as this may help avoid immediate budget cutbacks. Consider the following strategies:

Visibility. Demonstrative efforts by IT to shore up resources in difficult times whether the payoff is immediate or not.

Accountability and transparency. Demonstrates IT's willingness to account for expenses and improves communications by relating business expectations to IT service delivery.

Efficient IT operations. Staffing cuts typically involve remaining staff working harder to keep up service levels. Improving efficiency in delivering service will relieve downtrodden and overworked help desk staff.

Agile IT. With non-essential services being outsourced, internal IT resources can be allocated as necessary, and outsourced services can be contracted on demand.

Improvement & Optimization

Tying costs to services is not done overnight. Those enterprises already facing cost cuts will be forced to come up with short-term solutions. This make it difficult for enterprises to take the time needed to develop service catalogs or calculate precise activity-based costing for all IT services. Service management in a budget cut scenario must be done within a relatively short timeline and without compromising the quality of IT-business communication.

Evaluate existing SLAs. SLAs must be revisited to ensure that the level of detail and scope is comprehensive enough to establish a level of service as a baseline.

Use contract employees and outsourcing to move expenses from fixed to semi-variable or variable expenses. Contracted employees offer more flexibility, and outsourcing may offer the ultimate staffing level flexibility. For example, a help desk contract with provisions for variability of end-user levels and hours of service can really move the help desk into a variable cost. For more information on outsourcing considerations, refer to the ITA Premium research notes below:

Outsource the data center. For more coverage on outsourcing the data center, refer to the ITA Premium research note, 'Pivotal Data Center Outsourcing Decision Points.'

Outsource e-mail. For more information on outsourcing e-mail, refer to the ITA Premium research note, "Rethink E-Mail Provisioning: In-House or Hosted?"

Outsource the help desk. For more on selecting a help desk vendor, refer to the ITA Premium research note, "Vendor Evaluation Key to Contact Center Outsourcing."

3. Support service cuts with a business plan. Be ready to present the executives with cutback scenarios that offer real dollar savings. Get hard numbers from SLAs and service catalogs.

Preempting budget reduction scenarios demonstrates the commitment of IT to the cost cutting effort.

Taking the initiative to plan for IT budget cuts in advance lends credibility to IT's perspective on where cuts should occur.

4. Expand the service cut menu. Suggest a variety of options for the business to consider when decreasing service levels. This gives stakeholders options in determining resulting service reductions. For example:

  • Scale back help desk hours: $x for x hours.
  • Increase resolution time for incidents: $x for x hours.
  • Cut back on storage redundancy: $x for each level.
  • Offsite backup from hot to cold site: $x.
  • Limit e-mail accounts: $x per account.

Bottom Line

Enterprises buckling down on spending will target projects and freeze hiring, but for many IT departments the cuts won't stop there. To avoid debilitating hatchet-like cuts, IT must learn to manage service levels and communicate the consequences of IT budget decreases on business services.

Leave a comment

seks shop - izolasyon
basic theory test book basic theory test