Adjusting your IT budget in a volatile economy

By Linda Tucci, Senior News Writer 28 Oct 2008 | SearchCIO.com

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His charge is to support his department's initiatives more efficiently and spend less doing it. Ohio's departments have already taken two across-the-board cost cuts, Rowley said, but budget talks have taken a different turn from past years.

"When times get bad, we just want to look at each line a little closer than before. But this year, we are having a lot more discussions about why we are spending the money," Rowley said.

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So instead of seeing whether a project might be postponed for a couple of years, Rowley and his business colleagues are asking if the project provides "a value that gives us a compelling reason to keep it in the budget, even if we might not see it immediately," he said.

The across-the-board percentage cuts came down differently this year too, said Rowley, who has an MBA. "Instead of coming to us and saying, 'Listen, I need you to take a 10% cut and figure out how to do it,'" he said, IT was encouraged to work with business colleagues. Together they found IT-enabled cost efficiencies that saved cuts to some projects that were providing value to Ohio residents.

The "horizontal" collaboration exceeded anything Rowley has ever seen. "It's a much better way to budget, in my opinion."

Rowley's views are spot on in hard times, said Gartner Inc. analyst Barbara Gomolski, an analyst in the CIO practice at the Stamford, Conn.-based consultancy. In 2009, IT budgets need to be all about the business. Rather than casting IT budgets in terms of technology imperatives, CIOs should identify the business goals for next year, then map their IT imperatives to those goals.

And if the respective imperatives don't match up? Don't waste your company's money.

Gomolski met with CIOs, including Rowley, at Gartner Symposium/ITxpo 2008 in Orlando earlier this month to give them a jump start on financial management and prioritizing in 2009.

Budgeting in a downturn is a bear for everybody -- especially so for CIOs. According to Gomolski, IT financial management is a nascent discipline. Most CIOs "are still slogging it out," using traditional financial models that are not well-suited to a volatile business environment, let alone a global recession, she said.

Gomolski suggested that CIOs approach the 2009 budgeting process with five questions in mind:

1. How should I balance the need for growth with the need to manage expenses?
2. Where should I make investments in 2009, and where should I pull back?
3. How should I "sell" my 2009 budget?
4. How can I ensure that IT investments are seen as delivering positive results?
5. What metrics should I use to convey to the business the value of IT investments?

Ready for some homework?

In the Orlando session, CIOs were given a Gartner workbook with exercises to help them think through Gomolski's five questions.

Two exercises, in particular, seemed to get the CIOs in the room scribbling -- and both offered concrete advice. You can take the tests:

The first lesson gave CIOs a handle on how to balance the need for growth with managing expenses, by asking them to rate their companies on a scale of one to five on issues such as IT's cost efficiency, the organization's revenue targets for 2009, where the revenue growth is coming from, IT's impact on revenue growth and the organization's tolerance for risk.

High scores typically indicate businesses where IT plays an integral role in revenue growth or new products. Gartner's advice for 2008 is pegged to the score.

It's a much better way to budget, in my opinion. Jeff Rowley CIO, Department of Natural Resources, state of Ohio

So, for example, if you scored less than seven, Gartner advises that you continue to focus on improving the cost efficiency of IT in order to build credibility inside the company and to bring costs in line with peers.

If you scored between eight to 12, Gartner says you should continue to look for opportunities to improve IT costs, as well as drive down business operating costs. Balance this with a reasonable investment -- at least 30% of your IT budget -- in growth and business improvement.

If you scored between 13-18, you should increase your nondiscretionary investments by at least 10% in 2009, with half of that new investment going to transformational initiatives.

If you scored greater than 18, your company has aggressive growth plans and is relying on IT to play a key role in that outcome. Gartner advises you focus on helping the business prioritize its initiatives and manage risk.

The aim of the second lesson was to help CIOs figure out where to make investments in 2009 and where to pull back.

Gartner listed six business imperatives it hears about from CEOs and suggested IT actions and technologies that dovetailed with those imperatives.

So, for example, if one of your company's top priorities next year is "to attract and retain customers," then the IT priorities would include advanced data analysis, word spotting, emotion detection, offer analysis, blog analytics and Web community software from best-of-breed vendors. (Google Inc. announced new enterprise features Wednesday for Google Analytics, its Web analytics software.)

If, on the other hand, your company's top aim is to "build an agile and innovative organization," Gartner reminds CIOs that "operational excellence enables agility." Therefore, IT should be investing in a unifying business architecture that optimizes IT investments, leverages the organization's main sources of competitive advantage and supports changing organizational goals.

Gartner suggests you identify your company's two top business imperatives for 2009 and plan to invest heavily in them.

For the lowest two priorities on your list, ask two more questions:

What IT capabilities do you currently have in this area that you can pull back on with little impact to the business?

What specific technologies do you have in this area that you could retire or scale back with little or no negative impact to the business?

Tags: IT spending and budgeting,  Leadership and strategic planning,  Cost-cutting strategies for CIOs,  VIEW ALL TAGS

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