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Cost saving needs are a fact of life
I spoke to half a dozen past and current clients this week and the theme was consistent, "We need to cut costs and do more with less." My immediate thought on the matter is that "some things never change".
You might be surprised, , , or maybe not, , , that a majority of companies go through this "tradition" every year. You can almost gauge the time of year based upon what comes down from the executive wing.
The cycle (assumes a calendar year budget and operational plan)
In August or September, maybe as late as October and November, we start developing our budget for the next year.
In December (hopefully, but not always), we finalize the budget for the new year.
The first three months of the new year, it's smooth sailing. Or, as they say in Australia, "No worries.".
In April, the first quarter results are released to senior management and Department heads.
The fun begins.
Budgeting is not an exact science. Any CFO or CEO will tell you that. However, many managers (including IT managers) try to be so exact that they budget much too tight to have the possibility of achieving their financial forecast for the new year. Another cause is that during the budgeting process, the departments are squeezed by upper management to achieve the forecast number the company must have in order to show the growth and profitability the company needs to achieve.
I won't go into how to budget so you don't have this problem of budgeting too tightly (that's another article), but the message here is that what often happens is that senior managers wake up after getting their 1st quarter financial results in April to find they are already "behind the 8-ball" in terms of meeting the company's financial projection.
Fairly quickly, the CEO and CFO begin strategizing the "corrective actions" that can be taken to meet the year's financial objectives. These financial objectives are the main drivers for the two highest positions in the company and essentially the scorecard for their performance. So, you can see they are very interested in doing things that will help the company "make its numbers."
It's an uphill climb to make the budget numbers for the year and they have to do something tangible and quickly.
The reaction
The easiest decision and often the decision made is to forecast the budget deficit problem and then go require each department to cut a certain percent of it's ongoing operational cost to help the company achieve the number. Other approaches are to simply cut "discretionary spending". This usually includes things like new hires, training and education, travel, contract work, optional projects, etc.
To employees of the company, this change of plans can be unsettling and appear to be actions resulting from a lack of planning in the company, issues that prevent an investment in them for professional growth, or actions that impair their ability to be successful.
Anyone who has been in a company where a unilateral directive comes down to cut 10% of your expense knows the feeling of "having to do more with less". What I forgot to mention is that even though the expenses are slashed, many companies still expect to accomplish the initiatives planned for in the original budget., truly a "get more done with less" scenario.
Get ahead of the power curve
Not to anticipate the cost cutting cycle to pop up is a mistake. There are a few things you can do to offset this cycle of events that tends to be inevitable:
1. Place budget buffers in your plan where surprises occur. It will help you make your financial commitment every
year (because surprises always occur in the operational year), and it gives you room to find cost savings in your
department without having to cut "muscle" when the "cut costs" call comes, , , and it will.
2. Be proactive in implementing a cost saving strategy in your company. Companies always need to find cost
savings. As an IT manager or CIO, you are in one of the best seats in the house to create change that causes
improvements in profitability and productivity. IT is literally a lever that can effect significant financial improvements
within the company.
3. Begin now in creating a management track record of one who prioritizes initiatives that improve profitability.
As an IT manager, your actions create one of two images of you for senior management of your company. The first view is of a manager who understands business needs and proactively seeks ways to do things that provides tangible results of value. To the CEO and CFO, tangible value is almost always translated into some sort of financial impact.
Or, you are viewed as a manager that probably performs well but who doesn't necessarily understand what it takes to run the company profitably. The right business decision often does not coincide with the right technical solution. Let's put it this way, the primary responsibility of senior management is to create and maintain a viable business. In most companies, that means they have to be profitable. There are many parts of the company competing for a valuable resource called cash and investment. Your CEO and CFO have to make tough decisions when the numbers aren't being met. More often than not, the decisions end up impacting IT negatively because IT is viewed as a cost center and not an organization that can create financial leverage for the company.
However, there is light at the end of the tunnel, and it's not a train coming down the track.
CIO's and IT managers that have established track records of prioritizing IT initiatives that improves profitability have a very good opportunity of being hit less or even passed over when cost saving requirements are passed out. When you have gained the trust of the CFO and CEO to make prudent decisions that are consistently cost effective and add value to your company, they view you as a partner, and believe me when I say that they need internal partners who can help them achieve the company's objectives.
If you are at a CIO level, it's easier (although challenging) to become that partner. As a first line IT manager, it's more difficult in a large company to gain the visibility your CIO has. Nonetheless, even if you are one of dozens of IT managers reporting up to a CIO of a large company, establishing a track record where you become known as a manager who understands the business first and helps target technology initiatives that provide value in a cost effective way is extremely important.
Those who establish these track records tend to get more leeway when cost cutting measures are handed out. Put yourself in your CIO, CFO, or CEO's shoes. Wouldn't you be more lenient with someone who has consistently helped the company reduce costs over time as opposed to the manager who always needs more funds for technology projects that "appear" to have little to no value or payback? I'm sure you would, and so would I.
This month's special offer is my ebook, Technology Cost Saving Strategies. To better understand what it's about, I should answer a couple questions:
1. Why did I write it? I developed the material for my IT Manager Institute class because I wanted to include a
session that would provide insight and tools to help each participant recoup more than the cost of the entire program
(course fee, travel, lodging, and other expenses) within a short time of returning to their company.
Initially, I was looking for my "Top 20" list of cost saving opportunities. After spending time on the idea, reviewing my
"archives", etc., I had over 50 cost saving strategies that I have used to save companies hundreds of thousands of
dollars. Granted, I didn't create all of these strategies myself, but I've used them successfully to save money, some
of them for multiple companies and many years.
2. Why is the book priced so high? Simple answer. I'm very confident in these 50 strategies because I've used them
and I completely guarantee you will identify more than enough cost savings from the material to save your company
thousands of dollars, no matter what level of IT management responsibility you have.
Not every strategy will apply to every company but every company will find multiple opportunities from the list of fifty
strategies to help you reduce costs by applying technology resources in appropriate areas.
All companies have cost saving opportunities. Some of the opportunities lie in "low hanging fruit" situations that are easy and inexpensive to get. Other opportunities require investment and time, but can reward you handsomely when the project is completed. I have used several of these strategies in past CIO roles to save hundreds of thousands, even millions of dollars. Yes, that's right - millions of dollars in company expense reductions potentially lie in a few of these strategies for you just as they gave me the opportunity in past companies.
Remember, we are going after company expenses, not simply our IT expenses. There is much more opportunity throughout the company; that's why savvy executives will spend more in IT because they know there is more opportunity in other parts of the company than say a 10% reduction in the IT department.
Want to see your CEO or CFO's eyes "light up"? Make a recommendation that costs very little but has tens of thousands of dollars in cost savings potential, or a technology initiative with a reasonable payback period that can improve EBITDA (earnings before interest, taxes, depreciation, and amortization) by half a percent or more and you will see what I mean.
IT managers and CIO's who know where to look for cost savings, understand how to quantify the opportunity, and how to go after it have a big edge on other IT managers that know how to spend the money but don't appreciate the need to always be looking for cost saving opportunities.
The need for reducing company costs never goes away, so I encourage you to take advantage of the need all companies have in this area. You may find as I have that your management team will ask you to actually spend more if it allows you to go faster because they value the leverage impact IT can have on the company's financial performance.
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