Insights | January 22, 2016
Funding transformation part 3: Identifying the opportunities
The third and final blog in our comprehensive guide to making significant cost savings from your ICT spend.
Here, I take a closer look at how to understand your current spending in order to spot opportunities and deliver quick wins.
The core information that you will need to know, in order to use your understanding of the organisation and its goals to diagnose cost savings opportunities, includes:
Spend by supplier, Type of supplier (SME vs other), Spend on type of service or good from those suppliers e.g. WAN, LAN, EUC, hardware, software etc., Spend by business units, Volumes of units being consumed, Ability to split out discretionary project spend from business as usual costs, Ability to split out admin, capital and programme costs, On projects, whether the spend relates to enhancements or new work.
Very few organisations will have set up their financial reporting around ICT spending to provide the granularity listed above. Most reporting will have been set up to support business as usual needs, such as reporting against budget, and it will not necessarily supply details of the services being consumed, or spending on a project basis.
This means that you may not be able to split out cost types within the project or provide reporting into central government requirements, which means you do not have the necessary information to support your project.
In addition, if ICT doesn’t have a central approval route in your organisation and can be acquired by business units directly, there may be ICT services and contracts outside of the centre that staff are unaware of and which are not easily reported upon.
However, I would argue that any procurement team worth its salt can help itself by setting up the reporting system and putting in place procedures to police it. Doing this half way through the financial year will be tough – so far better to plan ahead and start the year as you mean to go on. Some worthwhile elements to consider are:
- When spending is going through catalogues, ensure it is coded to populate the reports you need.
- For other spend areas, it might be worth paying a specialist approver to ensure purchase orders are set up correctly and coded to the right area.
- When purchase orders are set up, if your enterprise resource planning (ERP) allows for it and if you are buying services with a unit price, set up both the volume and unit price, not just the charge due, so when compiling reports you can identify changes in demand without having to manually analyse it later.
If you are really struggling with this, the Crown Commercial Service framework provides a spend analysis service. You could even go a step further and look for historical overpayments!
There are other such services out there, but I would recommend that you at least have a go yourselves first, using tools like Excel. It will really help your commercial staff get a feel for what is going on if they put themselves through this process.
Fight analysis paralysis
Don’t get caught in analysis paralysis. I’ve beaten the drum about making an informed decision, not just jumping down one route by blindly following policy. However, this must be balanced against a need to take action and start cashing savings. No one is going to thank you if you spend months and months developing presentations and business cases.
If you do spot any quick wins, you absolutely should go after these as soon as possible. They build confidence, win over internal stakeholders and can start paying for your savings project.
Now that you have a cross-functional team, an understanding of spending and the ICT environment, sponsorship, stakeholders and a real strategy in place, you can start taking a more nuanced and intelligent approach to driving out cost savings from those legacy contracts.
Look at all ICT spending, including smaller contracts. This is about finding ‘quick wins’ that may have been ignored while organisations focused on driving out tactical savings from larger, mega-deals in the past. Have those smaller contracts, perhaps elsewhere in the organisation, really been subject to the same level of inspection as the larger ones?
Assuming you have already driven out the tactical savings and you are on-board with cost reduction projects, I would adopt the principle of looking at where the market has changed since the original letting of the contract.
Most larger contracts let in the 2000’s ran for longer than the lifespan of the assets they were maintaining and they were likely to have been priced on maintaining the original solution on an ongoing basis.
They also left a large degree of control in the hands of the supplier. This could mean that your ICT estate isn’t necessarily optimised, because the supplier didn’t have the cash to invest in capital projects to truly transform the technology.
Given market changes, there are a few areas that I would recommend taking a look at in the first instance:
Both WAN and LAN costs have fallen in recent years. Depending on the supplier’s roadmap around refreshing the equipment, there may be potential savings by re-competing this element of the deal.
While the security marking scheme has changed, government guidance is for departments to consider their actual security requirements and question whether a blanket approach to all users needing to operate at the same impact level or higher is absolutely necessary? Re-examining security requirements for all users – and the associated costs – may release savings.
Again, due to advances in the technology, storage costs have fallen. Depending on when your suppliers plan to refresh the storage solution, are there any solutions that could replace an older approach?
Many organisations pursued savings on printers by reducing the number of devices or by implementing a managed print service (consolidating devices to Multi-Functional Devices and monitoring utilisation). While still early days, it could be worth investigating new cloud-based print services, taking advantage of new technology to drive savings.
Cloud hosting is particularly tricky. There still seems to be a degree of uncertainty which isn’t helped by sales material that ‘cloud wash’ traditional hosting approaches. Look at your existing applications and understand whether they lend themselves to the cloud. Does an application have high demand peaks, perhaps driven by seasonality, but demand remains low for the rest of the time? If so, there may well be savings to be made, as the original infrastructure was probably sized to cope with those demand peaks. Despite the costs of re-engineering the application, cloud is definitely worth exploring, as it could free you from paying for infrastructure you only occasionally use.
Onerous contract terms:
Larger contracts quite often put very onerous terms and conditions on suppliers that they needed to price into the original deal. Are there clauses, for example your terms and conditions on pensions, which are driving significant cost for very little benefit?
The areas listed above form just a few of the potential opportunities for funding transformation while delivering savings. However, all organisations and the services they deliver are unique, so you can be certain that you will find further opportunities in your own organisation.