Managing IT in a Downturn

During an economic downturn, the impact of good governance of information technology is magnified. CFOs managing IT under current conditions would benefit from keeping these action items in focus.

Monitor the progress of the actual IT budget compared to the approved budget. Beware of variances, such as planned cost reductions not achieved on schedule and cost-saving milestones missed or at risk of being missed.

Examine your portfolio of IT projects, realizing that the business forecast may have looked very different when the budget was planned and approved. Rebalance, as appropriate, the mix of business growth versus cost reduction projects. Re-examine projects that didn’t make the current budget. Dig out the most recent IT strategic plan and review it for cost-cutting ideas that were low priorities when the economy was growing. These ideas and projects may make more sense now.

Recast IT spending into fixed and variable expenses. The effort will be worth the trouble. When faced with a required budget cut, slash IT operations and maintenance expenses to the maximum extent possible to preserve value-added IT enhancement and new development dollars. Avoid excessive cuts of subject matter experts. An organization can get by with fewer hands-off managers during periods of reduced IT activity. Hands-on expertise, especially in application development and business analysis, will be invaluable during a recession and the subsequent recovery.

Get IT outsourcing right. This can make all the difference in a downturn. With volume forecasts potentially wry, re-examine where outsourcing makes sense. Are outsourcers achieving cost targets and service levels spelled out in your contract? Now is the time to insist on results. The depreciation of the U.S. dollar and its impact on your outsourcing decisions can’t be overlooked.

Consider investing in IT during the downturn. You may have intelligence that your competitors have slashed their IT budgets. While a natural reaction is to match these cuts, look for opportunities to reduce costs for clients and take some business from competitors. Spending on IT projects at such a time is not for the faint of heart, but the contribution margin from new clients can be quite worthwhile.

Offer to break up organizational bottlenecks on behalf of IT. This will help your relationship with the CIO/CTO. Once IT projects are completed, many of the steps required to realize the expected benefits fall outside of IT and squarely in the business units. Promised efficiencies need to be realized on behalf of the corporation. Ask your CIO to point out cases in which business unit cuts have yet to materialize and follow up on those reports. Look for ways to break down the internal barriers that prohibit IT optimization and tie up expenses in redundant silos.

Tighten IT governance. Pay particular attention to IT capital expenditures. Keep in mind the full cost of the average programmer—including salary, benefits, training, equipment depreciation, software licenses and other costs—almost always exceeds $100,000. Programmers deserve the same scrutiny from the CFO as if the business were buying a $100,000 capital asset. Find out, in detail, what discretionary activities these programmers will be assigned for the remainder of the budget year.

Mobilize the whole organization to squeeze expenses out of IT and operations with better application of IT. Not all the answers lie in the executive suite. IT simplification and cost reduction opportunities may be hidden in the details of contracts, license negotiations and vendor invoices. Smaller ideas generated from the bottom up can complement top-down ideas the management team intends to pursue.

— John Nerenberg , MBA, is the president of Nerenberg.net, a technology advisory firm based in New York. His e-mail address is john@nerenberg.net .