As corporates readjust to the altered economic circumstances in which they now find themselves, it seems like everyone is talking about cost reduction, efficiencies and value for money. Such things can be elusive but one area which may prove to be a fertile ground for squeezing cost out of the business is IT.
However, businesses would be mistaken to think of IT cost-saving opportunities purely in personnel headcount terms. What they should actually be looking at is their portfolio of IT projects; historically an area which has not necessarily been well managed. The time is right to prune that portfolio back — as Edge Zarrella of KPMG Advisory explains.
One mistake is commonly made when many businesses are asked to quantify how much they spend on IT. The answer which often comes back is an aggregate of staff costs — yet this is an answer which ignores the massive amounts of investments made on IT related projects.
If any business seriously wants to look at trimming costs from its IT budget, its project portfolio is what it should be looking at, not considering whether a reduction in headcount would do the trick.
I think that many businesses could quickly realize that there are potentially a lot of savings to be made in this area — and that’s because it’s an area which has been previously managed in a less than rigorous fashion. At any point in time, businesses can have a large number of projects 'in play', all at various stages of development. The question to ask is just how many of these projects really could be classed as business critical?
To be honest, that’s a question which should be asked all the time, not just when economic conditions take a turn for the worse. Inevitably though, what happens when times are good is that businesses invest in a proliferation of IT projects; some of which may be nothing more than an indulgence or a 'nice-to-have'.
Now that things have taken a turn for the worse, these projects — and the ongoing investment commitments which they represent — can hang like a millstone around the corporate neck. Sadly, my fear is that many businesses will fail to realize this and will go with the traditional knee jerk reaction of trimming headcount which is so often applied to the backroom, infrastructure and support functions during times of hardship.
That could be a mistake. For sure, there is an instant hit delivered to the bottom line even once the redundancy payments are taken into account but the skills gap which even a limited redundancy program can create can be damaging to the health of critical IT projects.
Surely, it’s far better to eliminate those projects which are going nowhere, which had failed to progress as planned or which could no longer be deemed business critical? Get rid of those projects which had no sponsor or no clear business objective and leave yourself with just a core I.T portfolio. When you consider the scale of some business’s IT investments, the savings could run into millions.
The businesses which will emerge from this with most credit will be those who maintained discipline over their project spend during the good times, giving themselves a distinct head-start over their competitors when the time comes to start cutting costs. Such businesses are few and far between though. In time, the credit crisis may be seen as directly causing a drastic reduction in IT spend but, in reality, it was just the catalyst. It is the years of neglect which can be blamed; years in which IT portfolios may have been over-stocked and not as well managed as they should have been.
Sensible businesses should now be conducting a thorough review of their project portfolio, assessing projects on a qualitative, rather than a quantitative, basis. Permitting any excess spend in this area to continue unchecked may be unforgiveable — and the same could be said of reducing headcount ahead of project spend. Clear thinking around what constitutes a critical IT project is what is needed now, alongside well defined Key Performance Indicators for those projects which survive the cull. It’s time to get some discipline back into IT management.
Edge Zarrella is Global Head of IT Advisory Services
