Is your IT budget ballooning out of control? You're not alone. Many small- and medium-sized enterprises are grappling with their IT costs as economic headwinds add pressure to reduce expenses. In fact, a study by Dell revealed that a staggering 60-80% of IT budgets are dedicated to maintaining outdated legacy systems. Not only that, but the cost of maintaining those legacy systems increases by 15% annually.
This issue isn’t limited to businesses operating traditional on-premise systems. Even those using the cloud can find themselves entangled in cost-related woes. For cloud users, the culprit of unnecessary costs is often the mismanagement of cloud resources and inefficient licensing.
The consequences of overlooking IT cost optimization can be significant, potentially impeding competitiveness, scalability, and the ability to retain top talent. In this article, we explore three effective strategies employed by BDO Canada to help clients slash their IT expenses—empowering you to reduce your IT spend, navigate financial challenges, and maintain operational efficiency.
Why a cloud-first strategy makes financial sense
Despite recognizing technology’s potential to bolster financial performance, many remain hesitant to adopt cloud solutions. According to a Microsoft study:
The perception of high cloud costs often arises from businesses failing to conduct a thorough and accurate apples-to-apples comparison. To make a proper assessment, it is essential to consider all factors involved, including up-front licensing fees, maintenance expenses, infrastructure investments, security measures, governance, administration, and various other considerations.
Many cloud providers handle security, maintenance, and infrastructure, freeing up your team and potentially reducing overall costs. While initial cloud migration may involve some investment, it can lead to significant savings with organizations achieving 20% or more reductions in their annual IT budget. This is backed up by BDO’s own experience supporting small- and medium-sized organizations across the country.
Three practical strategies to optimize IT costs with the cloud
Beyond simply using the cloud, how can you truly optimize your costs and unlock significant savings? Here, we'll delve into three practical strategies, based on real-world examples, that will help you maximize your cloud investment and continue your digital transformation journey. By implementing these tactics, you'll not only leverage the cloud's power, but also translate that power into real operational benefits and cost savings.
Strategy #1: Vendor consolidation
Many businesses struggle with a fragmented technology ecosystem, juggling multiple vendors and complex licensing agreements. This complexity translates to wasted resources and hidden costs.
By working with fewer vendors, companies can streamline procurement processes, consolidate licensing agreements, reduce accounts payable administration, and cut internal coordination costs. Vendor consolidation improves visibility into IT spending, making it easier to track ROI on technology investments.
Ultimately, this approach is a key strategy for optimizing IT budgets. It unlocks significant cost savings while improving operational efficiency and maximizing the value companies get from their technology investments.
Case Study
A leading energy & natural resources company faced increased costs and productivity challenges due to managing a fragmented technology landscape with multiple vendors. Teams were struggling to navigate through a maze of different platforms—each with their own interface, support channels, and vendor invoices.
The company opted to re-evaluate their vendor relationships, aiming to streamline services and invoicing. With BDO’s guidance, the company selected Microsoft 365 to access a variety of office and productivity tools under a single license.
By consolidating their vendor relationships and streamlining their technology landscape, the company achieved significant yearly cost savings of over $8,000 in licensing fees. The company also witnessed improved employee productivity and collaboration.
Strategy #2: Utilize licensing benefits
Another effective strategy for reducing IT costs through cloud services is by leveraging licensing benefits. For example, the Azure Hybrid Benefit is a key cost-savings approach that enables customers with active on-premise, SQL, or Windows licensing to subsidize the cost of equivalent cloud servers, resulting in potential savings of up to 80% in the cloud.
Customers can further optimize their cloud expenditure by exploring reserved instances. By committing to a specific level of computer resources, organizations can benefit from potential savings of up to 72% in the cloud.
Another tactic to enhance cost efficiency is by implementing a daily cap on compute usage for eligible resources. Through this method, businesses can unlock even more savings in the cloud. For instance, when generating logs, setting a daily cap or quota can help control costs effectively.
Case Study
A leading national healthcare charity faced rising costs associated with new hybrid cloud deployments and had limited awareness of cost saving tools and strategies.
With BDO’s help the charity implemented multiple cost-saving measures, such as leveraging existing on-premise Windows Server and SQL Server licenses, commitment offerings, and setting daily caps on resources, the organization was able to subsidize the cost of migrating workloads to the Azure cloud.
The organization was able to reduce their migrated infrastructure costs by up to 50%. This allowed the company to reallocate their budget towards strategic initiatives while unlocking value with their existing licensing agreements.
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Strategy #3: Licensing analysis
Businesses may be surprised to learn just how many licenses they are paying for that go unused or underutilized. So, why pay for something you’re not using? A licensing analysis involves a thorough assessment of cloud licensing agreements and usage patterns. Based on the outcome of the analysis, companies should reevaluate user accounts to identify underutilized licenses and either right-size them or re-assign them to users who actually need them. Additionally, during the renewal process, renew only the licenses you truly require.
By implementing these proactive license analysis strategies, businesses can eliminate hidden costs and ensure they’re only paying for the cloud resources they need. This approach maximizes the value from cloud investments and helps maintain a more cost-effective IT environment.
Case Study
A lumber processing company in Western Canada approached BDO, aiming to find cost savings with their Microsoft licenses. The company had a large number of licensing counts they were paying for and not using, as well as excessive cloud licensing costs.
BDO conducted a thorough assessment of their cloud licensing agreements and usage patterns. We found the company was paying a 20% premium through their current vendor and overallocated quantities for their cloud subscriptions. We recommended they re-evaluate their user accounts to right size or assign the licenses elsewhere.
As a result of the licensing analysis and subsequent adjustments. The company was able to action upon the recommendations leading to substantial cost savings of over $15,000 per year.
The cloud offers a powerful opportunity to transform your IT spending from a cost burden to a strategic advantage. By adopting a cloud-first approach, you can break free from the status quo and unlock the true potential of your IT investment.
Leveraging cost-saving tactics like vendor consolidation, licensing benefits (including the hybrid benefit and reserved instances), and proactive license management allows organizations to streamline their operations, enhance efficiency, and maintain a competitive edge in today's dynamic business landscape.
BDO has extensive experience helping businesses achieve this transformation. Let us help you navigate your cloud journey and unlock a future of financial agility and innovation.
Ready to take the leap?
Visit our BDO Leap page to learn how BDO can help reduce costs, improve security, and enhance productivity with the right cloud solution for you.
Want to dive deeper?
Watch our on-demand webinar: How to save money using the cloud, to gain even more insights on optimizing your cloud spending.
Ready to start saving?
Contact our team for a free cost savings and cloud licensing review:
Daryl Senick
Partner, BDO Digital
[email protected]
Rob Della Fortuna
National Cloud Practice Leader, BDO Digital
[email protected]