When corporate spending is tight, spend money on better ways of working, not on better computers.

Here are eight ways to cut wisely.

When it comes to thinking about IT productivity, economist Dean Baker is his own best guinea pig. Each time he turns on his computer to crunch economic statistics, he's certain he could do the same work with less computer.

"I'm always being given a bigger computer than I really need," says Baker, who is codirector of The Centre for Economic and Policy Research in Washington, DC. "And I hate it when they upgrade me because I can't get anything done for a few days while I switch everything over to the new machine."

Baker the guinea pig doubts the size of his computer makes any difference in his productivity. So does Baker the economist. Why, he wonders, is Federal Reserve Chairman Alan Greenspan crowing about technology as the driver behind the US economy's dramatic gains in productivity in recent years? The government's numbers just don't back up that claim, Baker says. Of the US economy's 2.5 per cent productivity gain for 2000, almost a quarter of that number is based on the fact that a $US1000 PC in 2000 was faster and better able to store information than a $US1000 PC in 1999. But ultimately, that additional speed and storage in the newer computer is not going to have much effect on worker output, Baker says. The last time computers made Baker more productive was almost 20 years ago, when he got his first PC. "When I went from crunching numbers on paper to using computer spreadsheets - now that made a big difference," he recalls.

Since then, companies have got so caught up in buying new computers - because the date was going to change or because Microsoft had come out with a new operating system - that they've lost sight of the real value of technology: improving the ways people do their jobs.

In an economic downturn - when corporate spending is tight - it's imperative that companies spend on better ways of doing work, not on better computers. "Computers don't make money," says researcher and consultant Paul Strassmann of Connecticut-based Strassmann Consulting. "People do."

Thinking about technology as a means to improve work helps sort out priorities when the finance department approaches the IT budget with axe in hand. Software upgrades that don't improve the ways things are done? Slice. New computers and networks that won't give employees new capabilities? Hack.

It also helps determine when to stop the axe midchop. Deciding about an across-the-board cut in IT training? Not so fast. Studies show that dollars spent on hiring and training IT staff will directly affect revenues because IT staff teach people to be more productive. Spending on software and hardware can increase revenues too, but not to the same degree (see "The Productivity Paradox"). Prioritising spending based on whether it improves the work - not just of employees but of customers and suppliers - is about the only universal truth in IT cost management. It's as valid in good times as it is in bad. Companies simply tend to pay more attention to it in the down times because that's when CEOs start to question spending in general. Here are eight tips to help assess your truly valuable projects and to avoid unnecessary spending.