Managing IT Costs in a Time of High Inflation
Markets fluctuate, but most companies can anticipate a major disruption at least every few years. According to McKinsey & Company, significant disruptions to production now occur every 3.7 years, on average.
Recent global events, such as the pandemic, have had a significant impact on the market. Now that consumers are beginning to make purchases again, demand has risen, and inflation is rising along with it.
As inflation rates continue to rise, IT leaders are finding themselves tasked with doing more with less. In times of high inflation, it can be difficult to keep IT costs under control without making significant sacrifices in other areas of the business. However, it is not impossible.
In this article, we will discuss some strategies that CIOs and procurement leaders can use to manage IT costs effectively during these challenging times.
How is Inflation Affecting IT Costs?
Inflation is a major concern for IT leaders because it can have a significant impact on their budgets. When inflation is high, the prices of goods and services increase. This means that IT leaders must pay more for the same products and services that they purchased last year, sometimes on a strained or diminished budget.
In addition, inflation can also lead to increased labor costs. Service providers, such as IT consultancies and outsourced IT specialists, may increase the costs of their services to compensate for rising inflation. This increase in costs can have additional blowback effects on IT budgets.
How Can IT Leaders Respond to Inflation?
There are several steps that IT leaders can take to manage their IT costs in times of high inflation. In many cases, they will need to work alongside the procurement department to achieve better results.
Here are a few viable strategies to consider.
Negotiating Better Deals with Suppliers
IT leaders should work with their procurement departments to negotiate better terms with vendors and suppliers. This may include longer payment terms, volume discounts, or other concessions that can help reduce IT costs.
Reviewing Contracts
IT leaders should review their existing contracts to ensure that they are still getting the best value for their money. In some cases, it may be necessary to renegotiate or cancel contracts that are no longer beneficial.
Streamlining Processes
IT leaders can often streamline their IT processes to save money on labor costs. This may include automating tasks, outsourcing certain functions, or using less expensive technologies.
Planning for Future Expenses
IT leaders should plan for future expenses by budgeting for expected increases in costs. This will help to ensure that they do not run into budget shortfalls later on.
By working closely with the procurement department and taking a holistic approach, they can keep their IT budgets under control without making significant sacrifices in other areas of the business.
Collaborating Across Departments to Manage Costs
In addition to collaborating with the procurement department, IT leaders should work with other departments as well to manage costs.
For example, they can work with the finance department to develop a long-term IT budget that takes into account expected increases in inflation. They should also collaborate with departments like marketing and operations to identify areas where they can save money without compromising the quality of their IT services.
By working together, different business departments can help to ensure that IT costs are kept under control, even in times of high inflation.
To learn more about how your organization can manage its IT costs, don't miss the ProcureCon IT Sourcing event happening from July 18th to July 19th at the Westin Copley Place in Boston, Massachusetts.
Download the agenda today.