Soft Economy Slows 2008 IT Budget Growth

MBA (7/21/2008 ) Palaparty, Vijay
IT operational budgets will scale back this year because of slow economic growth, according to a report from Computer Electronics Inc., Irvine, Calif.

the report said median IT operational budgets will only grow 4 percent this year, a decline from last year’s 5 percent growth.
“It does not take an outright recession for organizations to pull back on IT spending,” said Frank Scavo, president of Consumer Economics, and IT research and advisory firm. “IT spending and staffing levels are not generally falling, just as the U.S. economy is not yet technically in a recession. Statistics indicate a decidedly cautious mood among respondents this year in contrast to optimistic tone in last year’s survey.”

The report, IT Spending, Staffing and Technology Trends, said 25 percent of IT executives do not plan to spend all the money allocated in their IT budgets. Twelve percent of executives plan to spend more and 63 percent expect to spend a similar amount as last year.

IT spending as a percentage of revenue declined to 1.5 percent this year from 1.8 percent in 2007. “Corporate revenues are generally still growing,” the report said. “If IT spending as a percentage of revenue is declining, it might be because corporate revenues are growing faster than IT spending. In other words, IT spending is increasing, but not as fast corporate revenues.”

Banking and finance organizations were reported to lag behind in IT spending increases, with only 2.5 percent growth. “Banking and finance organizations are suffering from the meltdown in the credit markets and a downturn in new home purchases,” Scavo said.

Though IT operational budgets will increase, the report revealed that IT capital spending growth fell to zero this year. Last year, IT capital budgets grew at a 4 percent rate to fund long-term investments in IT infrastructure, equipment or major systems.

“As organizations are placing a lower priority on new system development, it is natural that IT capital spending would show slower growth,” Scavo said. “It is also logical that spending cuts would fall harder on capital spending, much of which represents new initiatives that can be deferred, than on operational spending, which largely comprises ongoing maintenance and other spending that is non-discretionary.”

Improving service levels was the top priority cited by organizations in the survey. Better management of risks by improving disaster recovery capabilities; increasing IT security; reducing ongoing IT maintenance and support costs; and improving of our IT staff skills followed on the list.

“These top five are all related to the basic mission of the IT organization: serving users while managing risks and costs,” the report said. “They differ somewhat from the top five last year, when developing new systems ranked number one and reducing the cost of ongoing support did not even make the top five. This shift in priorities shows a general softening in the focus on new systems and tighter attention on cost control.”

This year, 39 percent of organizations reported adding IT staff and 24 percent reported staff cuts. Last year, 52 percent added staff while only 16 percent made any cuts.

"Business executives are unwilling to significantly augment full-time IT employee headcounts," Scavo said. "Instead, companies of all sizes are turning to outsourcing as an ongoing strategy to handle fluctuations in the need for IT personnel."