Cost Drivers for IT Service Management

Abstract

IT Service Management (ITSM) is a process-driven function that can account for up to 25% of an organization’s IT budget. With the global ITSM market growing at 10% annually—expected to reach $16 billion by 2028—effectively managing ITSM costs has become both vital and challenging. This article outlines a structured approach to understanding the key cost drivers within ITSM and offers actionable insights for optimizing these costs in a targeted, data-driven manner.

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ITSM encompasses a range of core functions such as the service desk, incident management, problem management, and more. Among the many factors influencing ITSM costs, the cost of skilled personnel is consistently the most significant.

Labor expenses typically represent 50% to 70% of an ITSM organization’s total cost. These figures vary based on factors like:

• Process maturity
• Level of automation
• Use of standardized workflows
• Outsourcing models

Even when ITSM operations are outsourced, labor remains a major cost driver—albeit embedded in service contracts that often lack transparency. Additionally, many outsourcing providers are slow to adopt new technologies due to complex internal drivers and limited client influence.

ITSM typically represents 15% to 25% of total IT expenditures, making it a prime area for improvement and optimization. A poorly managed ITSM function can lead to:

• Increased outages
• Longer resolution times
• Lower customer satisfaction

However, cost-cutting should not be indiscriminate. For example, shifting tickets to lower-cost agents without proper analysis might reduce immediate expenses but increase resolution time and hurt customer satisfaction. The goal is not just to reduce costs, but to improve outcomes while doing so.

Several interdependent factors influence ITSM costs including operational maturity, outsourcing, cost of labor, productivity of employees, automation, customer satisfaction, service level agreements, skill levels, efficiency of the ITSM processes, use of tools and knowledge bases etc. Each of these variables can push costs up or down depending on how they are managed. For instance, investing in training may increase short-term labor costs but often reduces ticket volumes and handling times, ultimately lowering cost per ticket and boosting user satisfaction.

Many organizations take a tactical approach to managing ITSM costs—often with unintended consequences. A better path is a strategic and holistic view, similar to how businesses use balanced scorecards to optimize multiple dimensions of performance.

With the rise of modern ITSM platforms, business intelligence (BI) tools, and AI-based analytics, companies now have the ability to:

• Analyze their ITSM ecosystem end-to-end
• Identify cost hotspots
• Implement targeted improvements
• Monitor results across all service domains

The Global ITSM market is growing at 10% per year and is estimated to reach $16B in 2028, showing that companies recognize the value of effective service management. Companies that invest wisely and optimize strategically will not only reduce costs but also improve service quality, increase productivity, and enhance customer satisfaction, giving them a decisive advantage in an increasingly service-driven digital economy.

If you have questions contact us at info@quantumvision-ai.com or through our website www.quantumvision-ai.com.

Sai Balakrishna, Managing Partner/CEO