Cost Cutting: When Less Equals Less

Unless your IT department is part of a U.S. government agency or a Major League Baseball team, there's a good chance you've had a close encounter with an ax-wielding budget officer in the past 18 months. In better years, you might have joked around with this person, asked about the kids, the vacation, or the prospect of the Mets returning to respectability. But now it's budget review time, and niceties aren't the same old commodity.

The research study for Optimize magazine that we're highlighting this week shows that four out of five business-technology managers have implemented cost-cutting measures in the past 18 months. What it doesn't show is how many times managers have had to go hat in hand to higher-ups just to keep last year's resources--and last year's projects--from being julienned, pickled, or french-fried.

Of course, IT managers aren't the only ones defending their budget allocations. The division managers you support are justifying their sales forecasts, too. It's been a tough couple of years and nearly everyone is bruised, especially vendors of services and products. The irony is that budget cutting hasn't always spurred managers to reduce performance expectations; sometimes investing less yields less.

Take, for example, the semiannual headache of negotiating software site licenses. At some point, you begin to test the limits of your negotiating skills. The vendors can only shave off so much margin. What can you do? The trade-off is unthinkable--telling users they'll have to share software seats.

But it often gets worse. Most managers have opted to trim the biggest part of the budget pie, labor costs, by instituting hiring freezes or, in three out of five cases, reducing head count (a painful expression, but an even worse experience). Only 29% of the cost-cutters have frozen their IT projects, preferring instead to scale back the size of projects, reduce administrative overhead, or outsource work when possible. Perhaps the most interesting question in the Optimize study concerned management's regrets about what they wish they'd done in the past 18 months. Three out of five respondents said they would have preferred to focus on projects with the most immediate impact or payback.

Yet IT vets will tell you: It's not as if all IT budget cuts translate into better bottom-line results.

Still, common sense suggests that when the budget officer stops by your office just to shoot the breeze on a late summer afternoon, it's undoubtedly better just to talk about baseball or taxes rather than what the budget crunch is doing to your well-laid project plans. Or what it means for the enterprise next year.

What do you say when the budget ax swings in your direction? Let us know at the address below.

Rusty Weston
Editor, InformationWeek Research
[email protected]