Six things your boss needs to consider before cutting IT spending

A harsh economic outlook may mean cost cutting. But making the wrong decision could end in disaster.
Written by Steve Ranger, Global News Director

Many CFOs are looking to aggressively cut costs as a significant recession looms in many countries. That's putting pressure on CIOs to deliver some big reductions in spending, at least in the short term.

In May, tech analyst IDC said that IT spending is likely to drop by 5% this year, with spending on hardware like PCs and smartphones falling even as some cloud projects may accelerate -- especially if they help to control costs and defer capital spending on upgrades to on-premise data centers and applications. Cost cutting will vary by company; some firms will cut capital spending, while others will either delay new projects or seek to cut costs in other ways.

SEE: How to become a CIO: A cheat sheet (TechRepublic)

The problem is that many cut-backs are only measured on their potential cost savings, without considering the wider effects that proposed cost savings may have on the business, warns Gartner. The tech analyst firm argues that a simplistic approach could have negative impacts -- or most likely fail.

Image: Gartner

Acording to Gartner senior research director Chris Ganly, execs must reach beyond short-term measures like cost cutting, spending freezes or staff reductions.

"Organizations should approach cost management as an expansive effort that can have immediate and long-term significance to business performance. Cost management demands a mix of approaches and improvements that touch every part of the organization if it is to truly serve the enterprise," Ganly said.

CIOs should look at six areas when trying to evaluate different cost-cutting options, Gartner said.

Financial benefit: Top of the list is calculating how cost cutting projects will impact the bottom line. That should include actual savings as well as the impact on other metrics such as enterprise cash flow.

Business impact: Take into account theimpact of cost cutting on employees and day-to-day business operations, such as the potential negative impact on productivity or the viability of future product launches.

Time frame: Savings are rarely immediate: Consider how long it will take time for the enterprise to realize the cost savings and improved business value from cost optimization initiatives regardless of the method.

What's the risk? Cost cutting will only be effective if teams are able to adapt to the new reality. That means being able to demonstrate how important the changes are and showing how they are a foundation for future success.

Technical risk: CIOs must assess how the cost-cutting projects can be integrated within their current operations and enterprise architecture. That means keeping an eye out for technical projects that could have implications for service delivery or productivity.

Cost cutting isn't cost free. Before any cost optimization project or initiative begins, the executive board must support and agree to fund it. CIOs must present a business case showing how the plan will improve business processes, productivity, time to market and the like, as opposed to continuing with the status quo. You'll have to understand the level of investment before any savings can be made.

Image: IDC

However, there is some positive news on the (distant) horizon; CFOs interviewed by Gartner are expecting modest increases in IT spending next year as a result of new technology investments to support remote work and connecting with customers.  

And IDC notes that there are also signs that some parts of the IT market may be more resilient to this economic crash in relative terms than previous recessions, as technology is now more integral to business operations than ever before. 

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