A few years ago, the market was in a much more favorable position, allowing you to make money much easier and make much larger investments in market research, testing new hypotheses, etc. Any unoptimized costs were not so noticeable against the background of the rapid growth of the market, which provided equally rapid growth for many companies.
Now, however, the market is in a position where all budgets are being greatly reduced, and investment in research and development is becoming riskier. Many companies now find themselves needing to better manage their costs rather than trying to enter new markets or provide groundbreaking solutions.
It looks like this will continue in 2023 at best and maybe even to 2025. And to survive in these conditions for such a long time, it is not enough for companies to simply reduce costs. They need to optimize all of them. And that's why we're here.
Today we're going to talk about IT Cost Optimization and why it's so important. How does IT Cost Optimization different from trivial IT Cost Reducing? What do the practices for IT Cost Optimization, and what specific steps are needed to do it? We'll also tell you how Mad Devs approaches IT Cost Optimization and why our clients and we are growing even when the market is falling. Let's go ahead and explore!
What is IT cost optimization?
IT Cost Optimization is a set of processes, practices, and instruments constantly and consistently applied for detailed analysis and improved management of IT company costs.
Or, to put it another way, it is a big restructuring and constant maintenance of all the company processes to ensure full transparency of all its costs, with the possibility of improving their distribution. Some costs can be reduced, but simply reducing them is not the ultimate goal. Cost optimization implies further repositioning and using previously reduced funds for better purposes or in better ways.
Why is cost optimization so important, especially now?
Usually, a company has two kinds of budgets, the Operating Budget, and the R&D (Research&Development) Budget.
The Operating Budget is spent on providing the company processes, maintaining the current status and position of the company, staffing specialists, and so on.
The Research&Development budget is spent on market research, launching new initiatives to invent new markets, developing new products, and researching whether or not it captures a portion of the market.
Considering the falling market, the investment priorities have changed a lot, and investors may reduce or stop investing in R&D altogether. Instead, they are paying more attention to companies that know how to effectively manage their operating budgets, assuring consistent returns and preserving their investments.
Of course, many companies don't depend on outside investors, but even internal stakeholders are increasingly paying attention to how efficiently the operating budget is being used. Because a well-optimized operating budget keeps all of a company's processes running, the integrity of its workforce, the company's market position, and even the research and development budget intact.
Optimization vs. Cost Reduction
Here, it is important to point out the difference between IT Cost Optimization and IT Cost Reduction.
IT Cost Reduction is a short-term approach that eliminates a number of processes and tools on which the company spends excessive amounts of money. IT Cost Reduction does not require implementing new processes. It can be done fairly quickly and reduce the obvious immediate costs.
IT Cost Optimization is a long-term approach that seeks to preserve the company's processes and tools while making them less costly and more productive. On the other hand, IT Cost Optimization requires changes in existing processes, implementation of new processes, and constant monitoring and improvement. But by doing this, all company processes become more and more flawless on an ongoing basis, productivity is constantly increasing, and excess costs are reduced to zero.
What are the strategies for IT cost optimization?
The IT cost optimization strategy largely depends on what exactly you want to optimize. However, most often, everything needs to be optimized more or less. Therefore, it is wise to resort to an appropriate strategy where you optimize every part of the business. Based on our extensive experience, we will tell you the sequence of two most important steps where you optimize from the most resource-intensive to the least.
What are the various steps in cost optimization?
The first step is cloud infrastructure because it probably takes the most funds. When a company is just launching its service, solutions like AWS, Microsoft Azure, etc., become a lifesaver. They allow for a reasonably quick, easy, and cheap build-out of a quality scalable infrastructure to get the product to market at the right time and in good quality. However, as the user base grows, the amount of data grows, and the product expands, it requires more infrastructure resources. At some point, cloud infrastructure can start to take up a lot of resources, especially if it's not properly configured.
One great example of the cloud optimization can be our highly successful case with Veeqo. We redesigned their entire cloud infrastructure there and helped the company significantly speed up testing, reduce maintenance costs, and improve system security. In doing so, 40 GB of RAM freed up, the number of TPS increased by 50%, and the search speed reduced from 5 sec to 250 - 300 ms. As a result, the monthly infrastructure cost per user optimized from ~$21,000 to ~$13,000.
You can read Veeqo's Case Study here.
The next necessary step is to closely examine all the company's internal processes, especially the development processes. How is the planning done? How effective the development teams are, and their interaction with other teams? What practices are used, how effective are they, and do the teams achieve their goals with the outlined time and other resources? The important thing to understand here is that it's not the existence of processes and practices that matter but how effectively they are applied.
