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Posted by Susan on 5:40 PM Monday August 25, 2008 under

When downturns hit, budgets are cut. And yet, the IT budget seems remarkably impervious to budget cuts.

There's many reason it survives. First of all, it's mostly fixed - the majority of the IT budget is required to keep the lights on. Also, other parts of the business influence IT budget growth, so to cut it back, you have to affect the behavior of the entire leadership team, not just those who reside in IT.

Third, there isn't much chaff to separate from the wheat. IT costs have been under tight scrutiny in response to the runaway IT spending of the late 90's. Data centers and call centers have been consolidated, contracts have been renegotiated, and services have been off-shored.

Finally and most importantly, reducing IT costs has the perverse effect of increasing IT demand and thereby costs. Many budget cuts hinge on implementing process changes and thereby, require systems changes.

Some eager IT staffers are probably ready to print out and distribute this blog entry to their bosses to show why they shouldn't suffer budget cuts during this downturn. Not so fast. It may be difficult to cut the IT budget, but as they said in the days the California gold rush, "there's still lots of gold in them-there hills."

The key to further, smart, cost reductions is to recognize the fact that, in general, companies spend too much on IT because they are unwilling to say "no" to IT-related requests. The path of least resistance seems to rule the day: Too many projects are funded, too many die a slow death, too much technology is procured, too many quality defects are tolerated, and users require too much hand holding.

As you work this round of IT-related budget cuts, engage senior business and IT leadership in managing these truths that drive up IT costs and institute policy changes that will result in lowering costs and increasing returns (

Click hereto download this chart):ManageTruths.JPG

Managing the truths will require more finesse and courage than ever before. It takes wisdom to decide what needs to be done and courage to stick to decisions in spite of the whining that will ensue. The good news is that the disciplines developed during the tough times will pay off in a big way during the good. You may have started this management process because of a downturn, but making better investments and leveraging invested capital never goes out of style.

 

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