"Virtualizing" servers by installing software that allows one server to do the work of many is another spending wave that could up the level of investment in 2010. In the next 12 months, IT managers surveyed by Goldman Sachs expect to increase the percentage of installed servers that are virtualized to 54% from 37%.

Schubert at NYK Business Systems Americas is trying to optimize server infrastructure at two North American data centers. "We're trying to replace servers coming off lease with fewer boxes to cut down on maintenance costs," he says.

Funding for technology that addresses regulatory requirements and enhances data security will also trend higher in 2010. "Audits are not going away, and in some cases they are more intense than ever," says Bernie Wedge, leader of the Americas IT risk and assurance practice at Ernst & Young. Automation of governance and compliance processes is likely to pick up as head-count reductions put stress on companies trying to implement and adhere to controls, Wedge says.

Security software and services budgets will grow 4% and 3%, respectively, in 2010, predicts Gartner, outpacing other areas of infrastructure software and services. Implementing and improving processes around data leakage from the corporation will take precedence, Wedge says. "There are so many locations where [network] clients maintain data now, and you have employees downloading information to their BlackBerries. The further away you move data, the weaker the controls get."

A Midyear Bump?
There is a belief that if the economy and corporate revenues pick up, enterprises will raise IT budgets during 2010. That happened after the dot-com bust, but CFOs and directors of IT say this flexibility on the upside is much less likely today.

"The last couple of years we were required to spend less than budget [90% in 2009]," says Lyons of Baptist General Convention of Texas. "Based on what the CFO has said, any excess would go into reserves. We wouldn't expect it to go to spendable budgets."

Dime Bank's Caplanson is in a similar situation. The banking company typically builds about 5% contingency for unanticipated items into the IT budget. "But it is rare that we use this contingency, and therefore [we] often come in below budget for the year," Caplanson says. "This year is no exception."

Bartels thinks that enterprises will get out their checkbooks in 2010 largely because they did not overspend on IT during the past three years, despite the cheap cost of capital. "They didn't buy servers, software, and routers like they were going out of style," he says. Thus, the next two years will see "the lid taken off pent-up demand."

That's the bullish view, anyway. Others argue that, at best, the lid will be screwed down a little less tightly.

Vincent Ryan is a senior editor at CFO.

Better Budgeting
IT Cost Management for Lean Times

• When justifying expenditures to the board, speak in business terms. Since most IT projects hit multiple accounts, managers need to know where the dollars are going from a business perspective (the distinct projects) rather than from an accounting perspective (buckets in the general ledger), says Larry Serven, president of Xlerant, a budgeting-and-planning-software firm. When the mandate comes down to cut costs, this will also help IT assess the business impact of spending cuts.

• Go beyond the general ledger and develop service-level costing for business units, helping them determine what they are spending their IT dollars on, says Eric Berg, vice president of marketing at Apptio, developers of an IT cost-optimization tool. What is the cost per e-mail mailbox? Include all elements — hardware depreciation, software, facilities, labor, and so on. This helps business units weigh alternatives (like cloud computing) to internal IT services, and also lets IT benchmark outlays against others in its industry.

• Push budgeting and budget accountability deep into the organization, says Serven. If managers do their own budgets, the results are much more likely to be accurate, since day-to-day spending decisions are in their hands.

• Keep IT focused on the budget by developing a bonus payment or a portion of bonuses aligned with effective budget management. Dime Bank is considering just that in its bonus plan for 2010, says CFO Nick Caplanson.

• Increase visibility into IT operational spending. About 75% to 80% of the typical IT budget is operational cost, but do the CFO and CIO know what makes up those costs? How do costs compare across data centers, across applications, and across locations? Once cost models are established, the organization can perform "what-ifs." "What if we shut down our New Jersey data center? That's a framework for financially sound decisions," Berg says. — V.R.

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