IT budgeting and ROI predictions for 2005

SearchCIO.com's ROI and IT investment expert, Tom Pisello, offers up his predictions for 2005.

Tom Pisello
Leading companies will shift from reducing IT spending overall to increasing spending on innovative IT initiatives.
At large companies, 90 percent of the IT budget keeps the lights on -- covering existing infrastructures and their support personnel, or migrations and upgrades for existing applications and infrastructure. This leaves scarce room for innovative investments that deliver competitive advantage and bottom-line business value. Top performing companies will reduce these baseline costs to funnel funds to innovative purchases such as Web services, business intelligence, mobile computing and RFID.

2004 IT "taxes" will continue to consume growing IT budgets.
While IT budgets are expected to rise an estimated 5% to 8% for the second straight year, much of the increase will go toward three initiatives:

  1. Sarbanes-Oxley: Section 404 compliance deadlines stretch into July 2005, ensuring it will consume part of the IT budget for months -- and that's if companies meet the deadline. Audited companies will devote significant resources to avoid fines and penalties. And while some productivity gains will naturally result, this legislation will continue to siphon money away from higher-value projects.
  2. Security: The growth of cyber attacks -- worms, viruses, hacker attempts, phishing, adware and spyware -- requires SMBs to invest in new technologies and intelligence, costing five to six figures for most businesses. Many of these remedies address inherent software flaws and fail to deliver any bottom-line business value, only to reduce the risk of infrastructure investments -- a necessary evil of technology.
  3. PC upgrades: Many companies have extended the lifecycle on PCs from 36 to 48 months. Aging year 2000 PCs mean that it's time to perform more aggressive upgrade cycles if not a wholesale replacement (bulldozer) of existing PCs. There is a solid ROI for these upgrades, particularly if organizations take advantage of new mobile/wireless solutions, but the upgrades will still consume valuable budgets.

CIOs will implement new programs to avoid the budget battles of 2004.
Many CIOs had great difficulty with the budget process of 2004, and will look to not repeat the frustrating boardroom battles of 2004. Even though more funds were available, many CIOs struggled to justify the programs they felt were vital to 2005 success and struggled to get their teams to collaborate effectively with business units to determine and justify innovative programs. With more budget control and influence in the hands of business unit leaders, this collaboration and co-presenting the plans is vital to IT investment success. CIOs will seek to reorganize their teams around business unit liaisons, implement training programs to get their staff more adept at collaborating with business unit executives on business process improvements, and seek to implement collaborative benchmarking and ROI analysis programs to standardize the process.

Tom Pisello is the president and CEO of Orlando-based Alinean, the ROI consultancy helping CIOs, consultants and vendors assess and articulate the business value of IT investments. He can be reached at tpisello@alinean.com.

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