CIOs Should Plan To Tackle Another Economic Downturn

According to Gartner Inc, in 2008, most CIOs were forgiven for being unprepared to deal with the global recession, but if another recession unfolds in the next 12 to 18 months, no CIO will be forgiven for being unprepared a second time.

In May 2010, investor doubts about the health of the global economy returned to the world’s capital markets with a vengeance. The possibility of nations defaulting on repaying massive loans, high unemployment rates, depressed housing prices, limited access to consumer and business credit, a growing belief that a sustained economic recovery may not be possible this year, and an array of other factors have all combined to shake investor confidence to its core.

As these and other factors were unfolding, many economists were still maintaining that 2010 and beyond would be a period of modest recovery and growth. Because so much uncertainty exists about the sustainability of the current recovery, CIOs should confront such uncertainty with clear and decisive action. They should augment current near-term plans by preparing for a second recession.

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“Just the potential for a second business downturn should be sufficient to compel CIOs to plan for another business downturn,” said Ken McGee, Vice President and Gartner Fellow. “However, most CIOs will not have a response strategy prepared if a second business downturn occurs.”

McGee said CIOs today are uniquely placed to tackle a second economic downturn, if they plan accordingly. “As questions, or even doubts, grow about the ability for economies to recover, CIOs in 2010 have one advantage over their predecessors. For the first time in the history of the IT industry, more than 90 percent of CIOs today possess extremely recent and practical experience dealing with a recession,” McGee said. “In light of this fact, we strongly urge these recession-hardened CIOs to leverage their recently acquired and economic battle-scarred experiences by proactively preparing their entire enterprises should another economic downturn occur within the next 12 to 18 months.”

Gartner recommends that CIOs take the following key actions to ensure that their enterprises are best placed to weather any potential financial storms over the next 12 to 18 months:

• Enlist C-Level Action Now — As IT leaders learned from the recent recession, executives will once again have to make a multitude of decisions to minimise the effects of a second business downturn. Because most official national recession declarations are announced well after the actual start of a recession, IT leaders should suggest that their enterprise executives convene now, so that business downturn response guidelines may be established before capital markets, customers, suppliers, creditors, etc. panic in the wake of bad economic new.

• Focus on the Current Fiscal Year — To save money as quickly as possible in the event of another business downturn, CIOs should work with executives to determine which IT projects scheduled and approved under the current IT budget may be postponed and which may be entirely canceled. Likewise, once all projects for the next fiscal year are identified, CIOs should determine which of those projects may be postponed and which may be entirely canceled.

• Focus on the Next Fiscal Year — Once all projects for 2011 are identified, simultaneously determine which of those 2011 projects are relatively expendable and, therefore, may be postponed and which may be canceled, should deteriorating business conditions warrant such steps. Of course, the decision process for determining which projects may be postponed or canceled must include an assessment of the contractual exposures that may exist or arise with IT vendors for hardware, software and services.

• Use Zero-Based Budgeting for Projects — As CIOs begin preparing for their 2011 budgets, they should adopt zero-based budgeting for projects in 2011. CIOs need to strongly suggest to C-level executives that all business unit executives sign documents affirming their understanding of:

  - The one-time costs that will be incurred to implement their 2011 projects
  - The annual recurring costs required to maintain those projects once they are completed

• Use Zero-Based Budgeting for Existing Applications — CIOs should compile an inventory of existing applications that are maintained by the IT staff and assign a reasonable estimate of the annual cost incurred to maintain each application. Once calculated, Gartner recommends having the business unit executives sign a document affirming their understanding of the estimated annual cost for overseeing and maintaining their applications.

“Our bottom-line advice is to prepare the ‘second recession’ plan, rehearse the ‘second recession’ plan and hope that you never have to use the ‘second recession’ plan,” McGee said.