IT Spending: All Used Up

Halfway through the year, only five percent of IT budgets are left for new projects, a new survey finds; but CIOs are going to spend, anyway. Plus:...
Marie Leone and John GoffJuly 17, 2003

Mention the management of IT departments to CFOs, and most just roll their eyes.

Indeed, CIOs have gained a reputation — fair or otherwise — for being oblivious to budgets. But tech heads better get a little spending religion, particularly if the results of a new survey are spot-on.

According to Forrester Research’s latest Business Technographics report, IT budgets at the halfway mark of 2003 are weaker — and below planned budget levels. As a result, Forrester has revised its forecast to 1.3 percent growth in IT spending, down from the consultancy’s 1.9 percent growth projection earlier this year.

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Moreover, Forrester says that, on average,, companies shell out 21 percent of their overall IT spend on new investments. But according to the new survey, respondents said 75 percent of that spend is already earmarked for an existing or planned project. Translation: there’s little money in the sock for new projects.

How little? Forrester says about 5 percent in overall IT budgets is left for new rollouts.

Despite the lack of available funds (a phrase I’m not unfamiliar with), the Forrester survey revealed that more IT shops will consider investing in IT for IT’s sake. But how can they foot the bill for such projects? By demanding steep vendor discounts — an average of 27 percent off list price, Forrester says.

Still, CIOs are clearly on a shorter leash these days. According to the Forrester survey (which polled 704 IT executives at companies with at least $1 billion in revenues), 30 percent of the respondents said they must get executive approval for any new investment. And CFOs rejoice: the survey participants also said that an ROI calculation is required for 9 out of ten tech projects.

Says Tom Pohlmann, research director at Forrester: “Today’s IT decision-makers are feeling the heat on several fronts to improve IT’s delivery performance under much tighter fiscal controls and business unit direction.”

Going by the survey results, it appears that the spending horizon for tech projects has shrunk as well. Most respondents said their companies will not commit to funding for IT projects beyond 11 months. Moreover, justifying funds every six months is not uncommon.

That’s not overly surprising, given that the majority of polled IT heads said tech projects still tend to drag on. In fact, the CIOs and tech managers in the survey admitted that 36 percent of new application implementations are at least one month.

One way out of that dilemma: outsource software hosting. Seventy percent of the respondents said they were satisfied with their current program outsourcers. In fact, 68 percent of the polled IT execs said they plan to move application hosting out-of-house.

Still, Forrester found that most corporates want to own their major IT rollouts. Hence, they look to outsourcers for targeted help. That’s bad news for outsourcers that offer end-to-end hosting capabilities.

High-Tech Anti Money Laundering

What are banks doing to combat money laundering?

Spending more on software and systems, says a new report. According to research firm Celent Communications, financial institutions (banks, broker-dealers, and insurance carriers) will spend $632 million on anti-money laundering (AML) software, related hardware, and services between 2003 and 2005.

Some of the bumped up spending is tied to compliance with the 2001 Patriot Act. The Act is probably also driving up the number of companies installing new systems as well. Celent reports that by 2006, 94 percent of large financial institutions in the U.S. will have implemented new AML technologies. Meanwhile, 76 percent of mid-size institutions, and 49 percent of smaller companies, will have beefed up their anti-money laundering systems.

Interestingly, Celent sees an increase in AML efforts from global financial institutions. Apparently, to remain trusted business partners of U.S. financial heavyweights, overseas banks and insurers are also increasing spending on AML technology. In addition, says the report, regulators in other countries are feeling pressure from their U.S. counterparts to step-up AML requirements.

Celent ranked 16 of the leading AML technology vendors, breaking down its product assessment into two categories: transaction monitoring and watchlist filtering. For large company solutions, Searchspace, Mantas, and ACI Worldwide topped the list for transaction monitoring. For small- and medium-size institutions, Actimize, STB Systems, and Prime Associates were the transaction monitoring winners.

FircoSoft stood alone as the company that bested the rest for watchlist filtering software for large companies. Three companies, Prime Associates, Americas Software, and Bridger Systems — were touted as top candidates for watchlist apps for small- and medium-size companies.