Information technology services are growing, and because of this, it’s more important than ever for business leaders to master IT cost optimization.
Today’s experts predict global spending in information technology will reach around $4.6 trillion U.S. dollars in 2023. By 2024, they also estimate that cloud computing, one of the more exciting developments in IT in recent years, will reach nearly $679 billion U.S. dollars.
With this significant growth in the industry, many CIOs and CFOs face pressure on IT budgets to reduce costs while enabling businesses to expand.
This article gives 14 actionable strategies for businesses aiming to streamline their IT expenses while continuing to position organizations for growth.
What is IT cost optimization?
IT cost optimization is the strategic process of managing and minimizing the expenses associated with IT resources and services within an organization. These areas include optimizing infrastructure, software, personnel, and operational processes.
IT cost optimization enables organizations to allocate resources, invest in innovation, and maintain a lean yet robust technological infrastructure. All these factors directly impact profitability, agility, and the ability to navigate market dynamics.
Cost optimization also requires a cross-functional and long-term commitment.
Recent research shows that in the first year of cost reduction, only 43% of leaders reach their cost-savings targets, so it’s important to both maintain an ongoing optimization program and be strategic in its approach.
14 effective IT cost optimization strategies
Here are proven cost optimization initiatives that aim to increase profitability, reduce complexity and risk, and allow a budget for innovation.
1. Cloud cost management
Effective cloud cost management involves careful monitoring and management of cloud resources. Due to the dynamic nature of the cloud, it’s an area that can quickly become complex.
Consider using software made specifically to offer FinOps solutions for cloud services management. ProperOps, for example, simplifies the complexity of cloud services and delivers automated savings outcomes on the cloud.
As cloud usage is elastic, achieving mathematically optimal cloud savings outcomes requires automation. ProsperOps automates Reserved Instances (RI) and Savings Plan (SP) management to provide real-time coverage adjustments to match evolving engineering environments.
Over time, ProsperOps also reduces commitment terms, increases discounts, and gives time back to FinOps teams to focus on usage optimizations.
2. Eliminating wasteful spending
Identifying and eliminating underutilized resources or unnecessary IT expenses is crucial for optimizing cost efficiency and maximizing return on investment.
Develop a cost-optimization framework and thoroughly map your business’s IT landscape and ecosystem. A recent Gartner study finds that only 35% of organizations use cost optimization frameworks. A solid and consistent framework allows organizations to agree on cost cuts, optimization, and areas to drive strategy.
Using a tool like ProsperOps is also one of the most effective ways to cost-optimize cloud spend. With 94% of enterprises overspending on the cloud, there’s a huge opportunity to reduce and eliminate wasteful spending and save money.
It just takes planning and the right tools.
3. Implementing automation for efficiency
When you implement automation correctly, it can significantly streamline IT operations and reduce expenditures. With 88% of IT decision-makers increasing investment in automation, there’s an industry-wide rollout to stay relevant to current market demands.
Automatically managing cloud spend not only reduces costs but also improves efficiencies. As cloud workloads constantly change, implementing cost anomaly detection through automated software can catch any saving opportunities.
4. Vendor negotiation
On average, organizations manage over 10 vendor relationships for a single IT initiative.
Approaching vendor negotiations strategically is crucial for cultivating enduring relationships with a select few partners, ultimately leading to long-term benefits and best pricing.
Conduct thorough market research and understand prevailing industry standards, competitor offerings, and pricing structures to make this easier.
You should also consider the total cost of ownership (TCO) by calculating long-term costs. A TCO analysis provides a holistic view of the investment and aids in making well-informed decisions.
To do this, evaluate the total cost of ownership, including the purchase price and ongoing maintenance, support, and any hidden costs.
5. Regular IT audits
Regular audits identify underutilized resources and provide insights into resource usage patterns. They also enhance system performance by ensuring IT infrastructure aligns with current business objectives.
Audits support strategic planning by providing insights into resource usage patterns, facilitating scalability planning and disaster recovery preparedness. Ultimately, regular IT audits allow for continuous improvement and proactive resource management.
ProsperOps simplifies cloud cost auditing processes by providing essential data analytics beyond typical cloud reporting.
6. Adopting a cloud-first or hybrid cloud approach
Opting for a cloud-first approach comes with a wide array of benefits, including increases in agility, flexibility, and scalability. Without the need to purchase hardware and infrastructures, organizations often experience cost efficiencies. Cost savings is one of the core reasons organizations choose to move to the cloud.
For many, a hybrid cloud is also a valid, cost-effective approach, as some workloads are better suited to a private data center. Organizations opting for hybrid and multi-cloud strategies can combine public and private cloud benefits.
There are also cons to hybrid cloud approaches to consider, including hardware costs and lack of visibility. When migrating to the cloud, align the aims and benefits of cloud-first vs. hybrid with overarching cost optimization strategies.
7. Investing in scalable solutions
Scalable solutions can accommodate increased workloads, users, or data without a proportional cost increase.
