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Recession Pares IT Budgets, but CIOs Keep Projects on Track

As the economic recession continues to deepen, double-digit budget cuts, hiring freezes and layoffs are becoming a fact of life in many IT departments. But some CIOs are managing to keep both their staffs and their rosters of ongoing IT projects largely intact - due partly to a desire on the part of business executives to use technology to reduce corporate costs and boost revenues.

For example, Dale Frantz, CIO and chief technical officer at Auto Warehousing, is having to cut his IT budget by 24 percent this year. AWC processes new cars for automakers and then ships them to dealers, and it's feeling the pain of the sharp drop-off in car sales. As a result, Frantz has frozen salaries and new hiring, eliminated most travel and put off hardware replacements and other capital spending until next year.

But Frantz said that he has been able to avoid workforce reductions thus far. And AWC is using the recession and the resulting business slowdown as an opportunity to expand its systems to some facilities that weren't heavily automated in the past.

The recession "isn't good for IT per se," Frantz said. "But we do have an opportunity to clean up the processes at facilities where things maybe weren't as efficient as they could be."

According to Frantz, AWC also has been able to protect IT workers and projects by reaping the cost-savings benefits of a high-profile conversion from PCs to Macintosh systems that it began two years ago. Savings on software licensing costs are starting to kick in now, he said, adding, "This turned out to be a great year to have that happen."

In addition, the Mac conversion provided AWC with new remote diagnostics tools that it's using to centrally troubleshoot and repair systems, instead of having to send IT staffers out into the field for fixes. And also in connection with the Mac rollout, the company is using server virtualization software on Apple's XServe systems to reduce the number of physical machines it has in place.

Viji Murali, CIO and vice president of information services at Washington State University, said she has been asked to cut her budget by 20 percent - and that's before school officials hold a two-day budget summit scheduled to take place on Wednesday and Thursday. As at AWC, the need for cutbacks has led to a salary freeze and a decision not to fill most positions that become vacant, Murali said.

The IT department hasn't put any ongoing projects on hold thus far, but Murali said it is slowing many down "enough to look at different ways of doing things." For example, Washington State recently switched from one application that cost US$200,000 in licensing fees annually to another that it found for half the price. And the new product is hosted by the vendor, providing a further savings on internal "people costs," she noted.

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Murali also has brought in consulting firm Gartner to analyze a proposed ERP rollout and recommend strategies for reducing its potential cost. Two years ago, the school probably would have just chosen one of the major ERP vendors, signed a contract and launched the project, she said. "Now," she added, "we're analyzing every task, every process."

In addition, the IT department has hired a "director of fundraising" to reach out to tech-savvy alumni and has taken Microsoft up on an offer to host the school's student e-mail system on its servers. "we're pursuing all kinds of unusual options, things we wouldn't have considered before," Murali said.

Marie Mouchet, CIO for electric utility Southern Co.'s power generation unit, said the company has lowered its overall IT spending by about 10 percent because of the economic downturn. And IT executives are "kind of in a real-time monitoring mode" on spending, Mouchet said, adding that the company has cut merit raises and bonuses, left vacancies unfilled and pushed back some projects.

But the generation unit hasn't reduced its IT headcount, and most major projects remain on track, Mouchet said. That includes the rollout of a new billing system for wholesale contracts as well as the companywide deployment of Oracle Corp.'s financial applications and asset management owned by IBM - a project that will cost in the hundreds of millions of dollars.

Getting more money for projects isn't a likely option, though - especially after Southern Co. announced a set of cost-reduction efforts in December. Later this month, IT executives are scheduled to meet with the chief financial officers of the utility's operating companies for a regular quarterly review of projects costing between US$1 million and $20 million, and the focus "is all going to be about cost," Mouchet said.

While projects are continuing, she added, "you don't have the opportunity to go back in and say you need more money. [The recession] puts more requirements on you meet your schedules and your budgets."

Mouchet said the need to rein in spending also may accelerate Southern Co.'s adoption of new technologies, such as YouTube for video-based training and Amazon.com's Kindle e-book reader for putting repair manuals into electronic form. The company was looking at those tools before the recession hit, but the downturn "may be a catalyst to get a lot of these things in quicker," she said.