Many teams are now working with Agile and SCRUM, but not all have the same results. This is because SCRUM is just a system, the careless use of which does not bring the effect it should. Behind it must be strictly defined, necessarily followed, and constantly improved processes aimed at flexibility and transparency of development.
Because we successfully use this at Mad Devs, we have built the most beneficial and trusting relationships with our customers for years. And we're also happy to share our proven best practices on our blog in the form of individual articles and entire eBooks. For example, we highly recommend Mad Devs eBook about Our Approach to Development Processes from Discovery and Design to Development, Deployment, and Maintenance Stages. Feel free to download it and talk with us about!
What difficulties can be faced when trying to optimize costs?
There can be several problems here, or rather the same problem from different angles.
First, when cost optimization is necessary, and it is obvious to most employees who directly work on the company's projects or processes, but the top management is not willing to carry it out. The second, on the contrary, is when the need for cost optimization is obvious to top management, but employees do not follow such initiatives or do not meet new statements fully.
In the first case, without the desire of top management to optimize costs, instead of just cutting budgets, cutting staff, not changing the existing processes, and not perfecting products, it is hardly possible to do then.
And in the second case, everything is a little easier because the top management has the executive power. If they want to do everything in the best way, they can conduct cost optimization so that it has a positive result. Also, senior management can decide to hire an outside company to optimize their spending on infrastructure and implementation of processes and tools, which will save more money and increase productivity year by year.
For example, you can always contact Mad Devs for a free consultation. We will carefully make cost optimization assessments for your case and offer high-end services, from technical audits to developing cloud infrastructure, developing custom software solutions, integrating monitoring systems like Enji, and implementing improved processes and proven development practices.
Which are the best practices of cost optimization?
There is a large and diverse set of practices, but we will list the best practices that are based on the principles of effective IT cost optimization. How do you choose the right practices exactly for your company? It depends on exactly what aspect you want to optimize your company's costs. It can be understood better after the IT services cost optimization assessment. However, suppose the company has not changed for a long time and strictly adheres to a set of traditional standards that once made it successful. In that case, it is not unreasonable to consider applying all of the following practices.
Align initiatives with business priorities
In an effort to optimize costs, you must not lose sight of business priorities. Therefore, cost optimization measures should be systematically reviewed and, if necessary, modified so as not to create a conflict between the desire to reduce costs, compliance with priorities, and the use of necessary resources. Otherwise, such a conflict will not allow you to reduce costs at the desired level, nor ensure the desired level of efficiency, and can not guarantee the achievement of goals.
To avoid this conflict, you need a tight integration of internal company processes with business processes and a comprehensive understanding of the market, customers, and users. This requires being very active in meeting stakeholders, openly sharing priorities, exploring possible solutions, and correlating conclusions with existing processes, practices, and strategies.
The key message here is that you need to find not the easiest and cheapest solution here and now but a solution in which you may have to invest additional time and money. And which guarantees a consistent and sustained increase in profitability and productivity.
Ensure transparency with the right tools
Transparency is essential to optimize costs. Without transparency, it is just impossible to get a single comprehensive view of the company's processes and their results, the need to influence them, and how to do it. This requires using appropriate tools that provide every opportunity to map, analyze and manage these processes.
Of course, Slack by itself does not provide transparency of communication, just as Jira by itself does not provide transparency of development. First of all, this is a fundamental principle that needs to be implemented, developed, and applied. However, the choice of tools that do not provide full functionality for applying this principle can be a big drawback.
Suppose you put transparency at the core and use tools like Slack and Jira to their fullest extent. In that case, you can count on getting a complete picture of your processes and the ability to optimize them, thereby optimizing the company's costs.
Pay attention to data processing
It's no secret that Artificial Intelligence and Machine Learning provide a wealth of insights, whether open data, user data, or internal company data. The clean data you now have about all of the company's processes allows you to uncover many factors that can influence hypothesis-building and decision-making.
For example, the presence of downtime in certain teams in certain tasks, the speed of their execution, frequency of their remaking. All that can be most accurately defined and displayed, revealing patterns in this, from which you can build initially deeper and more accurate hypotheses, verify them much faster, solve many problems in advance and eliminate waste in the most unobvious moments.
Define and allocate cost structures
Defining cost structures implies that you are not estimating costs entirely but rather breaking them down into parts. The more accurately these parts are separated and defined, the easier it is to evaluate opportunities to optimize them. You are in a much better position to determine how effective this cost part is, whether something can be done to improve its efficiency, what better alternative solutions are possible, and what its necessity is.
