Supply & Demand Chain Executive recently ran an article on managing information technology costs in a challenging economy that claimed right-sizing your IT budget and avoiding long-term harm to your company’s bottom line was a four step effort. Not sure it’s that easy, but it’s certainly worth some consideration.

The approach presented is as follows:

1. Get a handle on the TCO of IT to the business
   Don’t overlook the “device propagation” that results every time a new application is added to the data center, the energy costs, and the support costs.
2. Focus on the Cost Drivers
   Energy? Hardware? Software? Projects? Where’s the money going, and why? Treat the IT organization like it is a business and balance the supply and demand.
3. Be relentless in Valuing IT services
   Examine the cost structure through the eyes of your customers and segregate functions and services into value-add and commodity categories and drive the associated costs accordingly.
4. Be creative in meeting demand and sourcing work
   Examine the people, process, and technology infrastructure carefully to determine if there is a more cost effective way to deliver the necessary services.

I think this might be an over-simplification in some respects, as it does not address the identification of necessary vs. optional services, but one thing that I am sure of is that the answer, as the author points out, is not the typical five-step approach of (i) killing the capital projects, (ii) tossing the contractors out the door, (iii) deferring maintenance on existing systems (and letting the renewals laps), (iv) canceling training, and (v) slashing the travel budget to zero. That’s just a five-step plan to disaster.