Justifying IT in a recession

It is hard to ask for money in a recession. Any case you make needs to be understandable, objective, fact-based, prioritised and transparent.

Last week I covered why an economic downturn can be a good time for working on internal IT activities: reducing costs, reducing risks, and getting ready for change and growth when the recovery comes.

But it is hard to make the case for IT investment in a recession. There is much less money for IT, not even enough to analyse whether investments are worthwhile. There is much greater scrutiny of any investment proposals. You need to demonstrate that you fully understand the situation and that you are proposing the best investments for the organisation. How can you make the case for IT investments in a recession?

Justifying internal IT investments is different from justifying IT for business change projects. When you look at IT for business change projects, you start with an idea of business change and you propose IT changes to match. For internal IT investment, there is no business change, and you have to find value inherent in the IT change, such as a reduction in IT costs. To be successful, you need to really understand the situation, and you need to be able to communicate it effectively to your colleagues. You need to be:

• Objective. You need to present a set of general business objectives that apply to IT: cost reduction, risk reduction, compliance, competitive position, and readiness for the recovery. Within the IT organisation you can then translate this into IT characteristics such as performance, standardisation, system architecture, continuity management, security, and so forth.
• Understandable. The rest of the organisation has a simple view of IT, which mostly involves "systems" that deliver some type of service. So you need to talk about whole IT systems, and not the IT things that support them, such as application software, technical infrastructure and working practices.
• Fact-based. You need to know how well IT meets objectives. You can do this by assessing every system against each IT characteristic.
• Prioritised. You can use a weighting scheme on systems and characteristics, and a scoring scheme on assessments, to give effective prioritisation.
• Transparent. You can show how applications and infrastructure relate to systems, and how IT characteristics relate to business objectives. You can show how the prioritisation works. There is nothing to hide.

Assessing systems against IT objectives builds a very effective body of information. You can use this to identify improvements in IT. It shows you the specific applications and infrastructure that need improvement, and the general topics that need management attention. It helps you prioritise. It is quick and cheap. It provides the information you need to justify investment.

This is, of course, the system quality management approach that I often write about. System quality management is a cheap and effective way of identifying and justifying improvements to IT. It works across all parts of IT: applications, infrastructure and working practices. It is understandable, objective, fact-based, prioritised and transparent. It is just what you need for justifying IT in a recession.

© Copyright 2009 Minimal IT Ltd. See the Minimal IT website for the original newsletter and copyright information.

IT opportunity cost in a downturn

Understanding opportunity cost can help you make the case for increasing some types of IT investment during an economic downturn.

Opportunity cost is a measure of the value of the next best alternative to a course of action. For example, if I am at a restaurant and I have to choose between the steak and the chicken, part of the "cost" of the steak is that I can not eat the chicken.

Opportunity cost is important in IT because IT skills have historically been in short supply. There are lots of things we could do, but we have not had the people to do them all. To give a common example, we often have to choose between deploying people on a major new project or deploying them on improving the systems that we already have.

Looking at IT in isolation, and in simple cost/benefit terms, the return on investment in improving current systems is often high. For example, a small amount of work on improving performance can greatly reduce running costs, and pay for itself in a few months, thus improving the organisation's profits. There are many such improvement that we could make, such as technology standardisation, simplification, consolidation, performance, documentation, any of which can significantly reduce costs.

However, the opportunity costs of these types of improvement can be huge, because it can mean missing out on the value of major new projects, including the political value of being seen to be contributing to the organisation. For this reason, we have often avoided investment in these types of improvements in the past.

In a downturn or a recession, the cost calculations change. The simple cost/benefit of system improvement stays much the same, but the opportunity cost is greatly reduced because there is much less benefit in major projects.

We could explain this simplistically by saying that we might as well do maintenance because we haven't got anything better to do. We could spin it better: investments in IT improvements provide a good return on investment at a time when there are few other opportunities for improving profits.

We often miss this. In a downturn, many organisations follow a tragic line of reasoning. They see that the IT department is mostly involved in major projects. When major projects dry up, they make arbitrary cuts in the IT department, rather than redeploying some of those people in reducing the cost base of IT.

Would this approach to justifying IT investment work? I certainly think it is worth pursuing. In the past IT has been really good at supporting big projects, and has focussed on this more than the internal efficiencies of IT. When there are fewer projects, there is still value in making IT smaller, simpler, cheaper, better understood, and a better basis for the recovery when it comes. This is not just a nice to have to keep the staff busy, but a really worthwhile investment for the organisation.

Next week I will consider some of the practicalities of making the case for IT investment in a downturn.

© Copyright 2009 Minimal IT Ltd. See the Minimal IT website for the original newsletter and copyright information.

2009 - the year of opportunity

The economic downturn will put a pressure on costs, increase compliance requirements and force organisational change. But there are huge opportunities for organisations who can weather these storms.

The economic downturn will have deep and widespread effects across all aspects of organisational life.

Within IT organisations, I expect to see:

• A loss of business (for external organisations), and a pressure to contain and reduce costs (for all organisations).
• Few, if any, major new projects. We will have to live with the systems and technologies that we have.
• More controls. Some industries may be subject to more regulation, and this will trickle down into the work of their IT departments. But all organisations will be subject to more scrutiny, especially ensuring that the organisation is getting good value for money.
• Organisational changes. The lucky organisations will have staff cuts; the unlucky organisations will be taken over; the really unlucky organisations will fail.

Despite this, I am hugely optimistic about 2009.

An economic downturn amplifies competitive forces. In the good times, it's easy to make money. In a downturn, only the truly efficient and customer focussed will survive. Nobody enjoys the downturn, but at the end of the downturn, the better companies have a bigger share of the growing market. If you can weather the storm, you can be there.

The downturn gives us in IT a bit of much-needed breathing space. For years, IT has suffered under the constant pressure to deliver projects and new systems. We have been very ambitious, and have used IT to demonstrate the organisation's capability and vision. We simply have not had the time to manage what we have well, and many of the systems we have are slipping into unsupportable legacy. As money for new investment dries up, we can grasp the opportunity to do some of the less glamorous but very much needed background work.

Although spending cuts may force staff shortages, there will be fewer skill shortages. The emphasis in IT will shift away from the management of huge teams of "resources" to the effective use of smaller teams of more skilled people.

You can see the downturn as wholly bad, keep your head down, and hope it doesn't hit you too hard. Or you can accept the reality of the downturn, see it as an opportunity to change, and take that opportunity full on. Whichever attitude you have will be self-fulfilling. If you don't adjust, you risk being swept away, or being overrun by competitors. If you embrace the downturn, and use it as an opportunity to refocus, to cut costs, to build a good basis for the recovery, you can prosper.

You might think I'm being optimistic, or biased because my business is all about managing cost reduction, compliance and organisational change. But I believe there are opportunities for all types of business. Next week I want to start by suggesting how you can use the idea of opportunity costs to make a really good case for increasing some types of IT investment in the current economic climate.

If you let it, 2009 can be a great year of opportunity.

© Copyright 2009 Minimal IT Ltd. See the Minimal IT website for the original newsletter and copyright information.