Prep Now For Next Economic Downturn. Really?
Having been raised by parents who were children during the Great Depression, having spent my own childhood in NYC during the worst years of the 1970s, and having had the pleasure of looking for my first job during the labor downturn of the late 1980s, it's my default setting to brace for the next economic catastrophe.
That's why I was personally surprised to see Gartner's proclamation yesterday that CIOs should plan now for the next recession. Aside from my kneejerk "Gee, thanks, Debbie Downer" reaction, my next thought was: we need to be told this? Wouldn't anyone in their right minds be crazy not to learn from recent lessons and be ready for the next "big one."
With our current economic woes far from resolved, it is basic common sense to have a backup plan for the next time the money dries up. As we all know, though, many corporate actions in the recent past seemed to defy common sense, so I'll grudgingly admit that Gartner is probably doing more than stating the obvious here.
"Just the potential for a second business downturn should be sufficient to compel CIOs to plan for another business downturn," says Ken McGee, VP and Gartner fellow, in a prepared statement released July 8, 2010. "However, most CIOs will not have a response strategy prepared if a second business downturn occurs."
McGee says CIOs are uniquely placed to tackle a second economic downturn as long as they plan accordingly. "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," Mr. McGee explains. Recession-hardened CIOs need to leverage their experiences by proactively preparing their entire enterprises for the possibility of another economic downturn within the next 12 to 18 months, adds McGee.
Relax, it's OK, you can come out from under your desk now. McGee gives us some action items you can put into use immediately to help your organization weather the next economic storm. Here are the highlights:
Enlist C-Level Action Now
Because most "official" national recession declarations are issued long after the actual start of a recession, IT leaders should suggest that their enterprise executives convene now. This way, business downturn response guidelines may be established before capital markets, customers, suppliers, creditors (and everybody else) panics in the wake of bad economic news.
Focus on the Current Fiscal Year
You won't like this one, but it makes a lot of sense to be ready for the worst-case scenario. McGee recommends that CIOs should work with executives now to determine which of the IT projects scheduled and approved under the current IT budget may be postponed. Also needing evaluation: which projects 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. Also know ahead of time 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
CIOs preparing their 2011 budgets 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.
In case I haven't cheered you up enough already, additional detail is available in the Gartner report "Plan for a Second Recession, Now."