Anticipating a modest economic recovery this year, IT managers are planning to implement new IT investments and projects which will stimulate IT spending for 2004. In a survey on IT spending conducted by Computerworld Philippines Research, 60 per cent of the respondent-companies reported plans to increase IT spending this year to finance new projects.
For 22 per cent of the establishments surveyed, cost-cutting remains a top priority as they reduce their IT budgets this year. The remaining 18 per cent of the respondents said they will stick closely to their previous year’s budgets, regardless of the dips and upticks in the economy. These companies are reluctant to plow in money into any big-ticket endeavor due to the prevailing economic conditions.
Overall, the expected hike in IT spending for this year will be minimal as most IT managers surveyed reported increases ranging from less than 10 per cent to only 20 per cent of the previous year’s budget. Of the total respondents, 14 per cent said their budgets will expand by less than 10 per cent compared to their 2003 budgets, while only three per cent expect an increase of more than 100 per cent this year. Those whose budgets have gone up by more than 50 per cent to as high as 100 per cent comprised six per cent of the total respondents.
The survey also found that the average IT budget as a percentage of the company’s revenue remains very low, averaging below five per cent of corporate revenues as claimed by 44 per cent of respondents. Thirty-two per cent disclosed that they allocated an average of five per cent to 10 per cent of their revenues to IT while only 23 per cent said more than 10 per cent of their revenues has been allotted to their IT budgets.
Although the economy has yet to fully recover from its gloomy condition of the last couple of years, most managers are already eyeing a budget boost this year. “The most important reason for increasing our 2004 budget is because we projected an appreciation in the peso-dollar exchange rate to occur this year due to the coming elections,” a bank’s technical operations head disclosed.
“Besides, we also plan to expand our branches and open subsidiaries which will translate to an increase in our data storage capacities, size of hard disk, acquisition of additional facility and the need to hire new people. These would entail increases in both our hardware acquisition and recruiting budgets this year,” he added. On the other hand, among those who reported declines in their IT budgets in 2004, 15 per cent claimed their IT spending will drop from less than 10 per cent to 20 per cent compared with their 2003 budgets. Only eight per cent said their technology spending will be cut by more than 20 per cent of their previous year’s IT allocations.
Asked why their IT budget was trimmed down, an MIS manager of a leading hotel said, “We decreased our budget primarily because all major projects were already done and implemented last year. No major projects are scheduled for this year.”
For this year, the top IT budget priorities IT managers enumerated include projects aimed at deploying common systems and new versions of software applications to replace current installations, better integration of existing systems or applications, acquisition of new hardware to upgrade aging hardware, database security, and implementation of new technologies.
To many companies and IT managers, one area that is likely to absorb a large share of the IT budget for this year is the deployment and development of new software applications that will run on their latest hardware versions. New applications are also needed to implement new technologies.
“Most of our hardware and software were acquired before and during the year 2000. Some of these were intended to beat the millennium bug at that time,” a senior EDP manager of an insurance firm related. “For this year, our priority is to acquire new hardware and software to upgrade our existing installations.”
Another budget priority area which IT managers expect to receive the greatest increases for 2004 is applications/systems integration. A vice-president for IT of a department store who is intent on trimming costs by integrating applications, had this to say, “Our applications/systems which we deployed in 1998 and the other systems we have at present need to be properly integrated to improve our operations and to cut costs.”
On the replacement of aging hardware, this year’s third top priority project for most managers, an IT officer of a hotel explained that “replacement needs to be done to cope with the present software system requirements and to maximize users’ efficiency.”
Many IT managers also anticipate spending more for security projects, another chief concern of the survey respondents. Although this area only ranked fourth in priority, it is believed that security is a top level issue for IT due to the increasing threat posed by computer viruses and hackers alike.
Most respondents also expect to increase investments in new technologies this year, aimed at improving operations and services. IT managers identify these technologies as follows: wireless applications, wireless fidelity (Wi-Fi), Internet banking, N-tier based environment, business intelligence and enterprise resource planning (ERP) applications.
Last year, despite a call for cutting costs, most respondents spent more, albeit more prudently and in relatively small doses. Respondents who indicated budget hikes in 2003 comprised 69 per cent of the total. In contrast, 30 per cent trimmed their budgets while only one company declared no change in spending level.
More than half of the respondents disclosed that their IT budgets ranged from less than 1 million pesos (US$17,900)to 5 million pesos. Only eight per cent reported spending more than 40 million pesos. The majority of the respondents declared that the increases in their IT budgets last year ranged from less than 10 per cent to 30 per cent which showed that the IT spending implemented by these respondents was quite modest.
Expenses on IT operations (spending on hardware, software, services, training, etc.) ate up a big chunk of the IT budgets last year. Fifty-four per cent of the respondents reported that they spent more than 50 per cent of their budgets in operations alone, while 25 per cent said their spending accounted for 40 per cent to 50 per cent of their budgets. Spending on staff salaries, overhead, supplies and other operating expenses consumed less than half of the budgets.
Meanwhile, 69 respondents implemented salary increases for their IT personnel last year. Of these, 28 per cent said the salary hike raised their budgets while 19 per cent claimed that the granting of salary increases to their staff caused labor and other operating cost to expand. Sixteen per cent said the salary increase had no effect on their overall IT budget.