The COVID-19 pandemic has caused worldwide changes in the way companies do business, internally and externally. With shutdowns, lockdowns and remote workers, companies have found they are more and more dependent on their IT infrastructure than ever before. Digital connections are often the only connections with suppliers, employees, customers and jobsite.

According to Gartner, IT spending is forecast to contract across all categories and regions in 2020. While businesses in most industries have begun to reopen, pandemic mitigation measures such as lockdowns, social distancing, travel restrictions, and border shutdowns have created financial burdens, with the transportation, manufacturing, and natural resources industries the most severely impacted.

Gartner advocates a strategic cost optimization approach, which is a continuous discipline to managing spending while maximizing business value, rather than simply cutting costs. While they focus on IT, many of these recommendations are “philosophical” and can be applied to all functions within the company.

1. Target immediate impact. Eliminate, reduce, or suspend items that will hit the budget in weeks or months, not in years.
2. Reduce, don’t freeze. Focus on costs that can truly be reduced or eliminated, not just frozen for the current period, only to reappear again further down the line.
3. Cash is king. Target items that will have a real cash impact on the profit and loss statement rather than noncash items like depreciation or amortization.
4. Plan to do it once. Most organizations don’t cut deeply enough the first time, which means they often need to revisit costs and do it again. This is particularly relevant for staff cuts, where cycles of ongoing reductions can be very damaging.
5. Carefully inspect accounts. Work with your finance partner to obtain a solid view of the expense level detail, such as expense accounts, accruals and prepayments.
6. Target unspent and uncommitted expenses. Unless payments (or commitments) can be recovered or prepayments returned, the most immediate impact will be on unspent or uncommitted payments. Evaluate contracts for renegotiation and termination clauses.
7. Be Holistic: Include Capital. Typically, operating expenditures are the easiest to impact, but capital expenditures can also be reduced.
8. Sunk costs are irrelevant. When it comes to saving money, it is commonly said that “sunk costs are irrelevant,” meaning that future spend should be considered without relation to past spending or “sunk costs.” From a rapid cost reduction standpoint this is certainly true, but it’s still worth considering whether the saving will be more than the benefit that can and will be delivered by continuing.
9. Address discretionary and nondiscretionary cost. Discretionary spending, such as for new projects, additional capability or services, is often seen as an easier place to cut. However, even nondiscretionary “run the business” expenses such as IT infrastructure and operations can be cut by reducing usage or service levels.
10. Tackle both variable and fixed costs. Fixed costs are expenses that remain constant, regardless of activity or volume, such as office rent, subscriptions, and payroll. For fixed costs, focus on elimination. Variable costs change with activity or volume, for example, telecommunications, contractors, and consumables. For variable costs, focus on both reduction and elimination.

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