These eight areas will net fast budget reductions with minimal disruption to the business and headcount.
With the early response to the COVID-19 pandemic now behind them, CIOs are entering the next phase: Dealing with the massive economic damage the virus has caused. Specifically, they’re looking at how to trim budgets in the face of a major economic recession.
Tech budgets were growing between 4% and 6% per year in 2018 to 2019, said Andrew Bartels, a vice president and principal analyst at Forrester. Now, he expects them to contract between 8% and 10% from those levels. In total, that would be a 12% to 14% contraction for IT spending in 2020.
SEE: Coronavirus: Critical IT policies and tools every business needs (TechRepublic Premium)
To cut budgets down to size and get through the year, Bartels recommends that CIOs look at the following areas: projects, application rationalization, contracts, hardware, and headcount.
“Project spending is between 20% to 30% [of IT budgets] … so the first place to look is going to be in that new project spending,” he said. “If it doesn’t have an immediate payoff this year, we should save the money now.”
Projects are high on Rob Zahn’s list as well. As the CIO of AAA Ohio Automobile Club, Zahn is focused on finding big, long-term projects to put off while accelerating those that help with streamlining workflows.
“We’re trying to utilize and expand the technologies that we are using,” he said. “We are doing a lot more automation of processes internally. In the past those [automation projects] might sit on the back line because you have a big project that you want to do.”
SEE: An IT pro’s guide to robotic process automation (free PDF) (TechRepublic)
A good example is automating invoices for AAA’s nine Ohio garages. Processing thousands of invoices for parts and other small-dollar items adds up to a lot of manual labor. In good times, this type of project would barely make the radar. Today, it’s a priority. “It does add up in some instances,” he said, “like for our garages. It is a lot of work.”
2. Vendor contracts
Zahn is also taking a hard look at hardware contracts and vendor license agreements. So far, he’s been able to get some of his providers to extend payment terms from 30 to 90 days. That’s not a huge change but it helps with cash flow, which is the goal of all of these efforts according to Gartner’s report: CIO Strategies to Improve Cash Flow in a Downturn.
“To determine the right course of action around cash-flow decisions,” the report said, “CIOs should answer two questions as quickly and accurately as possible:
- What are the immediate financial priorities? Work with the CFO and finance team to understand the financial imperatives of the business, based on the organization’s liquidity and financial condition.
- What are the services and capabilities that IT will need to deliver during and after the downturn?
Examine which services and capabilities will remain, which will no longer be required, and which
will be new.”
3. App rationalization
Zhan is asking his software vendors to reduce the number of licenses they are paying for. Some of that is “going better than others,” he said, because vendors are being squeezed by all of their clients right now. In instances where the organization could not get money back it was able to get credits for unused licenses toward future contracts.
“Application rationalization works by assessing the entire IT tools portfolio and identifying overlap and unnecessary tools in use by the organization,” said Sean McDermott, founder of the Windward Consulting Group. “We have seen across our larger enterprises $1M to $3M in savings when tool sprawl is addressed head-on. This is real money that can be re-deployed to maintain skilled staff and push through on much-needed digital transformation initiatives.”
SEE: IT pro’s roadmap to working remotely (free PDF) (TechRepublic)
Software bundles is another area where Zahn is examining if the organization really needs all of the functionality in bundled products. The goal here is to replace these bundles with less expensive point solutions.
“In your software maintenance budget, if you have 200 software products you are using, there is probably some redundancy,” Bartels said.
Another place to look for savings is hardware. According to Bartels, hardware purchases typically make up 10% to 20% of the IT budget. But cutting projects and hardware only gets you to about a 10% reduction in overall spending against a budget that was increased by roughly 4%.
That leaves about 60% of the budget still untouched. About, 30% of that remaining budget supports headcount, and the other 30% is for vendor contracts. “That part is where you could argue you have some fat,” he said. “If you are really hard-pressed, you go to the vendors and say, ‘We have to renegotiate these contracts. We just can’t afford them.'”
Bartels suggests starting not with IT contracts but technology contracts negotiated by other executives like the CMO. There is typically more fat in these deals that IT can go after.
“CMOs are notorious for doing this,” he said. “One of the things that has really come to the fore is a lot of companies have rushed to the cloud and, in doing so, they haven’t really understood the contracts they have signed.”
In a world where good IT help is hard to find, cutting headcount should be viewed as a last resort. Instead, Bartels sees companies transitioning IT folks into new roles like helping a new distributed workforce navigate its work-from-home setups or shoring up cybersecurity teams to deal with the onslaught of cyber crime targeting these same employees.
“Just like a lot of companies, we were asked to take a look at our headcount,” said Zahn, who did let two IT staff go because of reduced help desk calls. “There were a lot of people needed to get everybody working from home. On May 12, we opened our store locations … now we need IT staff to get people back into the buildings and ready.”
Review recurring service contracts such as cell phones, internet, and other types of connectivity like MPLS circuits and old phone lines that are no longer in use, suggested Jonathan Stone, CTO of Kelser Corporation, an IT consulting firm in Connecticut that focuses on telecom expense management.
SEE: VPN: Picking a provider and troubleshooting tips (free PDF) (TechRepublic)
He also recommends:
- Replacing phone-line dependent fax machines with eFax services
- Adopting software-defined wide area networking (SD-WAN) to replace dedicated MPLS circuits
- Reducing the cost of ink and toner by moving to shared printing services
- Increasing the use of short-term contracts
7 and 8. Portfolio assessment and cloud
In order to keep the business running as smoothly as possible in the face of what could be draconian IT budget cuts in the coming months, Matthias Reinwarth, a lead advisor and senior analyst at the analyst firm KuppingerCole, suggests companies focus on two areas: A comprehensive portfolio analysis of the entire tools, services, and systems landscape as well as planned investments to decide if they are still necessary or needed; and adoption of cloud services that enable distributed teams to work productively.
“If these steps are properly executed, there is significant potential for savings,” he said. “The use of current as-a-service solutions can help to relieve internal staff of operational and mere maintenance tasks. Thus, valuable in-house expertise can be reprioritized, and more can be accomplished with these in-house resources to achieve the above-mentioned goals.”