The financial page is no fun to read these days for anyone. The 2008 housing market forecast is grim warning of an even longer slump than first predicted, with double digit drops in real estate prices anticipated in many areas of the country. Oil is trading above $90 a barrel, which a few years ago would have been considered apocalyptic for the economy. The Federal Reserve is shoring up a nervous banking industry’s shaky credit market. And 2007 was definitely the year of the Bear for stock markets, leaving lots of unhappy investors with battered portfolios.

What happens on Wall Street, unfortunately, doesn’t stay on Wall Street. The year 2008 could easily turn Main Street into Pain Street. This means businesses of all size -- especially smaller, younger businesses -- could soon find themselves looking to downsize their spending fast for survival. If and when that happens, every area of the business will be under scrutiny for cost-cutting and proving its return on investment (ROI).

Why IT is a target

Because IT is typically one of the biggest chunks of the operating budget, it’s also one of the biggest and most obvious targets when it comes time to get lean and mean for hard times.

“IT spending is highly dependent on economic conditions. Our survey data indicates that IT executives have already scaled back their expectations for IT spending increases in 2008,” says Frank Scavo, president of Computer Economics based in Irvine, Calif.

Another attraction to slashing the technology budget: most IT departments don’t have their own revenue streams to bolster. Typically they don’t make money; they save money. This is actually more valuable to a company’s bottom line. Companies pay taxes on money they make, but not on the money they save. That $100,000 in new revenue may net only $70,000, for example. Saving $100,000 means $100,000 less taken away from the company coffers.

Where to start

That being said, here are some tips to save by cutting back IT expenses:

  • Don’t start anything new. This includes avoiding new projects or implementing new technologies or applications. The biggest new commitment to avoid, however, is people. “Each organization is different, but regardless of the company size, the largest single line item in the IT budget is personnel. For some companies, this might mean delaying a planned increase in full-time headcount. Instead, rely on outside contractors to provide needed services on an as-needed basis,” says Scavo.
  • Make do with technologies already in place. Just because the technology industry wants businesses to upgrade their software and hardware approximately every three years, doesn’t mean it’s necessary. Gregory Nelson, a technology advisor for startups and chairman at SCORE in Naples, Fla., advises businesses to save money by avoiding operating system upgrades, like Microsoft Vista or Apple’s OS X. He also recommends boosting the efficiency of PCs around the office by spring cleaning their hard drives. Run more routine maintenance chores, like defragmenting and uninstalling applications that aren’t being used. Get a little more speed out of your computers and there’s less need to buy new ones for awhile longer.
  • Bargain shop for the necessities. Both hardware and software don’t hold their original retail prices for very long. Look at the eight gigabyte iPhone, for example, that started at $599 when it was released in June of 2007 and dropped down to $399 three months later. Wait for the big price drops that inevitably come after a new version has been out for awhile and perhaps already been supplanted by an even newer version. “A top-of-the-line high speed wireless router goes for triple that a reliable medium speed router goes for and for many companies it will do just as good a job,” points out Nelson.
  • Play hardball with technology vendors. “Look at equipment that is coming close to end-of-lease. Does it still have useful life? Know the fair market value for that equipment and go to your leasing company with an offer. Leasers really do not want to take back equipment, if they can avoid it. You may be surprised at what they’ll take,” says Scavo.
  • Look for hosted solutions and outsourcing opportunities. Especially for smaller businesses, it’s often cheaper to just outsource certain jobs like short-term projects and tech support. This might also be the year to hand over applications like CRM to a company like that can host and manage it much more cheaply than dedicated staff in-house.

What not to cut

For business owners who may end up needing to quickly cut back their IT spending this year, it would be wise to do so with a scalpel and not a chainsaw. There are some technology expenses that are definitely expendable, but IT has its sacred cows. Slaughtering those areas could mean slaughtering the business itself. Here are some areas to protect from the bean counters:

  • Security. No matter how tight the budget gets, no company can afford to compromise on network security. Firewalls, antivirus software and spam blockers are only as good as their last patch or upgrade. If a business doesn’t keep up with the latest upgrades, it makes itself vulnerable to attacks or data breaches. The severity of financial consequences far outweighs any savings.
  • Business critical software. Its one thing to take a pass on the latest version of PowerPoint. Book-keeping software, for example, is another matter. Any application that the business itself relies on to run its daily operations must be kept up to date. “This could be software that needs upgrading to remain on a service contract. Or, for example, database software that houses mission critical data needs to be kept at a release level that is supported,” says Nelson.
  • Licensing agreements. It’s a tempting thought to just let them lapse and keep using the software. Don’t even consider it. It puts the company under a tremendous liability. The potential risk of damages, both financial and to the company’s reputation is staggering.