Once you've identified all the costs, the dependencies between them, and the ways to influence them, you have a lot of opportunities to redistribute costs. Thanks, you can even get a surplus that can be redirected to the goals many companies thoughtlessly refuse to make the usual cost reduction, such as the R&D budget.
Revisit contracts with vendors and suppliers
After obtaining and analyzing a completely transparent picture of your processes, many of the company's external interactions may be excessive. This may be about the cloud services plan, the frequency or number of spare parts deliveries for your data center, the tax of product distribution, and so on.
Therefore previous contracts, agreements, or subscriptions should be re-calculated for renegotiation of agreements on different terms or conclusion of agreements with new partners, the terms of which correspond to current processes and relevant needs.
When entering into new agreements, it is important to pay attention to items that may block the results or even attempts to change processes aimed at optimizing costs. For example, contracts for very long terms, large sums for contract termination, ambiguous parameters concerning work with competitors, transition to other technologies, and so on.
How do Mad Devs handles cost optimization?
Since Mad Devs started with no external investors, we have been deeply rooted from the very beginning in building, analyzing, and improving processes, continuous cost optimization, implementation of full transparency, and creating trustworthy long-term relationships with customers.
With proven success in building these processes, developing and implementing advanced solutions, we can offer IT cost optimization solutions that have ensured for years that we, our partners, and clients remain profitable, grow steadily, and have real value even in such difficult market times.
Defining the problem
First, we take a close look at the business. To do this, we start with a detailed technical audit and process audit. We define the set of risks, problems, and needs the most precisely. Then it becomes clear what solution would be the most profitable for the business. The solution must optimize business costs, improve product quality and bring real value to the company.
This article focuses more on the company's processes and optimizing its operating costs. But we have an excellent article on Cloud Cost Optimization. Our DevOps experts detail how they help companies to avoid wasting a lot of resources by initially building or rebuilding cloud infrastructure, providing the most flexible, stable, and profitable way for its future running.
Implementation of the transparent processes and tools
Any solution needs the implementing set of processes that ensures transparency to achieve business objectives, cost optimization, product quality, and more profits. Such transparency is ensured by development practices such as open task definition and maintenance, detailed comments and regular worklogs about their execution, standards for writing and storing the code base, and quality documentation throughout the project. Implementing and maintaining all of this requires appropriate tools that we implement along with these processes and best implement all these practices.
All project participants have comprehensive information about the project status in all its aspects, without waiting for a personal response from each other, and work smoothly and flexibly on tasks. Customers also comprehensively view the project status at any given time and always know precisely where their working hours are going and what they are paying for.
So we integrate and configure task management tools like Jira and implement standards for the transparent and efficient organization, prioritization, distribution, and maintenance of requirements, tasks, worklogs, and reports. We integrate and configure Slack and standards for efficient and transparent communication between teams and departments. And we also set up a GitHub repository for versioning and preservation of the project's code base to make it the most maintainable for developers and available to customers.
We provide our product Enji which automates the use of many management and development tools together, gives a comprehensive overview of how much and what resources are spent, and provides points to improve the development speed and quality. Contact us for a more personal talk about what Enji can do for you.
Above all, Enji improves communication and management processes by integrating into services like Slack, Jira, GitHub, GitLab, and Bitbucket, extending their customization and automation features. Enji also collects and analyzes data from these services, giving valuable insights about team workflow and project status and providing it most simply and cleanly to team members and customers at any given time.
Custom solutions development and automation
A business may have a need for custom tools for running processes that strictly fit all its specifics. Then the solution is to take a close look at these processes and develop custom solutions that will meet all the requirements, optimize costs, and deliver value.
The business can also have well-defined but unautomated processes. In that case, the solution is to implement automation processes, integrate data collection and processing automation tools, continuous code delivery and deployment, test automation, and set up the appropriate infrastructure. In turn, this again greatly reduces waste, improves product quality, and ensures stable operation and smooth scaling of the entire business from the very beginning.
In these difficult times, forcing yourself to invest in anything is not easy, and there is a great temptation to simply reduce all possible costs. And while cost reduction is a very good and quick way to improve a company's situation, it does not solve all problems, especially long-term ones.
While cost optimization requires initial resources, it solves many more problems and fundamental ones. After all, cost optimization is not just using a few tools to detect excess costs and reduce them. Cost optimization is, first and foremost, a set of processes that need to be implemented and improved, on top of which we build a proper infrastructure as a set of practices and tools.
Therefore, by paying due attention to cost optimization, you become much more attractive to investors and stronger in the market, ensure a good reputation as an employer and receive stable profits and a quality product even in the harshest conditions. You can always contact us for a free consultation to get all this from our experts.