Bang for the Budget

For the financial services sector, information is the lifeblood. How then do you keep the blood pumping when an economic downturn grips? One seasoned CIO says that while there have been peaks and troughs he has"rarely been constrained in spending until this year". Although it's a first for this CIO in his present position, his reduced IT budget is probably not wholly attributable to the general economic climate. He says the high levels of investment in the recent past - demanded, for example, by Y2K and the GST - would be simply unsustainable long-term.

The CIO says when the word comes from on high to cut spending there are only two areas where he can prune. First, there is the development spending budget and its associated capital expenditure budget, which makes its way to the balance sheet for amortisation over time. The second area is the ongoing expense of running the IT operation. Slicing away at the development budget and capital expense budget is the most obvious solution and probably easiest; but he says it is also possible to shave some costs from the ongoing expenses bill.

"Where there might be some constraint is where you have spending that you could broadly label Â'enhancing the robustness of systems and infrastructure'," the CIO says."It is very judgmental to determine how much redundancy you have in your system, for example, in your network. It is a decision we have to make with the business to save money and delay spending knowing that there might be a slightly greater risk of instability. This is one of the practices we are going through at the moment." The additional risk is very carefully considered, and any real threat to the business is studiously avoided."To me it's inconceivable that you would cut anything more than a buffer zone," says the CIO.

Where he can conceive of more spending cuts is in systems development. But this is a decision that IT cannot make in isolation in his organisation, as the department does not control the IT development budget. That, says the CIO, is held by the business units, which are accustomed to having to jostle for position in terms of securing IT's attention. Even in more robust economic times the CIO says it is impossible to meet all the IT demands of the business units."At any point in time there are more development projects required by the business than the budget or resources can afford," he says, pointing out that it is a problem not unique to IT.

There is therefore a constant need for prioritisation by the IT and business units. First priority is always to meet the regulatory requirements such as those imposed by the ATO, APRA or ASX."They get done, no argument," says the CIO."Then you prioritise projects according to your strategic plan. It is quite a stressful time and there are pointed and heated arguments in and between departments," he says, as business units fight for their slice of the ever shrinking CapEx pie.

That's understandable given the cascade effect that a slowdown in IT development might have."What happens is that each operational department constructs a two- to three-year budget to get a product or service out, and then when they don't get the IT system they have to rebudget for this and next year. [Eventually] you move toward a more iterative program so that budgets have to be revisited," the CIO saysAlthough the arguments between departments for project priority can be disturbing to watch, this CIO cautions against IT intervening or a casting vote in favour of one of the projects."In today's world if you've got IT deciding what is to be done then it's not very sensible," he says.

The CIO of a West Australian retailer disagrees, preferring to take a more hands-on approach, determining what survives and what is culled in a slowdown. He was advised recently of the need to rein in capital expenditure, which meant cutting down on system upgrades, software upgrades or other non-essential projects. In essence, he says, he was asked by management to look at the funds and staff he would need"to just keep it going". That means the planned update of the legacy system is almost certainly off the agenda.

At the same time as he's being asked to just provide an operational service, he complains that he is"still expected to be strategic". It's the challenge facing all CIOs with budgets under attack.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

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