In an economic recession there are increased pressures to reduce IT costs. In this, there is a "balance of value" that requires that companies resist the knee-jerk reaction to pare IT costs to the bone, but look at the cost/productivity. Smart CIOs are looking to reduce cost while at the same time increasing operational efficiency and competitive advantage.

Radical cost-cutting may answer short term needs, but lead to higher future costs as strategic projects that could improve efficiencies are delayed or deep frozen. With this in mind, it’s vital to measure hardware, software and servicing not on cost alone, but in the context of performance and quality.

Cost vs. value

Take IT staffing. Before wielding the axe, one should first ask: How productive is the individual? What staffing levels are needed not just to maintain, but to improve, service delivery? Are our per-capita cost/performance ratios better, the same or worse than other companies in our market sector and against industry best practice? These questions may seem obvious, but to answer them requires a pre-existing benchmark of key performance indicators (KPIs) against which current measurements can be compared.

The right cuts in the right place

Without KPI and other IT benchmarking measurements, decisions about where to make cuts or where to spend money can only be based on internal politics, exigency or a best guess. However, gathering this data requires access to third-party best-practice peer and market data.

The conundrum when mandated to cut costs, CIOs are naturally reluctant to invest benchmarking specialists, however unless the right cuts are made in the right place, the negative impact on service performance may lead to more revenue loss than money saved.

Outsourcing: get the price right

Analysing outsourcing costs is even more challenging. Corporates often feel they are overpaying their IT service providers but can’t pinpoint how much or why because of the lack of pricing transparency in the contract.

Cost creep can occur because of loss-leader clawbacks on renewal, because the client wants customised services, or because their legacy infrastructure is highly complex. In such cases, they should be encouraged by providers to standardise their application platforms, eliminate redundant desktops or rationalise service centres to save money.

Sometimes clients automatically request a premium of service where a standard service would suffice – but don’t expect your provider to point this out! Sometimes a CIO needs a job done in a rush whatever the cost. To save money, they should be encouraged to plan ahead and always check with their providers on the cost implications of rush work.

Most importantly, customers should always be able to compare on an ‘apples-to-apples’ bases what they are paying for a service (eg. help centre support) compared to the competition.

And they should be able to compare the cost of each component against other providers’ service catalogues. Without this capability, there is no objective basis for knowing if one is paying under or over the odds for any particular service.

Prosper or perish

While cost/performance measurement is currently enjoying a surge of popularity as a cost-saving exercise, there has also been a trend in companies using benchmarking as part of their routine maintenance, to ensure best market practice and in the case of service providers to check regularly that their prices are competitive.

Those organisations that don’t benchmark may be reluctant to face the pain of necessary change, are they may be unwilling to take on the disciplines involved in cost-containment. Or they may simply feel that the best approach is ‘Don’t fix what ain’t broke’.

This latter attitude may not be a problem during economic expansion when there is no compelling need to be concerned about a few points of extra operational cost, but in a recession IT services often suddenly find themselves under the microscope.

On the upside, a recession can be the catalyst needed to galvanise the complacent into action. There is something very focusing in the realisation that the health of a company’s IT price/performance environment may just be the key determinant in whether it prospers or perishes in the future.

Robert Saxby is a senior consultant, at measurement and analytics consultancy Metri