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The Wall St. Meltdown and IT Budgets

Sep 26, 2008
By

Allen Bernard






Although no one knows for sure what will happen in the next few days …  weeks … months, it’s a fairly safe bet that the mortgage-backed meltdown of Wall St. will have some affect on your budget.

 

But, it may not be all bad. It may go up, for example. One scenario floated by Zahid Afzal, CIO of Huntington Bancshares, the 24th largest bank in the U.S., goes like this: If you are in the financial services space and your company buys up some failing banks, this would mean a lot of consolidation work for IT on the back end. This, in turn, could lead to a budget increase as the IT departments and back offices merge. “In order to cut (expenses after a merger) you have to invest.”


 

It could also mean, however, if you are being bought, you will be out of job. It kind of depends on which side of the deal you are on. Also, if you are in financial services, the meltdown doesn’t automatically mean your IT budgets are going to be slashed to help your company’s bottom line, said Frank Scavo, president of the research firm Computer Economics.

 

Financial services is an IT-intensive business and much of that IT is customer facing. In other words, you can’t run your business without IT being front and center. In this scenario, your new projects may get put on hold but chances are your budget will remain fairly intact.

 

Of course, this is all speculation, but, with the bail-out package still stalled on Capital Hill (as of this writing), educated guess-work is about as good as it gets. Should the Wall St. mess lead to a general recession then budgets for most businesses will probably be cut across the board as companies try to stay afloat by cutting expenses.

 

On the bright side (if there is one), IT in most organizations has already cut much of the fat put on in the early, heady days of this decade. Most organizations are running pretty lean, cost-efficient operations. This means the budgets you have today will probably remain fairly intact. You may not get the budget increases you were hoping for, which, in some ways, can be viewed as a budget cut but, nor will you have make draconian cuts to staff and services because you have to squeeze 10% or 20% out of your existing budget. Businesses today also “get” IT. They have begun to realize IT is much more than a cost center and, without it, the business can’t function—at least not well.

 

“IT managers have been conservatives in their spending over the last few years and so there are not a lot of excesses to squeeze out today, said Scavo. “It doesn’t mean there won’t be cutbacks but I don’t think there’s as much froth in IT spending as there was eight or 10 years ago.”

 

Info-Tech Research Group has been surveying its clients about the general state of the economy and its affect on their budgets since last Fall. Generally, the CIOs they talk with are not very happy with what’s going on, but, for the most part, it is not having a negative effect on their budgets, said Andy Woyzbun, a lead analyst.

 

“Although there was a perception of … some negative impact or very negative impact, when you take a look at what they were seeing in changes to the IT budget, in fact there was not a significant increase in the number of organizations that said their budget was going to go down,” said Woyzbun.

“There’s very little evidence … that this was hitting them in their wallets.”

 

This doesn’t mean there isn’t any fallout already. iBeam, a Columbus, Ohio-based IT solutions provider, said its customers have begun putting new projects on hold.

 

“We have noticed that some customers are now holding off on planned projects, contracts or infrastructure investments to wait and see what transpires over the next week or two. It seems to be companies in the construction, finance and transportation sectors from what we have noticed thus far, although most seem optimistic that the items will move forward once things settle out over the next few weeks,” said Eric Schmidt, iBeam’s president.

 

But, if you company’s business is slowing down and cuts may be imminent, it’s best to start looking now so when the CEO calls and wants 10% of your budget back, you have a plan, said Woyzbun.

 

“The point we make with our clients is we can’t be definitively predictive,” he said. “The best strategies for companies is to have a Plan B. If you are asked to reduce you’re IT spending to some degree you should be able to intelligently answer the questions ‘Where I am I going to trim, where am I’m going to optimize, where am I going to cut?’”

 

 


Tags: economy, IT budgets, Wall St., Meltdown,
 

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