The state of the economy has made budget analysts of today very nervous. With the majority of businesses looking for ways to cut cost the IT department is often the first target. The important thing to remember when making cuts, however, is that your information technology departments are the lifeblood that keeps your business running. Don’t overlook the fact that, IT costs make up less than 10% of the expenses a business incurs every year. A proactive strategy to recognize a problem and plan ahead will save your business more money in the long run than blindly making cuts.
The important first step in maximizing the effectiveness of your IT budget is to optimize the communication between your CFO and operational branches. Keeping your CFO informed and involving them in important time related decisions will ensure that all departments receive the attention they need. Understanding which projects and investments are crucial and which are simply “useful” should be the deciding matter when making deferments.
People who make the request at your business will not see the distinction between these two eventualities. The key to making intelligent decisions is to understand how an investment will affect your company both in the short and long term. Things to consider: does a piece of hardware or software need to be upgraded because of compliance regulations? Does a particular system have a serious vulnerability? These items would fall into the crucial category. Alternately, a new software version or faster hardware upgrade might be a candidate for deferment.
There are exceptions to this simple idea for need based deferment. If a piece of hardware is old and incurring more cost to keep running then it would to replace it then it is an obvious candidate for an upgrade. When you look at some software needs things become more complicated. If your accounting or marketing department is requesting a new software system to handle invoices it might be easy to shoot down the request on the basis that your current system works. However, you need to consider if by refusing the upgrade, would your business be capable of remaining competitive?
Many CFO’s look at the IT budget as a single block of expenses but it is important to distinguish between maintenance operations and investments in improved operations. Maintenance and operations cost make up the bulk of IT expenses but can only be cut so far before your business suffers. Investments on the other hand, such as investing in newer, faster software can be done but incurs a great deal of risk. As mentioned before, will cutting back on a certain investment allow your business to remain competitive?
One final consideration when planning your IT budget is don’t forget that there will eventually be an economic upturn. It is equally important to plan for the upturn. Don’t neglect to strengthen your internal business architecture and management capabilities. Stay informed of your business partners and understand when and where they are being forced to into a bottleneck. By anticipating what their needs will be you will be better able to assist them and remain competitive. And finally plan ahead so that when the economic down turn is over you will be able to resume growth.
