Shifting IT budgets

Most companies are late into the budgeting cycle with about 90 percent of the budget allocated and locked in. But there is still that remaining 10 percent, and many companies are in, let’s say, the mid-to-late point in that decision-making cycle.

I thought it would be interesting to talk to a number of industry experts about the shifts in IT budgets they see companies making for next year.

Some -- particularly Raj Shah, a senior manager of business consulting at Sapient -- see a continuing consolidation around spending money to save money. In particular, he sees concentration on integration, EAI, and a definite uptick on investment in Web services.

Even more interesting are the investments companies are making in open source. Shah told me a number of clients with Sun Solaris-based Web server farms now believe the cost of maintaining those systems is too high. They are looking at Apache running on Linux on the Intel platforms as a way to get maintenance costs down.

“More people know Intel hardware. Linux training is cheaper. Upgrades over the lifetime of the box [are] significantly less than Solaris. So spending money up front to replace a server farm is good,” Shah tells me.

From everyone I speak to, it is a foregone conclusion that Web services are a less-costly alternative than other integration technologies. But there is an IT learning curve here. In a component-based architecture, as in Web services, it becomes a service-oriented world, with information flowing from one component service to another to execute a final, single service. Making the transition has a price tag in terms of the time and training required to move IT from older technologies to, say, .Net and J2EE. The change revolves around the fact that most EAI technologies allow the system to make direct functional calls between applications while Web services requires programmers to abstract those layers and string together services, trusting that the program will do the right thing. 

“It requires more rigor in design,” Shah says.

Vendor consolidation is also having its effect on how budgets are allocated.

Rainy-day funds, money targeted for a contingency plan should the vendor and its technology disappear, are increasing by about 10 to 15 percent.

Jim Davis, a senior vice president at SAS, says consolidation is playing in the company's favor. When it comes to budget, stability of a vendor is a leading check box.

Davis also has an interesting slant on how companies should approach the budgeting process. Davis believes that the IT budget should be managed the way a mutual-funds manager manages a portfolio.

“If a particular holding is not doing well, it is sold or swapped out from the portfolio. If a holding is doing well, you increase your position,” Davis says.

Within that IT portfolio are three components: operational spending, which might be 70 percent of the portfolio; business intelligence, which might be 25 percent (remember, Davis works for SAS, a business-analytics company); and futures at three to five percent.

Looking at your IT portfolio from this perspective helps the budgeting process by helping you match spending with goals. If you are trying to rework ERP, more goes to operational; and if you want, say, a competitive advantage, you might want a larger percentage in BI.

Finally, Chris Hagler, the national director of strategic services at Resources Connection, says the most significant change in an IT budget should really focus on how to have a better relationship with your customer.

Now that makes cents.