The threat of an economic recession could impact the digitalization plans of organizations both large and small, requiring chief information officers and chief financial officers to closely coordinate investment plans.
This planning will require determining the IT funding initiatives that are “mission critical” and other projects that might be nice to have but don’t require immediate investment.
Despite the cloudy economic outlook, the relentless push to digitalization will likely continue apace. Businesses may therefore have to adjust priorities, rather than reduce spending.
“There is always uncertainty even in the best of times, so the key to IT budget planning is ranking your priorities and executing them — especially if you can beat your vendors down a bit,” says Rich Quattrocchi, vice president of digital transformation at Mutare, an enterprise communications and security provider. “If you liked the project at $500,000, you must love it $450,000.”
He says IT is akin to investing in the stock market, so if you can invest at a discount during a downturn, pulling the trigger will pay big dividends downstream.
“Keep in mind the average length of a recession is only 13 months, and recent recessions have been shorter,” Quattrocchi adds. “The best tip is to ensure all your employees involved in IT, and other projects, think like owners and spend money as if it were their own.”
After more than 30 years in business, Quattrocchi notes that Mutare has weathered several recessions. “We invest heavily in IT security, automation, and digital transformation, especially during downturns,” he says. “Digital transformation delivers more productivity from existing resources diminishing the impact of headwinds by enabling our people to do more with new tools.”
He adds that the company has found that during downturns, vendors are far more eager to discount products and services, which makes it an excellent time to invest in IT infrastructure to better serve customers, employees, and constituents.
However, a great deal of critical thinking must go into determining what is mission critical vs. “nice to have”.
From Quattrocchi’s perspective, the “mission” should come top down, and then leadership needs to get out of the way and let the business unit get the job done.
“The best leaders don’t tell their people how to do the job, but what to do then ensure they have the tools to get it done,” he says.
He adds the KPIs need to be mutually agreed upon and be achievable and objectively measurable. “Having a regular feedback loop is essential,” Quattrocchi says. “If the KPIs are going in the wrong direction, then a course correction is required. This is where common sense, consensus and critical thinking intersect.”
Establish and Refresh Detailed IT Budget
Coinme’s CFO Chris Roling says he thinks it’s useful for an organization to establish a detailed IT budget at the beginning of each year and then review the actual/forecasted cash spent every month with the key budget holders and the senior finance team.
“We then ‘refresh’ the budgeted spending for the remainder of the year,” he explains. “Effective communication between finance and IT is critical as both parties can understand and agree on what IT investments are required/necessary versus nice to haves.”
Roling says the company evaluates every major project on its own merits and employs a “decision matrix” template whereby the project team documents the proposed project spend and highlights the strategic rationale, the impact on internal/external customers, the financial return and cash flow timing, project resource planning and implementation risk.
“We also conduct a full legal review of all proposed contract provisions, and service level agreements should the project involve third parties,” he says. “The leadership team then can ask additional questions and ‘challenge’ the spend, timing or approach.
Finally, the group takes the final consensus decision and closely monitors the project.
“We do not anticipate cutting any budgeted IT expenses but rather may defer some significant IT project spending during the year’s balance,” he says, noting all cost center budgets, including IT, are under monthly review.
Roling explains that at his company, the entire leadership team is involved in planning and reviewing annual departmental budgets and significant IT spending.
“The IT team and finance are the primary stakeholders in agreeing and documenting the detailed monthly cost budgets and forecasts, and the communication is interactive and as frequent as required,” he says.
He points to the benefits of scheduling fixed monthly “budget reviews” in advance, along with a transparent process for reviewing actual and forecasted monthly IT spending.
“We also try to establish “contract owners” when we enter into new contracts with third parties,” he explains. “These individuals are responsible for owning each IT contract and being aware of actual invoicing and monthly spending, user metrics and related pricing, escalation clauses, renewal and exit timing and terms. This allows us to manage our spends and contractual relationships proactively.”
When planning an IT budget, Quattrocchi says the stakeholders are the same irrespective of economic uncertainty depending on the project, mission critical objectives, and business unit responsibilities.
Collaboration and Alignment
He says best practices should be the same concerning collaboration and alignment in both good and bad times. “Uncertainty shouldn’t change collaboration, as it can result in untended consequences,” he says.
He points to the recent Robin Hood data breach that originated from a vishing attack.
“Protecting their voice network should have been a mission critical project, yet they didn’t invest in a single technical control to filter voice traffic from bad actors,” he says.
A nefarious caller was able to spoof a Robin Hood phone number, convince an employee they were talking to an IT person at the company, and scam the employee into giving up credentials to access the customer database.
The breach resulted in over 7 million client records being stolen and in addition to the primary productivity and response costs.
“The secondary costs were astonishing, causing the company to lose half its market cap as a result,” Quattrocchi says. “All this was completely avoidable. At the risk of resorting to cliché, it never pays to be penny wise and pound foolish.”