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Time to get some discipline around IT spend

Time to get some discipline around IT spend

How many IT-related projects could be classed as business critical? It is a question that should be asked all the time and not just when economic conditions take a turn for the worse.

As organisations readjust to the altered economic circumstances, it seems everyone is talking about cost reduction, efficiencies and value for money. Identifying improvements in these areas can prove elusive, but there is one area which is fertile ground for squeezing cost out of the business. That is the area of information technology. However, organisations would be mistaken to think of IT as a cost-saving opportunity purely in terms of personnel headcount. What companies should actually be looking at is their portfolio of IT projects. This is an area which historically has not been well managed. The time is now to prune those portfolios back.

One mistake commonly made when organisations are asked to quantify how much they spend on IT is the sum of staff costs. Yet, this is an answer that ignores the massive amounts of investments made on IT-related projects.

If any organisation wants to seriously look at trimming costs from its IT budget, then it is the project portfolio that it should be looking at - not whether a reduction in headcount will do the trick.

Many businesses believe there is potentially a lot of savings to be made in this area. That’s because it is an area which has been previously managed in a less than rigorous fashion. At any point in time, organisations 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 classified as business critical?

It is a question that should be asked all the time and not just when economic conditions take a turn for the worse. Inevitably though, what happens when times are good is that organisations invest in a proliferation of IT projects, some of which may be nothing more than an indulgence or a “nice-to-have” option.

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 organisation’s neck. My fear is that many businesses will fail to realise this and will go with the traditional knee-jerk reaction of trimming headcount that 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 resulting from even a limited redundancy programme can be damaging to the health of critical IT projects.

Surely, it is far better to eliminate those projects that are going nowhere, which had failed to progress as planned or which could no longer be deemed business critical? Get rid of those projects that had no sponsor or no clear business objective and leave your company with just a core IT portfolio. When you consider the scale of some organisations IT investments, the savings could run into millions.

The organisations that will emerge from this with the most credit will be those who maintained discipline over their project spend during the good times. This gives them a distinct head-start over their competitors when the time comes to start cutting costs.

Such organisations are few and far between though. In time, the credit crisis may be seen as directly causing a drastic reduction in IT spending. But in reality it was just the catalyst. It is the years of neglect that can be blamed. The 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 and assessing projects on a qualitative rather than a quantitative basis.

Permitting any excess spend in this area to continue unchecked may be regretted. 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 that survive the cull.

It’s time to get some discipline back into IT management.

Gina Barlow is the national service line leader for KPMG’s Project Advisory Service Line and provides project management and independent quality assurance services to KPMG clients. She has a strong background in project management, risk management and assurance spanning 12 years.

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Tags strategycosteconomic crisiskpmgproject failure

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