Six budget tips for surviving 2009

Old notion: Budgets change, but with some measure of predictability. New order: Be prepared to reset projects and expectations -- on the fly.

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So imagine, Shah says, a project that last year would have yielded $120 on an investment of $100. If interest rates are now 6% or 7% versus 3% or 4% last year, the project now has to yield more than $120 to make sense. The only choice is to squeeze out more ROI or decrease the investment.

Today, Shah sees hurdle rates increasing by five to seven percentage points, and he says CIOs should keep that in mind when choosing which projects to pursue, freeze or abandon. This will be a particularly hard exercise for companies that are midway through multiyear endeavors that consist of interconnected parts. "It's a skill set CIOs are learning -- how to build small chunks of projects and still have a functional flow to preserve the structure of the technology architecture without abandoning it," Shah says.

Sometimes capex issues affect IT indirectly. At CPS Energy, CIO Christopher Barron says his budget will likely decrease by 1.5% this year because of plans to build new nuclear reactors and other construction projects. With the cost of capital rising by 20% or 30%, he says, the rest of the company is supporting these initiatives by holding down operational maintenance costs. "If we don't want to raise our prices past a certain level, we need to trim expenses internally," he says. IT is also being asked to delay or defer projects, but Barron believes money will be funneled back to IT this year.

2. Compress Payback Periods

Another metric getting renewed scrutiny is payback period, Shah says. "It's not just about ROI, but what ROI can I get in Q1?" he says. "It's not just whether the CRM system can make the sales force better, stronger, faster, but can it do that by the end of June, and will I see it in the Q2 financial results?" This will change not just what gets funded but also how you think about sequencing projects and which components you're going to launch first, he says.

Chubb Insurance Co. CIO Jim Knight says his company will intensify its focus on a goal it has pursued in the past few months to break up projects into smaller components with deliverables every six months. "With demand always increasing and supply not increasing, we're focusing on how to become more agile in terms of how we provision what we do," he says.

At the same time, Knight says he is looking at a budget increase for '09, which he attributes to prudent spending and the fact that Chubb's specialty area has been less affected by the downturn.

3. Use Concrete Metrics

According to Twohig, projects that show concrete cost reductions will take precedence over those that provide functional enhancements. "If a project reduces operational head count by 10 people, that's a pretty clear measurement," he says. "If I'm just enhancing productivity but am unsure how to measure the return, it's harder to float that kind of project to the top, even though you know it's good stuff."

For Clean Harbors, productivity improvements include enhancing reporting functionality and making changes to the ERP system. Projects more likely to be pursued in 2009 include pushing mobile functionality to the field staff, automating invoicing, creating Web self-service features and any project related to the three top corporate priorities -- health, safety and compliance.

4. Prepare for Budget Fluctuations

Deep uncertainty is causing some companies to overreact, Potter says, and decisions made now may be changed later. "There's simply not enough information on what the future will look like," he says. IT leaders should seek ways to not just be flexible but to turn on a dime.

For instance, in addition to his best- and worst-case scenario plans, Twohig is also prepared to act quickly in the event of a severe downturn. "I've looked individual by individual in terms of what people we'd have to do without, based on project priorities," he says.

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