How to Stop Budget Creep in its Tracks
Blog: Solutions Review - Business Process Management
As part of Solutions Review’s Expert Insights Series—a collection of contributed articles written by industry experts in enterprise software categories—Uri Haramati, the co-founder and CEO of Torii, explains how budget creep happens, how companies can fix it, and the role SaaS management can play in the process.
IT leaders are continuously balancing multiple priorities and battling old and new challenges. But today, one of the top foes keeping them up at night is the steady advancement of budget creep. Inflation and other economic factors have spurred many cloud application (SaaS) providers to quietly increase their pricing during the past year. This trend shows no evidence of slowing down.
Gartner says that by 2025, the combined impacts of inflation, competitive labor markets, and environmental sustainability requirements will lead to a 15%-20 percent increase in SaaS costs. The price increases that vendors present to customers, even today, are often well above inflationary indexes, with contracts sometimes increasing by as much as 30 percent at renewal time.
This makes it even more challenging for IT leaders to keep costs and budgets in line. That’s why it’s more crucial than ever to remain vigilant, keep your finger on the pulse of your tech ecosystem, and take steps to prevent the often invisible progression of spiraling costs. Doing this is anything but straightforward thanks to the hidden monkey wrench in the gears of our organizations—distributed SaaS adoption and shadow IT. To understand these challenges, let’s rewind the tape and quickly examine the origin of these problems.
How We Got Here
Since the internet boom, the delivery method for software has shifted from disks in a box to 24/7 remote access to cloud-based tooling. Now, it couldn’t be easier to try, buy, and integrate new and exciting applications. But, unfortunately, that’s also the problem. The trap of cloud apps is how they’re adopted or, rather, who adopts them. Often, it’s end-users, not IT or Procurement teams. These business users focus on completing their tasks, reaching their goals, and adding new tools to the company’s SaaS stacks without alerting IT.
Today, the average employee uses anywhere from 20-30 apps daily. And while some of those apps are sanctioned and acquired by IT or procurement teams, many more are shadow IT. The problem is IT lacks the visibility to distinguish what’s present, what’s approved, and what’s a threat.
Without these insights, costs add up fast. For example, Gartner’s 2022 SaaS Management Platform Market Guide states, “Through 2027, organizations that fail to attain centralized visibility and coordinate SaaS life cycles will overspend on SaaS by at least 25 percent due to incorrect and unnecessary entitlements and not rationalizing overlapping tools and instances.”
How to Fix It
If shadow IT is one of the most significant contributors to budget creep, and the most significant cause of shadow IT is end-users on app hunts, wouldn’t the answer be to lock down adoption?
Fortunately, no. I say “fortunately” because distributed adoption is exciting and necessary. It indicates the experimentation and self-sufficiency of your workforce and their desire to work as productively and successfully as possible. For most companies, distributed adoption is an ingrained part of the culture. Even if you want to stop it, that initiative would be difficult to maintain. The best way to combat budget creep is not through eliminating shadow IT but through illuminating it.
Through tools, tactics, and strategies that cut through the fog, organizations can uncover every hidden app, so IT, Procurement, and Finance can see all existing apps and make strategic decisions based on that insight. One effective way to do this is through SaaS management tools designed to provide complete visibility into the SaaS app ecosystem for sanctioned and unsanctioned applications. This is especially important because shadow IT adoption often results from gaps in sanctioned apps’ capabilities.
Management tools like this provide a list of apps and help IT teams understand each app’s usage and value. For instance, IT may see that an approved app is not being used by most of the people who have licenses for it; that some apps are licensed to people who have left the company; that 20 percent of Zoom Pro users could get all the functionality they need from a free Zoom Basic license instead; or that there are three apps with redundant capabilities, but only one of them is frequently used, meaning licenses for the others could be reduced, or the apps themselves could be eliminated.
In all these cases, IT and procurement teams—and even business users—have a valuable opportunity to reduce costs and improve the organization’s efficiency.
Caution: Insights Must Produce Action
For budget control to happen, IT leaders must be able to take action quickly based on their insight. Whether that’s the reclamation of idle licenses, eliminating redundant technology, or even leveraging usage metrics to drive better bargains at contract renewal negotiations, if management tools don’t enable you to take action in a matter of seconds or minutes via workflows and automation, many things will be put off for “later” or never happen at all.
SaaS Management is a Collaborative Effort For Multiple Benefits
SaaS budget creep is not the responsibility of any single department. It’s an effort that requires buy-in and contribution from other departments, app owners, and power users. While this might start as a cost-saving exercise, savvy IT leaders will use this process to improve the whole organization’s collective SaaS literacy and education. By bringing awareness and attention to these applications, they will empower co-workers to contribute to the process of SaaS management.
Staying on top of SaaS budgets is more challenging than ever, but IT leaders can take steps to prevent creep. Deep, ongoing insight into SaaS app ecosystems, usage, and costs—combined with easy actionability—can help you offset increased pricing set by SaaS vendors, eliminate budget creep, and maximize your SaaS investments.
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