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How to Evaluate IT Investments During an Economic Downturn: A Simple Guide from Procurement

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As the world continues to experience economic uncertainty, business leaders look to tighten budgets, consolidate tools and resources, and, generally, become more risk-averse when evaluating new investments. It’s no different for those in IT and security, but that doesn’t mean spending should come to a full halt. In fact, IT budgets are still expected to grow by 2.2% this year. So how can businesses minimize costs while maximizing ROI when investing in IT and security this year?

Here’s some advice from procurement on how to evaluate current and request new IT investments during an economic downturn.

Involve your procurement team from the beginning.

Involving your procurement team from the beginning can be an effective way to reduce the TCO of your IT and security investments. Procurement professionals are skilled at negotiating contracts, identifying cost-saving opportunities, and evaluating vendors. By bringing them into the conversation early on, you can leverage their expertise and ensure that you’re getting the best possible deal.

For example, your procurement team can help you with commercial due diligence to get the best cost and contract structure available upfront, while you focus on the technical requirements. To get started, develop a list of criteria your IT and security investments should meet. This might include things like cost, reliability, scalability, and vendor support. Once you have this list, work with your procurement team and use it to evaluate potential solutions and vendors.

In addition to helping you with the procurement process, involving your procurement team from the beginning can also help you avoid a long and onerous contract process, as well as assist you in building stronger relationships with your vendors. By working together, you can identify areas for improvement and negotiate better terms for future purchases. This can help you reduce costs and improve the overall quality of your IT and security investments over time.

Consider the total cost of ownership.

When investing in IT and security, businesses need to consider more than just the initial purchase price. The total cost of ownership (TCO) considers all costs associated with an asset over its lifetime, including shipping, taxes, installation, training, maintenance costs, and more. In a survey by Deloitte, 65% of organizations reported that cost reduction was a top business priority, and 52% cited TCO reduction as a key strategy for achieving this goal. By evaluating TCO, businesses can make more informed decisions and avoid unexpected expenses down the line.

Reduce the perception of cost.

Change can be scary, especially if there are dollar signs attached to it. By reducing the perception of cost, and associated risks, you can help decision-makers feel more comfortable with investing in new solutions and technologies.

To do this, you can take a number of steps. First, as you work with your procurement team on commercial due diligence, you can check references and testimonials, ask for a proof of concept, and talk with the vendor’s partners. Compile this information and use it as part of your analysis and presentation to decision-makers.

Another way to reduce the perceived cost is to focus on the benefits and ROI of the proposed investment. Consider the positive impact that the investment will have on your organization, such as increased productivity, better security, or improved customer satisfaction. Present these benefits in a clear and concise way, using data and real-world examples to support your case.

Finally, be transparent about the costs associated with the investment. Provide detailed information about the total cost of ownership, including any ongoing maintenance, support, or upgrade costs. This can help decision-makers understand the full picture and make informed decisions.

Present the facts and the numbers.

When presenting the case for investing in IT or security to decision-makers, it’s important to provide a clear and compelling argument backed up by data and analysis. This means presenting the totality of the numbers with reasonable assumptions on how you arrived at them. The information should be highly digestible and visual, aiming to make the most impact the first time it’s presented.

Start by presenting the current state and then move on to what is being proposed. It’s important to benchmark the proposed investment against industry standards or best practices to demonstrate the potential ROI. This helps decision-makers understand the potential benefits of the investment and why it’s worth the cost.

Evaluate the risk of doing nothing.

In addition to ROI, it’s also important to consider the risk of doing nothing. This includes the potential costs of not investing in IT or security, such as lost productivity, increased downtime, and the risk of security breaches – and organizations cannot afford to skimp on security. The latest research from IBM states that the average cost of a data breach reached an all-time high last year of USD 4.35 million with breaches accounting for the majority of enterprise downtime.

And, what is your current tool stack costing you?

According to Broadcom Software, tool sprawl is costing companies an average of $2.5 million per year. In fact, 69% of development and operation teams want to consolidate their tools because of challenges with hidden costs, insufficient agility, and the time maintenance takes away from managing security and compliance.

This is where procurement and IT/security professionals should work together to consolidate vendors and look for unified solutions that prioritize security and compliance in their products and services. This will ensure that technology purchases meet the necessary standards and reduce the risk of additional costs associated with non-compliance, plus provide the added benefits of operational efficiency and increased team velocity with fewer tools to physically manage and stitch together.

Consider your company scorecard.

More than likely your procurement team will have a scorecard with clear metrics and expectations set in place to evaluate purchase decisions and assess the impact of those decisions on the overall success of the organization. Consider the following metrics to best support your proposed investment:

EBIT (Earnings Before Interest and Taxes). This metric measures the profitability of your organization and can be used to assess the impact of procurement decisions on the bottom line.

Cost avoidance strategy. This metric measures how much money has been saved by avoiding attempted price increases by suppliers. Organizations can reduce costs and improve profitability by negotiating better deals or contracts with suppliers and avoiding price increases.

Working capital and payment terms. By extending payment terms, organizations can free up cash flow and improve their financial position. For example, if a company extends payment terms from Net 30 to Net 90, they have an additional 60 days of working capital available to invest in growth initiatives.

By using these metrics to evaluate potential investments, organizations can make more informed decisions, while maximizing ROI and reducing TCO.

Wrapping Up

Collaboration between procurement and IT/security professionals is crucial to evaluating current and future investments in order to minimize costs and maximize ROI, especially during an economic downturn. By clearly defining needs and requirements, evaluating TCO, performing risk assessments, incorporating security and compliance into vendor selection, and regularly reviewing and updating technology, these teams can work together to help their business leaders make more informed decisions and optimize their procurement strategies while maximizing ROI.