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Balancing Your IT Budget

By Amy Radishofski, Features Editor, Manufacturing.netMoney is tight, but that doesn’t mean you can start slashing your IT budget. You need to be wise with your investments or it may come back to haunt you.

In today’s world, companies may not need to have all the latest high-tech gadgets, but they will have to deal with technology in one form or another. However, with cash hard to come by, companies may be cutting back on their IT budgets, which could come back to bite them.

“Many companies invested heavily in IT before Y2K, but they didn’t get the returns that they were expecting from those investments,” said Tom Murphy, Executive Vice President, Manufacturing and Wholesale Distribution, RSM McGladrey. “Instead, they ended up with something more like a 10-year hangover.”

But those companies may need to get over that hangover in a hurry. IT is becoming a larger part of day-to-day operations, and can’t be ignored.

“IT is not only key to the business side, but is a critical part of operations,” said Murphy. “IT impacts the entire organization and should be a consideration of every business decision.”

Murphy says that while companies are focused on expanding their global footprint, they should also revisit their investments in technology to make sure they have proper transparency and data flow along their supply chain.

“Global expansion is costly, but you need to be strict with your investments at the same time,” Murphy said. “It’s a difficult balancing act for companies. Companies tend to sacrifice their IT budgets to save money, but that may not always be the wisest decision.”

Murphy stresses that to get the benefits, companies first need to make the investment. However, when budgets have been getting cut left and right, that may be a tough decision to make.

“Both hardware and software have seen significant improvements since companies made those initial investments for Y2K,” he said. “They can help companies improve efficiencies, which can help them improve their competitiveness after a recession.”

To determine how big of an investment a company needs to make, Murphy suggests starting with an assessment to determine what exactly the company’s needs are.

“After you find out where your current setup may be lacking, you can figure out what solutions are available to you,” he added. “Perhaps it’s something you could phase in instead of trying to do the whole thing at once.”

But IT consists of more than just hardware and software; there’s also the need for IT people.

“Some companies that have been opportunistic have started acquiring additional IT professionals that have been laid off by other companies,” Murphy noted. “While there isn’t exactly a shortage, it’s something companies should be considering.”

So should companies hire now or should they wait? Murphy says it depends on the results of the company’s IT assessment.

“If your assessment shows you should invest in some more hardware, then you may not need to hire any additional IT people,” he said. “However, if it shows your software is lacking, then you may need to hire some people for support or training purposes.”

When the economy is sour, investing in new hardware, software, and/or people can be a risky investment, but risk will always be a part of IT one way or another.

“Once you get your systems and your network to where they need to be, you need to make sure you have a backup plan,” Murphy advises. “What happens to your customer lists if your system crashes? Is your data safe? Remember, if something happens and you can’t deliver a product, rest assured that there is a competitor that can.”

Moreover, as more and more companies integrate their IT plans with their business strategies, the issue of risk becomes even more apparent. An RSM study, for example, showed that 90 percent of respondents realize that IT is a critical component of their operations, which indicates that it is rising up in the priorities of risk, but Murphy says companies may not be doing enough to deal with the potential problem.

“It’s good that companies recognize it as an issue, but that’s just the first step,” he said. “If you back up your data to an external hard drive and then leave that hard drive on the desk next to the computer, what good does that do your company if your plant burns down? You have to come up with a plan that ensures that all of your critical information is well protected.”

RSM McGladrey is a professional services firm providing accounting, tax, and business consulting. For more information, visit