Managing IT Costs in a Weakened Economy

By Allan Alter  |  Posted 09-11-2007 Print Email
In good times, seven of 10 companies look to keep IT costs down. If the economy weakens, the pressure to make deep cuts will soar. Will CIOs slash jobs or adopt other cost-reduction strategies?

For several years, IT organizations have benefited from an expanding economy. Most companies have focused on boosting revenues instead of reducing costs and that has spared chief information officers from having to slash their budgets. To be sure, CIOs, like all prudent businesspeople, keep seeking ways to reduce the cost of doing business. But the pressure isn't what it was five years ago, when 80 percent of respondents to CIO Insight's October 2002 cost management study said they were under high pressure to cut costs. Reducing IT costs ranked a distant third in the list of IT management priorities in our January 2007 Future of IT survey.

Yet that could change in a hurry. The crisis in the real estate and mortgage markets, and its impact on the stock market, have increased the risk of an economic downturn. "The risks of recession are now greater than they've been any time since the period in the aftermath of 9/11," warns former Treasury Secretary Lawrence Summers, according to Bloomberg News.

And an economic slowdown would force CIOs to make painful choices about what IT projects, services, programs and staff to cut.

This month's timely cost management study is designed to be a guide to CIOs, no matter what direction the economic winds blow.

Our survey reveals the cost-related plans of 256 companies, broken out by revenues, success at managing costs, and business strategy.

The survey also reveals which technologies and cost management techniques result in the greatest savings. Negotiation, virtualization, standardization and consolidation, it turns out, are the most effective ways to significantly reduce costs; other practices (including layoffs) are much less likely to make a big difference to the bottom line.

Top 5 Ways To Cut IT Costs

N=255
Practice Savings Ratio*
Negotiate better practices from vendors 1.47
Use server, storage or desktop virtualization 1.26
Standardize technologies and vendor 1.22
Consolidate data centers, servers, stroage 1.17
Purchase IT products as part of a group 0.86
Expertise location and sharing 21

*"Savings ratio" = percentage of respondents who have received large savings through a cost-cutting practice divided by the percentage of respondents who received minimal savings.

Finding 1: CIOs Are Under Moderate Pressure to Cut Costs

Finding 2: The Ax Comes Down on Services

Finding 3: Teamwork + Negotiation + Standards = Savings

Finding 4: Virtualization and Consolidation Lower Costs...

Finding 5: Most IT Organizations Stay on Budget



 

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