Managing IT in a down economy

In times of economic crisis and tight cash, it's helpful to view IT and its budget holistically. Depending on the organization, the IT budget may be as little as one or two per cent of the revenue, or as much as 10 to 15 per cent, said Denis Picard, managing director with the New York-based Alvarez & Marsal Business Consulting LLC. "There is a tremendous amount of leverage to be realized by spending the IT dollars more effectively," said Picard.

But what IT does with those savings is key. IT can reap "a far bigger payback," said Picard, if it reprioritizes those dollars and staff to initiatives that will generate revenue or reduce cost. Picard said he's even witnessed a CIO and CFO negotiate a deal where half of the savings from IT is re-invested in IT, and the other half in the business.

Working capital is a critical issue, said Picard, describing it as a "tremendous opportunity for companies right now." Savvy CIOs and CFOs can work closely with the head of supply chain, for instance, to understand what is being done to ensure working capital, and to ensure IT projects are prioritized against that.

Specifically, better asset management is a great way to save, noted Picard, especially after a company has downsized and has extra PCs, laptops, cellphones and software licenses.

Jean-François Coulonval, a Montreal-based partner in the IT advisory practice of professional services firm KPMG LLP, said that the maintenance of applications is typically a "big item" for spending, and is often done without a clear idea of whether the expense is justified. Coulonval suggested defining a governance structure around application maintenance -- or identifying reasons for expenditures, and how those costs relate to IT and the business -- in order to find pockets of money where pennies can be pinched. "You see a lot of overhead after a few years of maintenance that has been created, and hidden costs, but you can optimize the maintenance investments," he said.

IT projects are also where dollars can be saved. According to Sebastian Ruest, vice-president of services research with Toronto-based IDC Canada Ltd., the number of projects that have heavy hardware or software requirements (such as a large deployment of desktops or servers) will decline as budgets are tightened. And the reverse will be the case for maintenance-type activities "because people are going to extend the lifecycle of their infrastructure" instead of renewing hardware purchases, said Ruest.

Projects that don't have recognizable business advantages, or don't produce an immediate return, will be cut. "For me to make the justification that I need to spend on a CRM application," said Ruest, "it had better bring back revenue now... because it takes almost six months to a year to integrate."

Some companies may stifle IT innovation in times of economic crisis, but Ruest thinks that's a mistake. "Let's assume that all you're going to do now is keep the lights on, and that the crisis doesn't last that long," he said. "The organization will find itself at a real disadvantage because they didn't keep up with the other organizations."