The most dangerous IT budget cuts you can make

The former director of IT for Hillary Clinton’s 2008 presidential campaign talks about why cost containment pressures could have dire consequences if tech pros choose badly

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Nothing wakes up a webinar audience like mentioning Enron right off the top.

That’s how Gartner’s Bryan Pagliano kicked off his recent webinar Cost Containment: The Opportunities of an Impossible Budget. Pagliano, research director for Gartner’s government practice, shattered our post-holiday lull by tackling what certainly feels like an impossible quandary: how to manage your IT budget under today’s extraordinary pressure to cut costs.

Pagliano knows pressure; he was director of IT for Hillary Clinton’s 2008 presidential campaign. (Oh, to have been a fly on that wall.) In his recent webinar, Pagliano cited Enron as an example of how incredible pressure can lead to catastrophic mistakes. Enron felt pressure to keep its share price high; it pressured Arthur Andersen LLP to tweak its financials; the accounting firm’s complicity was the mistake (professionally, ethically and legally) that led to both companies’ demise.

Pagliano’s point, fleshed out over the hour, is that all IT managers face enormous pressure these days, mainly to slash costs. But slash-and-burn cost cutting, he warns, could ultimately burn you down the road.

Related: Pray no one increases your IT budget

“Some things that look like good ideas…may actually have bad consequences,” says Pagliano. Among his examples:

  • Across-the-board layoffs can “create workplace distractions and disillusionment (and) jeopardize retention of high performers”
  • If you “unilaterally abandon or reduce (IT) service levels,” you may overlook IT-generated cost savings and undermine IT’s credibility
  • Delaying IT upgrades and purchases could lead to service glitches and increased liability risks
  • Outsourcing IT will cost you time and money to find the right contractors; it may also decentralize and undermine the authority, control and accountability of your IT department

So how can IT strategically survive and thrive in today’s budgetary pressure cooker? Pagliano plots out two key approaches:

  • Benchmarking: a quantitative method; pulls IT metrics (on spending, staffing, hardware, etc.) from across your industry to help you compare and calibrate your own IT budget in line with the rest of your sector
  • Frameworking: a qualitative exercise; brings stakeholders from across your organization to the table; shapes your IT budget by examining the possible pros and cons (financial and otherwise) for each stakeholder if certain IT initiatives were cut, boosted or maintained

Guess what? It’s not an either/or proposition. Pagliano suggests a holistic approach taking both methods into account: “It’s not a binary thing. They both tend to be useful when looking at these decisions.”

It might surprise you, he says, to find that cutting back IT could have negative implications that reach far across your organization – and just aren’t worth it in the long run. Inversely, he adds, you’ll likely discover “opportunities for using IT to cut other costs.”

That last bit of advice is a particularly pertinent one for today’s CIO. We’re in an age when managers from all divisions – HR, finance, marketing, sales and, yes, IT – must justify every little thing by demonstrating ROI (thanks, analytics) down to the last dollar and decimal point. In such a demanding environment, it pays to show just how essential IT is to every part of your organization.

View the 40% IT cost reduction with Allstream’s vice-president of IT as he looks at the budget challenges facing his peers.  Featuring 5 guiding principles to optimize spending for the future.

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