Do you think the coming crisis will hit all IT departments equally? It won’t. The hardest hit will be those who do not understand their costs or cannot clearly justify them.
The full article, published in Finance, is available here.
When hardware, licences, support, energy and cloud services all become more expensive, it is logical to expect that the main challenge is simply to cut technology costs. But that is the wrong focus. Today, most companies no longer have a problem only with the size of their costs, but with something far more dangerous: losing track of where the money is actually going.
IT costs have become fragmented, dynamic and often disconnected from business users. Companies are paying more and more, while understanding less and less about what they actually get for that money.
“The biggest problem is not always an IT budget that is too high. Often the bigger issue is that a company cannot even explain precisely what the budget consists of, what is hidden in it and which business functions it supports.”
When IT is no longer a cost, but a system of hidden expenses
Today, companies pay for infrastructure, software, cloud services, data platforms, external contractors, cybersecurity, analytics and a growing number of AI-related solutions. Costs no longer arise only when buying a server or licences; they accumulate in many places, often without a clear answer to three key questions:
- who is using something,
- how much it costs,
- what the company actually gets from it.
This is exactly why the role of IT is changing fast. Today it is no longer enough for technology to be “necessary”. It has to be justified from a business perspective.
The IT budget is no longer a technical topic, but a business decision
“The days when CIOs received an IT budget based on a list of technical requirements are over,” says Aleksandar Semeraj from IBM, who works on automation and operational efficiency in companies. “Today, management expects a business case: what do we get from it, who benefits, which costs go down and which business outcomes improve.”
This is a major shift. Company management today no longer expects IT merely to keep systems running, but to provide clear answers: will a new solution increase revenue, reduce risk, shorten the time to launch a service or improve the user experience? Without these answers, the discussion quickly comes down to the classic question: where else can we cut?
But this is exactly where companies often make a mistake. The biggest problem is not always an IT budget that is too high. Often the bigger issue is that a company cannot even explain precisely what the budget consists of, what is hidden in it and which business functions it supports.
Where companies are really leaking money today
On paper, IT costs seem fairly simple: people, software, infrastructure and external partners. In practice, however, the picture is far more fragmented. Semeraj points out that a large share of costs today is no longer one-off or predictable. Instead of traditional purchases, companies use subscription models, consumption-based services and hybrid environments that combine on-premise infrastructure, the cloud and SaaS solutions.
As a result, most of the money often leaks not where companies expect it, but in the “grey zones” of everyday operations. Among the most common examples are:
- oversized servers bought “just in case”,
- storage systems full of data with no clear owner,
- forgotten or duplicate licences,
- SaaS tools that renew automatically,
- and so-called shadow IT, where departments buy digital services themselves, bypassing central IT.
AI tools are becoming a particular challenge, as companies are rolling them out rapidly, often before they even have a clear overview of their basic technology costs. Here, costs often arise based on consumption – per number of calls, tokens, GPU hours or data processing – which makes them even harder to control without good oversight.
“Annual budgeting was designed for more predictable IT spending. Today, many costs arise on the fly,” warns Semeraj. “If you are still tracking this in Excel with manual entries, that is a clear signal that it is time for a more modern approach.”
The problem is not just a lack of data, but that the data is not usable
While IBM’s view is broader and more strategic, Tilen Čuk, who heads IT service management, DevOps and agile practices at Smartis, shows very clearly what this problem looks like in practice for companies that want to finally bring things under control. “The biggest challenge with clients is often just getting the right data,” says Čuk. “The question is not only whether the data exists, but whether it is of good quality, which sources we can get it from and how we connect it.” That is the first big problem. The second is even more organisational: how to reach agreement within the company on the logic by which costs should be allocated.
“A company can buy a server, but the key question is no longer just how much it cost. What matters is which business unit uses it, to what extent and for which services. Without that consensus, costs are often allocated to business units using unbalanced keys, and nobody really knows what business impact they create,” explains Čuk.
