Cost management is a high priority as financial performance slows for many U.S. banks in 2023 (Fitch Ratings-New York-09 May 2023). Inflation and supply shortages drive hardware, licensing and resource expenses higher. The accumulation of tech debt from expanding technology infrastructure, legacy mainframes or monolithic applications is crippling innovation. Regulatory concerns over customer privacy and information security must always take priority.   

To maintain efficiency ratios, financial institutions must continue to invest in technology while continuously looking for ways to reduce operating expenses. Reaching the next level of efficiency requires a more significant focus on strategic cost actions and increased adoption of breakthrough technologies such as automation, machine learning and business intelligence. 

Banks can consider implementing strategies such as application rationalization, cloud migration, process automation and strategic vendor management to mitigate increasing IT operating costs. Application rationalization is a process that organizations undertake to optimize their application portfolio and reduce costs associated with software licenses, maintenance and infrastructure. Organizations can streamline operations and save money by identifying redundant or underutilized applications. Here are some ways application rationalization can reduce costs:

  1. Identify and retire redundant applications: Many organizations have multiple applications performing similar functions. By identifying redundant applications, unnecessary ones can be retired, reducing license costs, maintenance expenses and infrastructure requirements.
  2. Consolidate applications: If you have multiple applications that serve similar purposes but are used by different departments or teams, consider consolidating them into one application. This can save costs by reducing license fees, streamlining maintenance efforts, and simplifying training and support.
  3. Negotiate better licensing agreements: Through application rationalization, you can better understand your software usage and needs. With this knowledge, you can negotiate better licensing agreements with software vendors. Consolidating your software licenses and demonstrating a clear usage pattern can help secure volume discounts or more favorable terms.
  4. Optimize infrastructure costs: Reducing the number of applications in your portfolio can lead to lower infrastructure costs. With fewer applications to support, you may require fewer servers, databases, and other hardware or cloud resources. This can result in savings in hardware maintenance, cloud subscription costs and energy consumption.
  5. Streamline support and maintenance: Managing many applications can be resource intensive. By rationalizing your application portfolio, you can reduce the burden on your IT team and streamline support and maintenance efforts. This can lead to cost savings by freeing up IT resources or enabling you to reallocate them to more strategic initiatives.
  6. Improved training and user productivity: A smaller and more focused application portfolio can make learning and navigating software more straightforward for users. Training costs can be reduced and users can become more proficient and productive in their work, ultimately improving efficiency, and saving costs associated with errors or inefficiencies.
  7. Avoid unnecessary upgrades: Rationalizing your applications allows you to identify which ones are essential and should be kept up to date, while others may not require immediate upgrades. This prevents unnecessary spending on software upgrades, maintenance fees, and associated training and support costs.

Remember that application rationalization is an ongoing process that requires regular assessment and monitoring of your application landscape. By continuously evaluating the value and usage of your applications, you can identify opportunities for further optimization and cost savings.