Recently, I’ve had a number of conversations with CIOs and senior IT staff on the pressures caused by business belt-tightening.

This, of course, has cascaded to IT in the form of the need to cut.  Favorite targets:  new investments, whether for business-sponsored projects or infrastructure, followed by ‘IT overhead’ – travel, training, IT improvement programs, followed by opportunistic cuts in the operations budget.  For most I’ve talked with, they have their budget for 2009, but are still watching for the request for further cuts. 

Now, the hard part has started for them.  As one said “having less to spend means I need to work harder to make sure it’s spent wisely’.  The problem isn’t just one of picking areas to spend on, but also in making sure that the business execs who are getting more involved in these decisions agree it’s being spent wisely.

I constructed this formula to help the conversation.  It basically lays out what I call the IT’s ‘cost/capacity/demand’ challenge.  Perceived business value is business management’s belief that they are getting good value from overall IT spend.  It’s a function of aggregate business demand; not just projects but also tactical requests for application enhancements, or expectations for service quality - spread over available capacity; both staff, external services and infrastructure capacity - at a particular cost.  The cost is IT spend, and when spend goes down, capacity goes down. 

The challenge comes from three factors: