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Flat spending won't quell all projects

published on February 3, 2003

We'll see meager tech budget increases this year, if any, and for CIOs that means tighter project scrutiny. But TechRepublic members relate that they don't think the situation will thwart projects that promise to boost the bottom line or improve efficiencies.

According to recent industry analyst reports, IT spending in 2003 will, at worst, shrink by just under 1 percent, and, at best, experience growth of 3.6 percent. A recent TechRepublic poll, shown in Figure A, supports the research findings. Fifty-nine percent of members surveyed anticipated zero budget growth in 2003, while only 25 percent indicated that their budgets would increase by 4 percent or more.

Despite the grim predictions, members and experts say special projects tied to boosting revenue or lowering costs will continue to get funded. Even last-minute projects might receive backing, according to one Gartner survey— perhaps creating IT spending growth toward the end of 2003.

For CIOs, this means boning up on technologies that focus on maximizing enterprise performance and visibility, consolidating physical infrastructure, and shoring up security.

CIOs should also be prepared to do these projects with the same or slightly reduced staffing levels. Staffing budgets will likely remain flat as CIOs aim to reward their best employees while offsetting employee bonuses and salary increases by reducing headcount.

Project priorities for 2003

Projects that lower operational costs or give operational visibility will be among the most popular in 2003, according to analysts at the Aberdeen Group. Topping Aberdeen's list of project priorities in the study are:

  • Enterprise Performance Management (EPM) providing insight into day-to-day operations through analytics and performance metrics
  • ERP projects enhancements to gain further reporting capabilities
  • Supply Chain Management, a growing sector potentially involving multiple systems that can help reduce the costs of acquiring supplies and raw materials

TechRepublic member and IT head Chris Elmes at U.K.-based Cotswold Outdoor Ltd., said the predictions ring true. In 2003, the Elmes' IT budget will be approximately US$400,000, or US$140,000 higher than 2002. But the growth isn't attributed to expensive project initiatives. Elmes said his budget increase is tied to IT costs associated with relocating the company's headquarters. Otherwise, his budget reflects little real expansion.

For 2003, projects on the front burner at Cotswold include improvements to the direct and Web sales operations, including order processing, CRM, and workflow facility. Other efficiencies will come from taking the first steps in building out supply chain management tools and working on the company's intranet. Business intelligence solutions will also roll out in 2003, giving the company improved operational analytics.

In Canada, TechRepublic member Peter Grant, an IS head for a Canadian government agency, said his budget will shrink from Can$1.2 million in 2002 to Can$1 million in 2003 . Grant said this year's priorities include projects that reduce internal clerical work and provide more self-service features to customers. Web applications, broader electronic document management abilities, and security projects will take precedence in 2003. Grant also wants to consolidate servers for further efficiencies in technology administration and reductions in capital expenses.

Rigorous approval processes continue

Whether your project priorities jibe with the trends for 2003, you should still prepare to justify your decisions against rigorous scrutiny for a project's ability to bring real ROI or cost reductions.

At Cotswold, the project review team evaluated projects based on their ability to improve the bottom line while supporting the company's growth strategy. At Grant's organization, projects that held the promise of saving money took precedence— especially those that would shift customer service from the staff to an IT solution.

Though budgets are relatively locked down, unplanned projects could get some support later in the year. This could bring relief to CIOs and the beleaguered IT industry. An IT spending survey by Gartner, Inc. and SoundView Technology Group, Inc. shows that spending might even grow later in the year due to pent up demand for products.

Gartner and SoundView surveyed 846 IT users and business executives among the 6,000 attendees at Gartner Symposium/ITxpo in October 2002. While the survey showed 2003 IT spending would be flat, it also showed that CIOs were focusing heavy spending on fewer priorities.

"While 2003 is not likely to be a watershed year for spending, the increase in demand for technology products suggests the likelihood of a spending increase by the second half of the year," said Mark Loehr, CEO of SoundView Technology Group. The same, however, is unlikely to be true for IT staffing budgets.

Staffing continues to feel the squeeze

At Cotswold, for example, Elmes anticipates only a slight increase in his staffing budget. If he adds a staff member, the staffing budget will rise 25 percent. If he doesn't, the staffing budget will rise 10 percent due to compensation rewards.

At the government agency where Grant works, the 29-person IT staff will shed one person, a contract worker whose contract will not be renewed in 2003. Grant said pay increases for the remaining staff will offset any loss to the staffing budget, reflecting almost zero growth in 2003. Grant said money for consultants has dried up, too. "I don't see it coming back any time soon," he said.

According to Chris Nerney, former analyst with Jupiter Research (now Jupiter Media), these two examples speak to a larger trend of fairly flat staffing growth. The firm recently released a study, "2003 IT/IS Budget Outlook: Near-Term Trends in Priorities."

"You can clearly see in projecting for 2003 the effect of the economic downturn," said Nerney. "The recovery is not on the horizon for the near term; some companies are holding steady and some are still doing small reductions."

Elmes said his organization's budget and staffing outlook are on par with industry expectations.

"In speaking with peers and acquaintances, I think that my budgets are a reasonable reflection of the whole," said Elmes. "I don't see any major growth in budgets; with most companies still looking to keep a tight rein on spending, the emphasis is on identifying projects that will bring clearly identified benefits and payback in less than two years."

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david southgate
writing for living.