Organisations axe IT budgets in real terms, but fly blind in deciding where to cut

Overall, IT budgets for 2009 have been cut in real terms by 73% of Australian organisations, according to a recent survey by Compuware which 220 Australian CIOs responded to. This is down from a more optimistic view in November 2008, noted Van Giang, Regional Sales Director, ANZ for Compuware.

More frightening is the fact that 20% or fewer Australian organisations are able to calculate key financial measures at any point in time, including business value and return on IT assets and services.

Among respondents holding senior IT business positions at Australian organisations, 46% have had IT budgets cut in absolute dollar terms going into 2009, 28% have the same budget in dollar terms (representing a real cut after inflation), 17% have had budgets increased in line with inflation (1–4%), and only 10% have had IT budgets increased above the inflation rate (5% or more).

At the same time, 20% or fewer respondents said their organisations are, at any point in time, able to calculate:

•  How much business activity each IT asset/service is generating — 19% of respondents;
•  How the performance of each IT service is affecting the bottom line — 15% of respondents;
•  What the value of the IT asset to the business is — 20% of respondents;
•  What the return of the IT asset is — 9% of respondents.

“When it comes to having a sound financial basis for making IT budget cuts, many Australian organisations are flying blind,” said Giang. “Very few organisations have real-time visibility into the demand for IT, where IT budgets is being spent or the performance of IT services.”

Other findings of Compuware’s survey include:

•  When it comes to visibility into demand for IT, organisations either have limited or no visibility (15% of respondents), use ad hoc or manual reports (55%), have regular or automated reports (19%) or real-time visibility (10%).
•  In seeing where IT budgets are spent, organisations either have limited or no visibility (4%), use ad hoc or manual reports (45%), have regular or automated reports (46%) or real-time visibility (5%).
•  In understanding the performance of IT-enabled business services, organisations either have limited or no visibility (14%), use ad hoc or manual reports (47%), have regular or automated reports (31%) or real-time visibility (8%).
•  50% of respondents said organisations manage their portfolios of IT-enabled business services either manually (43%) or not at all (7%), 57% manage IT demand and investment planning manually (50%) or not at all (7%) and 53% managed IT resources manually (45%) or not at all (8%). Other organisations use home-grown applications (30%, 21% and 18% of respondents respectively) or packaged solutions (19%, 20% and 25%).
•  Issues organisations are experiencing with the provision of IT-enabled business services include: insufficient strategic planning (38% of respondents), poor alignment between business and IT (35%), difficulty capturing business requirements (32%), lack of business knowledge in IT (31%) and shortage of skills (30%).
•  On average, only 24.5% of organisations’ IT budgets is devoted to new strategic initiatives versus maintaining existing IT-enabled business services.

Explaining the findings, Giang said that many organisations lacked the tools and the disciplines to optimise their IT investment decisions. As a result, their sub-optimal IT investments may not be obvious to the business — something that is often tolerated when economic conditions are good. But when conditions are tough and organisations are looking to make real budget cuts, it becomes of paramount importance to understand the impact of those cuts.

When the financial information used for investment decisions is inadequate or inaccurate, the results can be very costly to the business. Customers who have implemented Compuware’s Changepoint IT portfolio management solution, on the other hand, have the ability to detail both costs and benefits tied to an investment across multiple fiscal years to drive better decisions.

“Most organisations struggle to get detailed visibility of how their IT budgets are spent and what the direct business outcomes are,” said Giang. “It is not uncommon to achieve a 10% efficiency saving just from the improved visibility into IT that Changepoint provides. Improved visibility also lays the foundation for improved investment decision making — including identifying applications that should be retired to cut costs.”

Giang warned against simply cutting back on new strategic initiatives to meet IT budget cuts, a decision that could prove very costly over the longer term. “Over 75% of organisations’ IT budgets are already devoted to keeping the lights on. While no one is arguing that you should let the lights go off, the economic value to organisations of new strategic IT initiatives is typically far higher than existing investments.”