Cost Cutting: Trimming the Fat From IT

Across the private and public sectors, IT departments are being asked to cut costs, accelerate revenue growth and reduce their call on capital resources. With organisations in the region facing limited prospects for top-line growth, cost reduction is on every departmental agenda and IT is no exception.

This makes it a testing time for IT executives and the CFOs who typically oversee the IT department. If they get it wrong, their cuts can destroy far more value than any savings achieved. Conversely, the onus is on these executives to achieve performance improvements as well as cost savings.
“We have yet to feel the full impact of the global crisis across different sectors,” warns Edge Zarrella, Global Partner in Charge, IT Advisory, at KPMG. “Many global corporates will continue to look for significant savings in IT costs, including by moving their back IT operations to countries such as India, China, Malaysia, Philippines and others. This is a great time to talk to organisations about how they improve the fluidity of their IT systems through changes in their infrastructure, application, processes and people.”
The cost cutting challenge can be magnified when IT practitioners and non-IT managers, such as finance executives, effectively speak different languages. Non-IT managers may also have uninformed and unrealistic expectations of their organisation’s IT capacities. KPMG believes organisations should look to incorporate the following objectives in their planning:
  • Take high-impact actions that deliver real cost cuts rather than tinkering around at the edges.
  • Strike a balance between rapid and longer-term, more sustainable cost reductions.
  • Avoid unforeseen financial consequences such as stranded costs and unanticipated tax implications.
  • Maintain critical organisational capabilities.
  • Prevent increased system outages and degraded performance and maintain agreed IT service delivery levels.
  • Continue to support critical IT initiatives with clear benefits to the business.
  • Deliver on IT cost-reduction commitments.
“Cost reduction remains high on the C-level agenda but many executives find it difficult knowing where to start,” says Zarrella. “They expect costs savings as high as 30 percent, but to achieve this they will need to commit to a major cost management programme.”
Make no mistake, cost cutting is usually painful; jobs can be lost, ambitions are thwarted and months and years of work can be consigned to the scrapheap as projects are scaled back or terminated. Wise managers will acknowledge the pain (and do what they can to alleviate it), but will also treat a cost reduction edict as an opportunity to redefine and reposition the IT function.
About the Author
KPMG is a global network of professional firms providing audit, tax and advisory services, with an industry focus.

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