PHASE 2: Cost Optimization

What is it and how does it differ from cost cutting?

PHASE
TWO

The differences between cost cutting and cost optimization are subtle, but important. Contractual commitments may mean that cost can’t be cut, so cost optimization involves looking at other options.

If cost cutting is prioritized on removing cost entirely (eliminating a subscription) then cost optimization could mean exchanging the subscription for a cheaper one, entering into a new agreement that provides greater flexibility to accommodate different subscription levels for different user needs or renegotiating vendor agreements as you conduct exercises like application rationalization.

You can cut costs through optimization, but not always. Sometimes the benefits can be quantified in other ways. It may even mean spending more in one area to reduce costs in another (e.g. moving from on premises solutions to the cloud to reduce hardware and datacenter costs).

Cost optimization is often more a due diligence exercise proving you are getting the best deal possible, addressing any risks of over-spend and that you have proactively worked with a partner and/or vendor to reach the best deal for your organization.

See how you can start with cost optimization >>>

Identifying candidates for cost optimization

Candidates for cost optimization include areas of spend that can’t be entirely eliminated either because there is no scope to do so within current contracts (examples include minimum contractual commitments, perpetual licenses or where cancelling wouldn’t actually reduce costs because you’d still be paying for maintenance) or because there might be real a need for it.

Regardless, there are often opportunities to ensure the spend is right-sized and appropriate for your needs.

Read on for three cost optimization initiatives you can implement today >>

START BIG

Focus on your strategic software vendors first. Working with good data and licensing experts, you can look for opportunities to shift investments into areas with greater benefits. This might include changing the license model in use, releveling subscriptions, decommissioning unused accounts or moving your spend with the same vendor.

Three Cost Optimization Initiatives

Optimize licensing
for strategic vendors

Seeking expertise from a trusted partner is a good place to start. They know the ins and outs of different vendor licensing programs and can look at all the options across the platforms, apps and vendors in scope, providing you with a full range of options.

But what about all those smaller, niche vendors?

See why managing your long tail spend is an important, but often neglected cost optimization activity. >>>

Three Cost Optimization Initiatives

Manage long-tail spend (non-strategic vendors)

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Tail Spend: 80% of suppliers accounting for 20% of overall spend across multiple categories in which purchasing is sporadic and, often times, goes unmanaged.

Source: Procurementfoundry.com

ADVANTAGES OF MANAGING THE TAIL

Even in the face of increasing spend and an extended supply chain, many sourcing and procurement organizations have tried to cut costs by running leaner. That means more work for in-house sourcing teams already fully occupied negotiating and managing enterprise-wide contracts with major vendors.

The benefits of managing your tail spend extend well beyond bottom-line financial savings and include:

Reducing risk
Driving innovation through more strategic engagement with suppliers
Uncovering and addressing rogue spend

All this leads to your being able to deliver better services to your end users, while also delivering cost optimization to your CIO or CPO.

Skip to Section 7 of this eGuide to explore best practices for managing strategic and long tail spend. >>>

Read our latest blogs for advice on preparing for software renewals and for
seven points to consider before renewing software contracts.

Three Cost Optimization Initiatives

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Optimize support &
maintenance renewals

Many organizations neglect to treat renewals as an opportunity to optimize existing contracts focusing efforts instead on avoiding audit and other non-compliance penalties. If approached strategically, renewals can uncover opportunities to right size those contracts.

To the right, you will find a checklist with 7 points we recommend following before renewing software contracts.