Have you ever taken a shortcut?
Did you think that by taking the shortcut, you would save time or money…but, in the end, the shortcut ended up costing you more than you bargained?
You don’t need to be an economist to know that business shortcuts can sometimes cost more than we planned. Yet, some business units have become used to taking shortcuts regardless. For example, some try to take shortcuts by layering on SaaS tools to save money (or make more).
But is this approach always the most cost-efficient? We think not.
Cost efficiency is a broad term. So, when talking about being cost-efficient, what do we mean exactly?
What is cost-efficiency for businesses?
For businesses, the definition of cost-efficiency means using a business strategy that maximizes productivity output while keeping costs down.
For this reason, companies measure and monitor cost-efficiency by tracking their produced output to operating costs incurred ratio. If expenses are too high, then they review and correct.
In other words, cost-efficiency measures the benefits of projects, programs, or investments so companies can do more with less — a maximization of profit.
Why is cost-efficiency important?
The bottom line to cost-efficiency is the bottom line: profit. By increasing customer value generation and reducing costs, the more cost-efficient the business becomes. As a result of the cost-efficiency and the practice of making cost-efficient decisions, the company becomes more profitable.
So how do companies practice cost efficiency? One way is by optimizing their IT operations.
How does IT affect cost-efficiency?
Let’s face it: IT departments are expensive, from infrastructure to software to people. Moreover, when left unchecked, costs and inefficient practices can get out of hand — affecting your business cost-efficiency.
But with cloud computing becoming convenient and affordable, you can manage many of these expenses. Here are four ways IT can help your company become cost-efficient.
Become more cost efficient with better IT
1. Move tools to the cloud
Moving to the cloud is one of the best ways to improve cost-efficiency for many reasons.
If you’re starting with no IT infrastructure, moving to the cloud means you get a low-cost entry for application production. Also, resources are scalable, which means faster production cycles.
But if you already have an infrastructure, migrating to the cloud could mean offloading and optimizing your current IT resources at a lower cost. For instance, it’s likely more cost-effective to run database workloads in the cloud compared to on-premises. Plus, offloading workloads to the cloud could also mean freeing up your IT team to do more creative work.
However, moving to the cloud also offloads other things like risks, energy costs, and environmental costs. For example, by avoiding the purchase and maintenance of hardware, you reduce:
- Local data security needs
- Onsite hardware idle time
- The company’s carbon footprint, dodging carbon offsetting costs
2. Automate processes
Repetitive, manual processes take time, and according to Benjamin Franklin, time is money. So, automate them and take the workload off from your IT team. When you automate repetitive, manual tasks, you reduce human error and free up your team to engage in creative and collaborative work.
Organizations can apply IT automation for:
- Application deployment
- Configuration management
- IT migration
- Software-as-a-service (SaaS) management
- Security and compliance
3. Avoid SaaS sprawl
SaaS sprawl is the out-of-control usage of SaaS solutions, affecting productivity, spending, visibility, and data security negatively. In other words, SaaS sprawl can reduce productivity, increase spending, open your data to security risks.
Without a way to see your SaaS usage, all of these problems are made worse.
Keep SaaS sprawl in check with these three questions; ask:
- Who’s using our apps?
- Are we using our apps efficiently?
- Do we have the right (or any) security policies in place?
4. Cut costs
One methodology to cut IT costs is to run a cost-benefit analysis, or cost-efficiency analysis, on projects or decisions. This is not to be confused with cost-effectiveness analysis, a way to compare outcomes for cost management purposes.
“A cost-benefit analysis is a systematic process that businesses use to analyze which decisions to make and which to forgo,” per Investopedia. In short, you make two lists. In the first list, you note costs like:
- Direct costs: labor, inventory, and SaaS expenses
- Indirect costs: overhead costs like rent and utilities
- Intangible costs: affects on customers, delivery times, and employees
- Opportunity costs: alternative investments, building or maintaining infrastructure vs. moving to the cloud
- Potential risks costs: competition, environmental impact, and regulatory risks
In the second list, you note benefits like:
- Monetary benefits: revenue increases from productivity or innovation
- Intangible benefits: improved employee morale or safety and improved customer satisfaction
- Opportunity benefits: competitive advantage or gained market share
Then, you compare the total costs to the benefits’ monetary values and determine if the benefits outweigh the costs. If the benefits don’t outweigh the costs, decide whether to make changes to the project or decision or avoid the project altogether.
From a SaaS solution view, you can run a cost-benefit analysis on SaaS use. For example, suppose you have a SaaS system of record in place. In that case, you’ll know what the costs are, who has access, if they’re using the solution, and if your company is getting the most out of it overall.
Suppose the SaaS solution is not meeting your company’s needs. In that case, you’ll have all the information you need to remove the tool from your technology stack.
5. Innovate and add value
Your company can innovate by investing in IT tools, for example. These tools can take advantage of the economies of scale to obtain resources at a lower price, which can help the company deliver more products and services faster.
As a result, this innovation also adds value with speed; it’s a customer benefit that can justify your company charging higher prices. Therefore, more revenue at little or no extra cost means a greater cost-efficiency for your business, and further, profitability.
How Vendr can help with cost-efficiency
Put SaaS spend optimization control back in the hands of your business operations team with Vendr. Your IT and finance teams can view organization-wide SaaS usage, cost, and subscription information all in one place in real-time with our platform. And as a result, this complete view allows your team to find cost savings immediately, gives you a platform to optimize future spending, and improves decision making.
Whether you’ve migrated to the cloud or plan to, you can create and maintain IT cost-efficiency by:
- Automating processes like SaaS management, security and compliance, and workflows
- Avoiding SaaS sprawl with a single-view platform with real-time visibility
- Cutting costs through SaaS user management