June 23rd, 2020 Read Time: 6 minutes
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The only certainty in today’s economic climate is its uncertainty. Supply chains have been disrupted, businesses have been shuttered, and consumer spending has declined. No country has been spared.
The International Monetary Fund (IMF) projects a 6.1% drop in worldwide economic growth. And that is the optimistic projection! If the health crisis does not improve in the second half of 2020, the world could see worsening financial conditions and further supply chain disruptions, leading to an additional 3% drop in economic growth. If the pandemic continues into next year, the global economic loss could be as high as 16% or 17% over two years.
With such a downturn in the world economy, companies have no choice but to reduce spending. At the same time, businesses must be cautious when looking to trim budgets. If they aren’t careful, they can jeopardize their long-term growth, once the current crisis has passed.
Before the pandemic, IT spending was projected to grow by 5.1% in 2020. Today, IT spending is expected to decline by 5% to 8%. However, a recent survey found that some industries saw an increase in IT spending of as much as 30% in the first five months of the year. The increased spending was needed to create an infrastructure for remote workers. In fact, the survey concluded that about 21% of organizations were increasing spending as a result of the pandemic.
Reducing IT spending is not simple. Technology is a part of every business. Whether it is a local network or a cloud-based enterprise, companies require technology to operate. So how does an organization decide when to reduce IT spending?
The first question should be how will the cost-cutting impact the bottom line. Any cuts should result in actual savings that improve a company’s cash position. Reviewing subscription fees or software licenses can save money. Many organizations renew their licenses and fees without checking to see if they are really needed. Sometimes those small monthly expenditures can add up to some real annual savings.
Businesses should evaluate their software, hardware and service needs in light of economic uncertainty. The pre-crisis infrastructure may be more than the reduced business environment demands. If so, look at ways to reduce costs through renegotiating contracts or reassessing procurement processes.
As the COVID-19 pandemic began to impact the country, an Electric customer was looking for ways to decrease their spend. Electric offered to help manage an audit of their SaaS application licenses, helping to identify any license waste and areas for contract renegotiation. Ultimately, Electric was able to save the customer $10k in spend on SaaS application licenses.
With the shift to a remote workforce, more businesses must consider how a reduction in IT spending will impact operations and productivity. IT costs may increase as companies build the infrastructure to support an online workforce. At the same time, remote workers can reduce the cost of maintaining office space. Lower utilities and cleaning costs can offset expenditures needed to support a remote workforce.
Organizations cannot restrict or limit basic operations to a degree that jeopardizes their long-term viability. They must carefully evaluate what is necessary and what is not, placing a hold on those that are nonessential. If automating critical processes was planned for 2020, do not halt the project without weighing its impact on business operations. It may be more beneficial to complete the automation if it frees crucial resources for reassignment.
Cost savings are not instantaneous. It takes time before an enterprise can realize its benefits. Companies should consider when the cost savings will start to improve their cash position and their bottom line. Conduct cost optimization assessments to determine when cost savings will be realized. It may be more beneficial to finish an IT project that is near completion than to halt its progress, especially if the project will improve operational efficiencies, and the cost savings will not be reflected in the company’s financial position.
The current environment poses many risks that companies are trying to mitigate. However, businesses seem willing to risk their security by cutting their cybersecurity expenditures. A recent report found that two out of five organizations will cut cybersecurity budgets in hopes of improving their financial position. Companies cannot assume that a cyberattack will not happen to them.
According to the FBI, the incidents of COVID-related cybercrime has quadrupled since the start of the pandemic. About 50% of businesses have experienced a cybersecurity event since transitioning to a remote work environment. If an event turns into a successful attack, it could cost a company millions. The average cost is about $150.00 per compromised record, and that doesn’t include the cost for containment and restoration. Businesses need to carefully balance the cost versus the risk of reducing their cybersecurity budget.
No business decision is without risk. That’s why corporations conduct risk assessments. Unfortunately, calculating risk when the world is moving through unchartered territory requires careful analysis. It is essential for businesses to find the right balance to minimize their long-term risks. When looking for balance, consider the following:
Because technology is so tightly integrated into business operations, eliminating IT expenditures should not be performed without analyzing the impact to the company. For example, a decision to forego a maintenance contract may result in an equipment failure that stops operations. Companies have to chart a path between cost savings and IT spending to ensure operational efficiencies under the current conditions. Their success will depend on their ability to balance between cutting costs and survival.
Curious to see how much IT is currently costing your business? Check out a new tool from Electric, the IT Cost Calculator that provides an estimation of cost related to time spend on IT-related tasks like IT support, sysAdmin requests, managing updates for applications, provisioning devices, and tracking security across devices.