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Gartner: Worsening economy puts dent in some U.S. IT budgets

Twenty-five percent of IT budgets in the U.S. were reduced in the first quarter, but a majority of CIOs say their budgets escaped untouched.

One in four CIOs in the U.S. reduced their 2008 budgets during the first quarter, according to a new study from Gartner Inc., indicating the worsening American economy is affecting IT spending. As a result, the Stamford, Conn.-based consultancy has lowered the growth rate for U.S IT budgets to 2.3%, down from the 3.1% growth predicted in December.

Still, IT budgets for the most part remain stable, the study found. The majority of U.S. CIOs -- 65% -- said their 2008 budgets are unchanged, and 10% told Gartner their budgets actually increased in the first quarter.

In addition, the CIOs whose budgets were cut said the reductions were part of organization-wide belt-tightening measures, rather than a restructuring of IT spending. Budget reductions averaged 10% or less, said 72% of those CIOs. For budgets that went up, the increase averaged about 15%.

Mark McDonald, head of research for Gartner Executive Programs, said the results show that IT departments are not the "target-rich" turf for cost reductions they have been in the past.

"We believe the fact that the overall majority of CIOs reported no change in their committed budgets is an indicator of the incredibly important role that IT plays in enterprises," McDonald told reporters in a conference call last week.

The study, which was conducted between Feb. 12 and March 12, polled 1,011 CIOs worldwide to gauge the impact of current global economic conditions on IT budgets. The results were announced in advance of this week's Gartner Symposium/ITxpo 2008 in Las Vegas.

The erosion in IT spending in the United States has not spread globally, the poll found. IT budgets show a 3.9% growth rate in Europe and 6% in Asia/Pacific in 2008.

Spending smart

One reason IT budgets have escaped relatively unscathed in the current downturn, Gartner reports, is that CIOs have become good fiscal stewards.

"Over the past five years CIOs have significantly increased their ability to manage their IT budgets in a much more professional and proactive way," McDonald said.

CIOs also tell Gartner that the way IT budgets are allocated has changed. Budgets tended to be allocated on a use-it-or-lose-it model, or functional basis, McDonald said. Since 2002, however, budgets tend to be "more business-based," he said, starting small and growing over time, which means IT spending may well go up this year, if conditions improve.

For those CIOs whose budgets were cut, reductions tended to fall into two categories -- postponing IT investments and finding cost cuts in IT operations, or what McDonald called the core technical aspects of IT.

Interestingly, in a period when U.S. employers cut 80,000 jobs, reducing the IT workforce ranked below these two categories. About 6% of the fraction of CIOs whose budgets were reduced said they were looking to save money through job cuts. Even fewer (5%) said they were using outsourcing to realize the budget cuts, McDonald said. For the CIOs who experienced budget increases, the additional money was going largely to business projects.

One worrisome finding: When asked about having a contingency budget plan for 2008, a paltry 32% of CIOs said they had one. Given economic conditions, CIOs should be prepared and have a contingency plan on the positive and negative sides in the next 90 days, McDonald urged, or by the end of the second quarter of 2008.

Let us know what you think about the story; email Linda Tucci, Senior News Writer.

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