CIOs On Tighter Budget Leash

Dec 20, 2002

Sharon Gaudin

Industry analysts and IT executives say if 2002 was the year of the budget cuts, the next year will be one when the business side takes a greater interest in IT's budget and CIOs will have to ask for their budgets piecemeal as the year goes on.

"Clearly, we're not going to see a return of the glory days of the late 1990s when IT managers could get whatever money they wanted," says Kevin White, an analyst at Framingham, Mass.-based IDC. "We've found in all our surveys that it's really the CEO and CFO that are calling the shots for all new procurements. The CIO will need to have specific plans to recoup the expenditures in any new IT project -- an outline as to how the expense will pay dividends to the company."

A new report out by the analyst firm Gartner Group shows that the once-annual IT budgeting process will evolve into an ongoing effort in most companies. Gone are the days when a CIO could submit his budget for the coming year and move on to something else. In the coming year, analysts say the IT budget will be something the CIO has to revisit on a continuing basis as new projects and business drivers demand.

And Gartner analysts predict that IT spending will be overwhelming dominated by business cases and business leaders. Money won't be allocated unless the expense can be justified by a business angle, such as increasing company competitiveness.

Mike Riley, chief scientist at R.R. Donnelley & Sons, says his own IT budget is not a done deal.

"People are saying things won't look much better in 2003 than they did in 2002, so I'll duplicate the numbers for next year," says Donnelley. "Six months into the year we'll review it again. If business drivers show they're improving or getting worse, then we'll course correct then."

Riley also says that IT managers are no longer in the driver's seat when it comes to driving the budget.

"I know it would make a lot of the techies happy if they could be the drivers," he adds. "Today, any investment really has to show an immediate return on investment and impact, as opposed to the long-term stuff. I think the long-term thinking will come back into play but right now so many companies are just looking quarter to quarter to make their numbers and survive."

Several analyst firms are predicting that companies will increasingly start to make those numbers as the economy, and eventually, the IT sector show signs of recovery.

The Aberdeen Group reports that IT spending is showing encouraging signs, and predicts that IT purchasing has stopped contracting and modest growth is in sight. While IDC says the IT sector is on the rebound after experiencing its worst year in history, Forrester Research reports that healthy growth is expected to return in the new year.

Optimism abounds. But the budgeting process is still in flux with different people, and different departments, taking leadership roles.

And an increasing amount of that budget is going to outsourcing.

As more and more tech work moves offshore to countries like India and Russia, companies are doing less basic IT work inhouse and spending that chunk of the budget on outsourcing expenses.

"Certainly, a fair amount of the IT budget will be for offshore resources," says Laurie Orlov, research director of applications and services at Forrester Research. "That piece of the budget won't be paying for your own labor. I also think IT budgeting right now is completely ROI based and if you can't claim a specific return, you'll have a hard time getting the money spent."

But IDC's White says there are a few bright spots in the 2003 budget.

According to White, the slimmed downed budgets of the past few years have starved a few sectors that are pushing for growth. Security and wireless should see increased spending. And he says companies will finally have to upgrade their storage and old PCs this year, bolstering that segment of the industry, as well.


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