9: Address discretionary and nondiscretionary costĭiscretionary spending, such as for new projects, additional capabilities or services, is often a seemingly easier place to cut. When it comes to saving money, it is commonly said that “sunk costs are irrelevant,” meaning that future spend should be considered without relation to past spending or “sunk costs.” From a rapid cost reduction standpoint this is true, but it’s still worth considering whether the savings will be more than the benefits that can and will be delivered by continuing. Gartner IT Key Metrics Data shows that 25% of the average IT budget is spent on capital, so ensure that the complete range of IT spend is considered for rapid reductions. Typically, operating expenditures (opex) are the easiest to impact, but capital expenditures (capex) can also be reduced. Evaluate contracts for renegotiation and termination clauses.
Unless payments (or commitments) can be recovered or prepayments returned, the most immediate impact will be on unspent or uncommitted payments. 6: Target unspent and uncommitted expenses Use this view to identify specific cash reductions that will immediately have an impact. Work with your finance partner to obtain a solid view of the expense-level detail, such as expense accounts, and key balance sheet accounts, including expense accruals and prepayments. See the Playbook: Recession Advice for IT “Also, you’ll hurt the organization’s ability to ramp up when conditions improve if you cut in areas where you have already invested or are ready to deliver - and in key initiatives that can’t be easily restarted.” “Despite the urgency and pressure, pause and remember that there’s little value in cutting or stopping projects or services where costs have already been spent or incurred,” says Ganly. That will soon turn into explicit demands for rapid cost cutting. Gartner research shows that while most CFOs have been relying on pricing-focused strategies to offset inflation, 39% will zero in on cost cutting if inflation remains persistently high in 4Q22. But sometimes, difficult times demand difficult actions.” “Research shows that organizations that continue to invest strategically in tough times are more likely to emerge as leaders. “Gartner recommends that organizations take a structured and programmatic approach to cost management, says Chris Ganly, VP Analyst at Gartner.
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The question for CIOs is how to cut costs while inflicting the least damage on the mid- and long-term health of the business.ĭiscover Gartner BuySmart™: Reduce risk and optimize spend on your next tech purchase. Amid inflation and the threat of recession, many organizations face demands for short-term cost reductions, even if they plan to deploy technology in the longer-term to sustainably reduce the cost of doing business and create a competitive advantage.
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