December 3rd, 2008

5 steps to cut IT budgets wisely

Posted by Michael Krigsman @ 6:39 am

Categories: CIO issues, Financial impact, IT issues, Project strategy

Tags: IT Budget, CIO, Information Technology, John, Strategy, Management, Michael Krigsman

For many folks, economic planning these days has become synonymous with reduced spending; often, determining cutbacks is even more painful than budgeting. No, the chopping block isn’t a fun place to be.

That said, here are five reasonable things to consider when cutting budgets. The list comes from John Halamka, CIO of  CareGroup Health System and Harvard Medical School:

1. Engage all your staff  - they can identify operational inefficiencies, redundancy, and savings opportunities.
2. Find the low hanging fruit - vacancies, travel/training, consulting fees, food/entertainment, and other “nice to have” expenditures are the first place to start any budget reductions.
3. Identify service reductions - all IT projects are a function of scope, resources, and timing. Reducing the scope of service and determining what projects to cancel is an important part of budget reductions.
4. Extend timelines - assuming that resources are diminished and scope is already reduced, the last lever a CIO has is to extend the timelines of new projects.
5. Accept risk - Our job in IT is to ensure stability, reliability, and security.

The key takeaway: successfully cutting budgets, especially unexpectedly, is all about balance and tradeoffs. Presumably, your projects are important or you wouldn’t have funded them in the first place. So, every cutback is likely to materially interfere with plans and goals, sometimes with severe downstream consequences.

John suggests that periods of economic turmoil offer CIOs an opportunity to focus on collaboration and team building:

CIOs should provide senior management with a list of services and a list of risks, then decide collaboratively what to do. This ensures that the CIO and IT is seen as an enabler and team player rather than a cause of the budget problem.

I suggest carefully examining the business value and ROI for every major project, activity, and purchase in the IT budget. Use anticipated business value as a metric, or reference point, when going through the budget. If you can’t explain the business value of a budget line item in straightforward terms, then it’s a candidate for deletion.

The budget axe is hard to wield, but thinking in terms of concrete business value will give you the strength to cut wisely.

[Image via iStockphoto.]