As our national and local economies continue to struggle, managing a technology budget is getting increasingly difficult. There are many unknowns as we head into fiscal year 2010, and state government budget problems are widespread.
For example, Governor Schwarzenegger recently said, "I'm proud of California, even though we have our crisis. No one can point fingers, because as you can see, there are 30 states right now that have their fiscal year starting today that also don't have a budget, so I mean let's not get carried away and just look at California as we are the only state that cannot manage the budget." The Associated Press story went on to name other states who are struggling.
Regardless of where your state or local government is at regarding an overall budget, technology leaders are being pressed to find hard savings now. In one sense, this may seem obvious. Isn't this just a central part of our job? Aren't we always on the lookout for ways to save money while being more innovative and tech savvy at the same time?
Yes and no. Hopefully, we can show a return on investment (ROI) on all of our technology projects. We consolidate datacenters and build partnerships and shared services to cut costs and become more efficient and effective. Nevertheless, our current economic situation is different in my opinion. This is not your traditional IT-budgeting 101. We need to go further.
Along with the fact that we have been consolidating technology and cutting costs in Michigan over the past five years, here are some of actions we are taking this summer to gain hard savings now within infrastructure - while still striving to improve customer service. Note that these activities are on top of other actions taken over the past twenty-four months such as a letter to vendors asking for a 10% reduction in costs. (Most vendors participated by the way.)
What are we doing?
1) Meeting with strategic vendors to examine every contract, maintenance agreement and platform. Asking questions like: how can we save hard dollars over the next fiscal year? Asking for options and a cost/benefit analysis for various options. Beware of short term increases in cost that will supposedly save money in the "out years." Everything should be on the table.
We've been pleasantly surprised by the creative alternatives that our partners have brought to the table. For example, we are working with EMC Corp to reduce the number of storage boxes, and thus maintenance costs, while still providing the same (or better) level of service.
2) Prioritizing existing projects to see what we must stop doing given existing resources. Many states are facing furlough days, cuts in overtime or even layoffs, so we need to be frugal.
This project prioritization process is hard, but it is worth the effort. Despite value that we anticipated achieving over 3-5 years for several process improvement initiatives, we stopped or modified three large projects that would have cost the state almost $10 million over the next three years.
I will discuss how we went through this prioritization process in a future blog, but needless to say, you need a good methodology to ensure that the most essential IT projects continue. None of us wants to mortgage our government's IT future. But just as we make tough decisions in our family budget when overall income drops, these same decisions need to be made by many government technology teams now.
3) Replaced overtime with flex schedules for many. We cut overtime by over 80%. Tougher standards were put in place to approve overtime for high-profile projects with tight schedules. Generally speaking, break/fix overtime continues for critical systems, but some non-critical systems must now wait longer to be fixed on off-hours, especially on furlough days.
No, this is not popular with staff. However, we emphasize the fact that we are saving precious dollars so that we can minimize any potential layoffs.
4) Continuing to examine options for contractor conversions. I discussed this topic in detail in a previous piece, so I'll just point you to that blog entry entitled: How Insourcing Jobs Can Save Dollars.
A few quick tips: some vendors will describe cost savings as "hard" when they really are "soft." For example, efficiencies that let you do more with less are nice, but you may need to layoff staff to actually save any money. Unless you actually plan to eliminate staff or contractors, the "productivity savings" are actually soft savings. (Note: it is also true that these staff can be moved to do other required functions, fill vacancies or start a new project. But again, watch the bottom line and make sure you've thought through the real savings.)
Vendors often encourage us to spend $1 million to (hopefully) save $2 or $3 million over three or four years. The problem is that we don't have the current dollars. Make sure you can pay for any short term costs, if you agree to taking on new cost-saving projects. Finally, take this opportunity to ensure that previous cost-saving initiatives are panning out as expected.
Bottom line, we expect to save millions of dollars in the next fiscal year that we will pass along to our agency customers in the form of lower rates. In addition to hard savings, we are also capturing millions in cost avoidance (soft dollars). I highly encourage an aggressive look at previous assumptions for usage levels across the board. Believe it or not, we may actually provide a better service when these efficiencies are put it place. I'm also learning a ton about our operational costs along the way.
What are your thoughts on saving IT dollars in tough times?