Scalable systems allow organizations to align IT resources with current needs without over-provisioning. This prevents unnecessary upfront costs and ensures you allocate resources efficiently, reducing costs over time.
Cloud scalability allows cloud-based systems or services to efficiently allocate resources to handle an increasing workload or demand. Scalability is achieved through the dynamic provisioning and de-provisioning of resources to match current workloads, ensuring optimal performance and cost-effectiveness.
Leveraging dynamic algorithms and real-time data, ProsperOps ensures scalability on the AWS cloud by automatically adjusting resources based on fluctuating demand.
8. Optimizing software licensing
Software license management allows organizations to identify more cost-saving opportunities, avoid overspending, and ensure compliance.
Effective software licensing can be challenging due to the complexity of licensing models, vendor audits, and the dynamic nature of IT environments.
By understanding usage patterns and optimizing license allocations, organizations can eliminate unnecessary expenses and enhance cost efficiency. Choosing the right licensing models also provides flexibility and scalability. Subscription-based or cloud-based licenses, for example, allow for scalable usage based on actual needs.
By matching the licensing model to actual usage patterns, organizations can ensure they pay for what they need, avoiding over-licensing or underutilization.
9. Training employees for better resource utilization
Your most valuable resource is your skilled workforce. Investing in training for resource utilization can maximize the efficiency of IT resources.
Well-trained employees can make better use of technology, which naturally leads to cost savings and improved productivity. Trained employees can streamline processes, identify inefficiencies, and ensure technology investments are fully utilized, preventing unnecessary expenses.
To optimize costs through people, implement regular training on new technologies, best practices in resource utilization, and awareness of cost-saving measures.
10. Predictive maintenance
Predictive maintenance is a proactive approach to maintenance that uses data, analytics, and machine learning to predict interruptions or failures. Instead of time-based or reactive maintenance, predictive maintenance leverages real-time data and analytics.
According to recent research, predictive maintenance can save between 8–12% over preventive maintenance and up to 40% over reactive maintenance.
ProsperOps’ predictive analytics is pivotal in implementing a predictive maintenance strategy for cloud costs. By leveraging real-time data and machine learning, ProsperOps anticipates future cloud resource needs, allowing organizations to proactively optimize their infrastructure.
11. Focusing on IT demand-side spending
Demand-side spending involves assigning financial resources based on end users’ actual requirements and usage patterns. User demands for IT resources can vary, and optimizing requires understanding and managing the fluctuations.
Aligning IT spending with actual business needs is crucial for ensuring cost-effectiveness. Regular reviews of user requirements and implementing user-based cost allocations are necessary to optimize resources.
As cloud environments are highly dynamic, a tool like ProsperOps assists in analyzing demand-side spending patterns and optimizing them for cost efficiency. ProsperOps employs automation to maximize AWS discounts while minimizing long-term and inelastic commitment risk.
12. Consolidating enterprise data centers
Many data centers have more assets than they need. Consolidating enterprise data centers can help reduce costs, improve efficiency, and lower energy consumption.
Streamlining infrastructure also enhances scalability, flexibility, compliance, and security. Consolidating data centers fosters a more resilient and agile IT infrastructure.
It’s a strategic process that involves assessing the current infrastructure, planning for migration, and ensuring minimal disruption.
Migrating to the cloud leads to a reduction in physical data centers. It’s also when it’s pivotal to monitor costs, and using a tool like ProsperOps can support the results and monitor the consolidation process.
13. Reviewing IT asset management practices
Effective IT asset management makes it easy for you to use resources optimally, preventing unnecessary expenses and enhancing overall productivity. It’s key for organizations seeking cost optimization and operational efficiency throughout the entire lifecycle of IT assets, from procurement to disposal.
Best practices in IT asset management include regular audits to assess the current state of assets, verify compliance, and identify areas for improvement.
ProsperOps can enhance IT asset management practices for your AWS cloud. Through AWS services optimization and analytics, organizations will better understand how their AWS services track.
14. Establishing unit economics for your business
Unit economics is a system of profit maximization based on assessing the impact of incremental costs relative to incremental revenue. It involves understanding the cost of delivering individual units of value, such as the cost per transaction, cost per customer, or cost per workload.
Establishing unit economics focuses on breaking down and analyzing costs at a granular level. Granular insights allow organizations to identify inefficiencies, allocate resources effectively, and optimize costs where necessary.
Leverage ProsperOps for enhanced IT cost optimization
Mastering IT cost optimization requires a strategic, holistic, and continuous approach to sustainable success. Long-term operational resilience is the goal, and the right balance of cost optimization and growth is key.
To succeed in the ever-changing technology landscape, consider prioritizing these 14 strategies as part of overall IT management practices.
As businesses scale, mastering IT cost optimizations becomes increasingly valuable. With cloud costs a core area for improvement, it’s wise to employ software that can automatically cost optimize.
ProsperOps provides a fully autonomous compute rate optimization service for the AWS cloud, aiming to maximize cost savings and minimize commitment risk with minimal ongoing effort.
Book a ProsperOps demo today, and find out how you can better optimize your IT costs on the cloud.
