Keeping a tight hold on the reins

With everyone focused on cutting the public sector deficit, there is mounting pressure on government CIOs to reduce IT costs. The question isn’t so much where to cut – this typically starts with staff downsizing, outsourcing services and freezing investments – it’s how to reduce costs without compromising services.

Public services, including healthcare, local authorities and other government organisations, are under pressure to slash operational costs by up to 30 per cent. In many cases CIOs and procurement officers are facing a moratorium on new investment, with existing programmes being delayed or cancelled. Many of these, ironically, are strategic, such as regional information and shared service hubs, designed to deliver greater efficiencies and cost savings.

For those IT projects earmarked to proceed, every step of the procurement process is under the microscope to drive down costs, with strong-arm tactics often being used on solution providers and outsourcers to drive down costs.

Outsourcers can always find ways to save if pushed. And many argue that passing on the pain to them is only fair since they have had things their way for a long time. The danger is that by pushing suppliers into a “utility” or commodity-level contract, this may drive out the value. That is, if pushed too far, they will stop doing the extra goodwill value-adds needed to ensure a best practice service, or will substitute the A team for lesser-experienced and less knowledgeable staff. This in turn increases risk of error that may have greater cost and reputation implications than the money saved.

Much of Metri UK’s work is in helping CIOs identify where cuts can be made, from the front to back office and beyond. It is a fallacy to think a whole IT environment must be handled either internally or externally. Some services are more cost efficient managed inhouse, others are best handed to an outsourced centre of excellence.

Where outsourcing is the better option, supplier contracts must be negotiated carefully. Each service should be itemised, service levels should be transparent and safeguard the customer from additional downstream cost creep. Unnecessary services, or higher-than-required service levels, are often responsible for inflated costs. The key is to identify those IT services that need premium support and those that do not.

One area where IT costs are rising dramatically is data storage and management. Because of ever-cheaper computing power, government departments are generating more information than ever, particularly in the area of CRM. However, all this information needs sorting, integrating, analysing, sharing, storing and retrieving so the more we generate, and the more we do with it in terms of analytics and reports, the higher the processing costs. Given increased volumes and the regulatory need for public services to retain records for seven years, data storage costs threaten to explode. Whether handled inhouse or externally, data management is an area where finding inexpensive alternatives will have an increasing impact on IT savings.

A mandate to reduce IT budgets typically results in suspending new investment or freezing projects mid-implementation. While this may reduce short-term pressure on the bottom line, it can have unintended consequences. There can be substantial additional costs to restarting a mothballed programme at a later date. Just as costly, but more difficult to quantify, are the lost opportunity costs of not having had an application in production that might have paid for itself early by delivering extra operational efficiencies or supporting new revenue streams.

Paul Michaels is director of consulting at Metri UK