IT and Software Cost Management Challenges You Need to Know

Managing costs is crucial for every department in your organization, but IT costs keep climbing. How can your company better manage these costs without sacrificing operational efficiency? We share with you the key challenges you will face in cost management.

IT costs have risen by 20-25% across the board, widely attributed to the expanding role IT plays in accommodating hybrid workers, securing digital assets, and remaining compliant.

You can’t risk compliance or security, yet you likely have unidentified opportunities to better manage and reduce IT costs. You’ll then be able to confidently invest in preventing cyber attacks, maintaining compliance, and accommodating every employee in your company.

Is your IT department taking an increasingly bigger piece of the budgeting pie? Keep reading to learn about common IT and software management challenges and how you can solve them.

Inaccurate Budgeting and Forecasting

Cost management begins with having a firm understanding of your current budget, then extends to forecasting its future. However, understanding only your current budget, and leaving the future unknown, can result in rapid and unforeseen increases in IT costs.

Organizations still relying on spreadsheets or outdated accounting systems often fail to forecast future expenditures accurately. Additionally, it can be difficult to even accurately understand current IT costs. The result: you won’t have an accurate understanding of current and future IT costs.

Solution: Track the Right KPIs with Leading-Edge Software

Updating your budgeting software to the latest solutions on the market that enable advanced KPI tracking and forecasting is your first line of defense in IT cost management. Valuable IT KPIs to track include:

  • Schedule Performance Index (SPI)
  • Planned Value
  • Estimated Time to Completion (ETC)
  • Estimate at Completion (EAC)

Each of these KPIs focuses on understanding individual IT projects, how much they’ll cost throughout their entire lifecycle, and when those costs will be reduced. Once understood, you can identify areas to cut costs without sacrificing important IT initiatives.

Poor Implementation of Cost Control Measures

Have you identified an opportunity to better control IT costs? Perhaps that means migrating on-premises infrastructure to the cloud or implementing a new CRM company-wide. 

These cost control measures might look great on paper and end up providing long-term cost savings, but if implementing these changes isn’t handled correctly, they can create more problems — and actually increase costs.

Changes in your IT ecosystem disrupt a project manager’s budgets and workflows, which can ripple out and create complex issues throughout the IT department. So how can you avoid cost control measures inadvertently increasing costs and creating problems?

Solution: Understand Operations and Make Tactful Changes

Work closely with IT and project managers when evaluating cost control measures. They’ll have an in-depth understanding of everything involved in practically making the change and help strategically implement new changes. All stakeholders should be involved from the beginning.

Additionally, establish a cost reporting standards before the implementation to understand current costs, then measure these costs after the changes have been deployed. Is the cost control measure providing the savings you’ve expected?

Complex Billing Agreements

Businesses across all industries have migrated to cloud solutions for everything from communications to storage. While this is generally a wise decision, cloud providers often have more complex billing agreements than organizations are used to. 

Legacy systems often had a single enterprise license or an easily understood per-user license. But more complex systems have introduced more complex agreements.

Cloud providers often have per-usage billing models that companies don’t always track or adequately understand. The result is billing charges that can vary wildly, unexpectedly taking up more of your IT budget.

Solution: Monitor Usage and Renegotiate if Necessary

Users that interact with cloud providers should understand how their usage impacts billing. In addition, cloud usage should be understood and monitored to avoid surprise bills and ensure predictable costs. 

For example, network engineers creating hybrid systems can explore cost-effectiveness alongside reliability.

Additionally, you might need to renegotiate your agreements once you’ve begun monitoring usage. What initially seemed like a great deal might not be so cost-effective in practice. Don’t be afraid to shop around or renegotiate when necessary.

Paying Too Much Due to Vendor Lock-In

It’s common for IT departments to barely glance at a vendor’s bill due to having a longstanding relationship with them or considering the vendor’s service operation critical. Yet, other options are usually worth considering that may be more cost-effective and even improve the existing vendor’s service.

This problem is exacerbated by not having a dedicated initiative for IT procurement, often leaving organizations paying more than necessary for the tools and platforms they need. 

Both issues result in vendor lock-in that isn’t dictated by contracts or technical necessity but by taking a passive approach to IT procurement. 

Solution: Stay Proactive and Consider Other Options

Create an IT procurement strategy to explore and evaluate alternatives to existing vendors proactively. Having a longstanding relationship with a given vendor doesn’t mean they’re giving you the best rate or service; you may be overpaying.

You can either work with an IT procurement firm or create an in-house team. Continually evaluate new platforms, companies, and contracts to ensure your IT department makes the most of its budget.

It Pays to Overcome IT Cost Management Challenges

Ultimately, the result of overcoming cost management challenges is properly reducing IT costs and maximizing the benefits received from every dollar spent. Be aware that enacting some of the above solutions may have an initial cost increase but will result in long-term savings if adequately measured and implemented.

IT procurement isn’t always easy and requires an in-depth understanding of different platforms, what makes a fair rate, and contract negotiations. 3Quotes is an industry-leading procurement firm that only handles IT procurement. Learn more about our core competencies today to discover how we can help better manage your costs.