IT Purse Strings Still Held Tightly

AMR: CIOs unlikely to use all 2002 budgets; 2003 to see slight gains

Tempe, AZ  November 18, 2002  Chief information officers (CIOs) are unlikely to spend their entire 2002 information technology (IT) budgets by the end of this year, and 2003 budgets are likely to see meager increases, according to a new report from technology consultancy AMR Research.

In the report, coauthors Tony Friscia, Bob Kraus, Colleen Niven and Fenella Scott write that while companies may have started 2002 with marginally higher IT budgets, they will only spend 92 percent of that budget by the end of the year.

"Influenced by the stock market, consumer confidence and unemployment rates, CIOs will not spend their entire 2002 IT budget by the end of the year," the analysts wrote.

Furthermore, AMR predicted that 2003 IT budgets will increase just 0.2 percent over 2002 budgets, leaving spending largely flat next year. "The optimism in [the second quarter], when companies were still planning to increase 2003 IT budgets by 1 percent, has disappeared," according to AMR.

The consultancy said it surveyed 100 IT executives in October and found that, on average, they had 23 percent of their 2002 IT budgets still to spend in the fourth quarter but planned to spend only an additional 15 percent of the budget by the end of the year.

The reductions in spending will be accounted for by head count reductions and less spending on training, outsourced services and telecommunications capacity. "A good portion of IT executives (38 percent) decided that outsourced services, like third-party consultants in particular, were not that critical to reaching the overall business goals," AMR writes. "Companies are either turning to in-house resources with the hopes of saving money, or are relying on the larger, more stable third-party consultants to meet their needs."

However, not all areas of IT spend will face spending reductions. AMR's analysts believe that companies will be looking to better leverage their current information assets. "The spotlight will be on enterprise performance management (EPM), an initiative that companies adopt to expose existing data to improve day-to-day operations through the use of analytics and performance metrics," the consultants wrote.

The technologies that will remain investment priorities for the fourth quarter and through next year include integration and data warehousing, again with an emphasis on better using existing data to help companies make better business decisions. Physical infrastructure and security will be priorities, too, and spending on enterprise resource planning (ERP) systems is likely to gain new momentum, AMR predicted.

How about next year? "EPM, customer fulfillment, supply chain management (SCM) and like areas will see investment in 2003, along with the software infrastructure needed to support them," the analysts wrote.