January 05, 2004
(Computerworld)
Gone are the days of the slam-dunk, no-brainer IT decision. Every choice a CIO makes in today's painfully cost-constrained business environment is high risk.
Delaying or scaling back a pricey CRM project to stay within the corporate budget can mean losing customers in the long run. Laying off IT employees to slash labor costs can shatter morale and create skills gaps later on.
"The risk in everything is finding the right balance. But one of the problems is that everything changes," says Samuel F. Averitt, vice provost for IT at North Carolina State University in Raleigh. "Decisions we make today are not necessarily going to be good ones for tomorrow."
As IT executives shift more and more into the role of risk manager, their primary job is to diligently and continually identify, weigh and – above all else – minimize the liabilities associated with all IT projects.
The key, say several of this year's Premier 100 IT Leaders, is to pay keen attention to timing, focusing primarily on the long term. Immediate savings from budget or staff cuts that do nothing to move the business closer to its long-term goals add up to little more than eye candy on the balance sheet.
Harry E. Roberts, senior vice president and CIO at Boscov's Department Stores LLC in Reading, Pa., was charged with cutting his budget significantly in 2003. But after thoroughly reviewing the $1.1 billion retailer's IT project roster, Roberts concluded that if the company wanted to meet its strategic business objectives, "the major things we needed to do, we still needed to do."
That's when Roberts and his team turned their full attention to Boscov's telecommunications contracts. Roberts dumped the company's two big-name vendors – Verizon Communications and MCI – and signed an enterprise deal with a little-known regional carrier, D&E Telephone Co. in Ephrata, Pa. The risk: "We traded some of that security that comes with a national vendor," Roberts says. But in doing so, Boscov's also saved $1 million and cut its long-term communication costs.
In yet another gutsy move, Roberts shifted certain retailing applications from a Windows NT Server environment to a Linux-based IBM mainframe. In the process, he virtually eliminated client/server computing costs that had been spiraling out of control.
"We made the decision that we could no longer expand the server farm that was growing at a rapid rate. We kept having to hire [a full-time IT employee] for every 10 to 12 servers we brought online," Roberts recalls. "The risk was in making the transition from one vendor's software to another without missing a lot of time for training."
But with help that Roberts negotiated from Boscov's three primary IT vendors, lost time was minimal and the retailer has saved "at least six to seven man-years that we would have had to pay for with client/server," he says.
"The theme here is that we weren't going to compromise our [strategic IT project schedule] because of a need to reduce costs. We got very creative and very aggressive instead," says Roberts.
Shift Pricey Investments
During the energy crisis of 2001, timing was also the main issue for Solomon Tessema, director of enterprise architecture and telecommunication services at Southern California Edison Co. in Rosemead. "We had some drastic cuts in our budget. We were forced to conserve cash so we could keep the lights on for customers," he recalls. "But we also had to be careful about not doing any long-term damage."
Tessema targeted capital-intensive projects, including a telephone exchange modernization project and an electricity distribution automation project, for major cuts. Both projects would have yielded immediate increases in operational efficiency if they had gone forward as planned, but they also would have required a large outlay of cash. The better risk management decision, Tessema concluded, was to tolerate the inefficiencies until the energy crisis abated. Even if they were delayed, both projects would still ultimately yield the same efficiencies. Deferring them was a way of saving much-needed cash in the short term with minimum risk, he notes.
To manage risk well, "you have to assess and reassess," says N.C. State's Averitt. "You have to maintain continual awareness of the status of all initiatives and the changing environment. And everything is not going to work. You're going to try things that won't work and then shift investments and energies."
That's precisely what Carlos M. Recalde, executive director of technology for the Americas region at KPMG LLP in Montvale, N.J., did in pulling the plug on a planned multimillion-dollar project to upgrade the firm's aging file-and-print server infrastructure.
"We had committed over $5 million to the project, and the ROI was quite compelling – all savings for the IT budget," Recalde says. But as specified, the project focused exclusively on a like-for-like replacement of an infrastructure whose design was almost 10 years old. "We were about to drop a pretty big sum of money into an infrastructure that is not likely to support upcoming business needs," he says.
Recalde persuaded the firm's business leaders to abandon the server upgrade project and instead define the scope of an infrastructure upgrade project with long-term value.
Once again, the primary factor in reducing risk was timing, Recalde says.
"Success was in holding back our investment dollars until we can make better use of them," he says.
