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4 ways federal fiscal austerity will impact US CIOs

Jonathan Hassell | March 21, 2013
First there was the fiscal cliff. Now there's the sequester. Neither caused the sky to fall, but both will have a slow, steady impact on the economy. That means CIOs should tread carefully when crafting IT budgets for the next couple years--and shouldn't be surprised to hear 'No.'

Goods will still be sold. The lights will work. This isn't a return to the Dark Ages. Consider what's even happened since Jan. 1, the day a deal was reached to avert the fiscal cliff.

In the first quarter of this year, we've had an economy with private paychecks decreased; this is from the increased withholding accumulating over several checks since the start of the year to begin to pay for the increased taxes. That said, the economy has still grown in this period, and official numbers indicate that unemployment has lowered. The world hasn't ended just because the American consumer has had less disposable income.

The point here is that austerity isn't a gunshot to economic activity. It won't result in losing 10 percent of your budget overnight. It's a long, slow journey to getting a fiscal house in order, and a resilient economy will eventually overcome. So there is not any need to panic.

3. Prepare for Budget Reduction Requests

As we move through the next couple of years, you'll likely encounter budget cuts. Austerity might not be a free fall, but it does have slow and sure effects. It may even be a severe cut, like banking and financial service giant Citigroup shedding 11,000 jobs and booking a related $1 billion charge in its fourth quarter.

It's a steep cut, to be sure, but of particular interest to CIOs should be where those cuts are coming from. Around 25 percent of the job cuts will be reductions in its technology and operations group, run by CIO Don Callahan. According to The Wall Street Journal , Citi plans to achieve greater efficiency through increased standardization and the use of automated processes.

Sound familiar? When the economy cools off and consumer demand drops, budgets need to adjust. This may even involve personnel reduction requests, which are never pleasant. There may also be a focus on reducing large, fixed, one-time capital expenditures-this is particularly true if your organization operates under the section of the tax code where some capital expenditures were able to be deducted 100 percent in the year they were incurred, not depreciated over several years-and translating those into variable operating systems that hopefully reduce themselves when used less and expand only when necessary.

Generally, this will mean delaying or deferring hardware requests and engaging more with cloud-based services that become variable expenses that flex with load and usage. Your giant, expensive refresh projects will probably end up on hold or scaled back significantly&mdasg;making it a fine time to invest in automation, to extend the life and functionality of your existing assets, and in the cloud.

 

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