According to him, this is exactly where an organisation’s maturity in managing technology costs becomes visible. Many companies are still at the level where they plan IT costs once a year and then, during the year, mainly monitor whether they are staying within budget. The next level of maturity is to start reviewing costs regularly, allocate them more precisely to business units and link them to specific services, users or business requests. Only then does a company gain enough insight not just to record costs, but to actively manage them.
Why companies often solve the wrong problem
One of the most dangerous traps Semeraj warns about is that companies solve operational problems by buying additional resources. If a system is slow, they buy a more powerful server. If an application does not perform optimally, they add more infrastructure. If capacity is lacking, they invest in a new “box”. But in doing so, a company often does not address the root cause; it simply buys a more expensive workaround. Every additional piece of infrastructure brings licensing costs, support, space, electricity, cooling, backups and management with it. The result is a paradox: the company spends more and more, but has less and less room for real improvements such as automation, standardisation or application modernisation.
The same applies to smaller requests from business departments, Čuk points out. One of the most underestimated sources of IT costs is not necessarily large projects, but a multitude of smaller requests that seem almost free: an additional module in an application, a new report, another analytics feature or a minor system adjustment.
In reality, such requests are almost never free. They involve team planning, development, testing, licences, infrastructure and long-term maintenance. “Employees submit requests for new services or features without really being aware that they also have an internal price,” says Čuk. “Once a company starts showing this transparently, decision-making also becomes more rational.”
“One of the most underestimated sources of IT costs is not necessarily large projects, but a multitude of smaller requests that seem almost free,” explains Čuk.
What a more mature approach to IT management means
This is where the concept of IT financial management comes in, which IBM addresses through Technology Business Management practices, and which Smartis, as an implementation partner, helps bring into companies’ real-world environments. Specialised platforms such as Apptio and Cloudability are therefore coming to the fore, giving companies better visibility into IT spending, costs and deviations from plans. Their value lies not merely in providing another spreadsheet, but in helping translate IT costs into the language of services, users, business units and concrete business outcomes.
The point is not for a company simply to “reduce IT costs”, but to start treating them as services that can be measured, compared and linked to business outcomes. This means the company no longer talks only about servers, licences and applications, but about cost per user, cost per transaction or cost per service. Once management sees exactly what it is paying for and why, the quality of decision-making changes too.
Where to start if you want to keep IT under control
The good news is that what companies mainly need for better control over IT costs is better management discipline. The first step is answering a basic question: can your company even show precisely where the money goes, who spends it and what you create with it? Only once a company has clear answers to these questions can tools such as Apptio and Cloudability truly show their value as platforms that enable systematic IT cost management and the adoption of IT Financial Management practices.
If the answer is no, the problem is not that IT is too expensive, but that you are not managing it holistically. This is where solutions such as IBM Apptio come in, providing better visibility into IT resources and clearly linking them to business functions.
The companies that outperform their competitors in the coming months and years will not necessarily be those with the lowest IT budgets. The advantage will go to those that can distinguish between a cost worth cutting and an investment worth strengthening. And this is exactly where the biggest difference will emerge between companies that start cutting in panic under pressure and those that keep making rational decisions even in more difficult times.
DO YOU HAVE AN OVERVIEW OF YOUR IT COSTS, OR JUST THE FEELING THAT YOU DO?
Most companies believe they have their IT costs under control. Rarely, however, can they actually prove it.
Can your company clearly answer the following questions:
- What is the actual IT cost per user, application or service?
- Which business units consume the most resources, and why?
- How well can you explain why gaps arise during the year between planned and actual costs?
- Where do costs arise that nobody really tracks?
- Which IT investments create the most business value, and which the least?
If you do not have precise answers to these questions, your biggest problem is probably not the level of your IT costs, but their lack of transparency.
Smartis, together with IBM, helps establish a clear and measurable IT cost management model and identify concrete optimisation opportunities. This is achieved with solutions such as IBM Apptio and Cloudability – platforms that combine IT cost management and cloud spending control into a single view of a company’s entire technology spending.
Book a free introductory consultation and find out where the biggest savings potential in your IT environment really lies.
Contact: tilen.cuk@smartis.si
