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No. 2: Prepare for Multiple Scenarios
Gartner got the discussion going last fall when it took stock of the dicey economy and published a report urging CIOs to prepare a "recession budget." Gartner published its report in October—a month when many companies would have been in the midst of doing their budgets for 2008.
No CIOs interviewed for this article said they had a recession budget per se, but some have adopted practices that amount to the same thing. For instance, Marty Luffy, the CIO of Installed Building Products, an insulation subcontractor that has been growing through acquisition, says his budgets assume three levels of spending. The first level is holding things steady, the second is accommodating geographic growth and the third is diversifying into adjacent lines of business.
Literally, what this translates into is an Excel spreadsheet with three columns across the top: One labeled "Maintain," the second labeled "Grow" (if Columbus, Ohio-based IBP buys an outfit in Oakland, say) and the third labeled "Build" (if IBP starts to install garage doors in addition to insulation). There are line items for everything from e-mail support to financial applications to the data center.
Luffy is lucky in that IBP's strategy of bolting on acquisitions has kept the company's revenue (now north of $250 million) growing in the seven years he's been there, construction slowdown or not. He says the trick is not to get so used to the good times that one makes the mistake of assuming they'll last forever.
"We try not to get to the point where we need to pull back," he says. "We've never allowed ourselves to get into that mode of, 'Oh, we're so busy and the money's coming in; let's spend it.' "
One example of the discipline Luffy practices: His department supports only Blackberries and Treos. Workers who want a more exotic device can get one—but they're on their own. "That allows us to provide the basic functionality everyone needs, but doesn't force us to have a full-time person who knows all of these devices," he says.
Zero-based budgeting, in which every line item is scrutinized, regardless of how long it has been in the IT budget, is useful in instilling discipline and can help in the event that technology cuts become necessary. That is the way the corporate technology budget is built at Par Pharmaceuticals, a $725 million maker of generic drugs based in Woodcliff Lake, N.J.
Like most companies that do zero-based budgeting, Par also gives departmental managers guidance on what they can spend. Told by his CFO that he needed to operate with no more funds in 2008 than he had in 2007, CIO Joe Greer went back to the drawing board and identified the one way he could still add internal headcount. "I dropped the external consulting line by some whopping percentage," he says.
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