IT Budgets Flat or Falling for Remainder of 2009

To reduce the effect of outliers on the middle, Computer Economics (CE) uses the median when reporting its findings. What this means for CIOs reading their latest research is a little less than half of those surveyed (45%) were actually able to increase their operational spending this year, while 17% of CIOs had to get by with what they had last year and 38% are grappling with operational budget cuts.

Capital spending, on the other, was already hit hard in 2007/2008 so remained flat this year compared to 2008, which was flat compared to 2007, when capital spending budgets increased just 4.0%. “I’m not sure there’s too much surprising as we’re looking at budgets for this year,” said John Longwell, CE’s director of Researchand lead author of this year’s 2009/2010 IT Spending and Staffing report. “It’s a flat growth from prior years which is not particularly surprising.”

This is also true for IT spending as a percentage of revenue. As revenues have declined, so has IT spending. CIOs have been reducing this number steadily since 2006 when spending as a percentage of revenue stood at 2.0%. This year’s number is unchanged from last year at 1.5%.

All in all, this report, while not rosy but any means, shows an IT environment still fairly stable even though the world is in the throws of the worst economic downturn since the Great Depression. About half of the 202 IT executives surveyed indicate they are getting by; and that’s not so bad. Of course, it is highly sector specific. Manufacturing and retail, as can be imagined, are fairing much worse than healthcare and, believe it or not, banking and finance. “We think that’s probably largely do to consolidating and merging systems,” said Longwell. “There’s a cost involved in that. Also, were not looking at the total market. We’re looking at the typical bank.”

In other words, they are looking at companies that are still standing. Not Lehman Brothers or Washington Mutual’s effect on spending, for example.

Things were much worse for IT in the aftermath of Y2K, dot-com and 9/11:

“Nevertheless,” the report states, “there is a silver lining: the current value of 45% increasing IT budgets is well above the 36% realized in 2002 in the aftermath of the 2001 recession. This indicates that the current recession, though reportedly more severe than any since the Great Depression, is actually not as acute in terms of IT spending as the 2001 recession. This is because the 2001 recession was led by the technology sector. There was a widespread overspending on IT in the late 1990s, fueled by economic expansion, the buildup to Y2K, and the dot-com bubble. As a result, many IT organizations experienced severe cutbacks in spending in the 2001 recession and in the two years thereafter.”