Four in 10 CIOs slashed budgets in first quarter, Gartner reports

Forty-two percent of CIOs suffered budget decreases in the first quarter of 2009, and IT shops on average slashed budgets by 4.7%, according to new research published by Gartner.

CIOs were expecting an average first quarter budget increase of 0.16% late last year, but were forced to cut costs as the economy worsened. Fifty-four percent of CIOs reported no change in their IT budget, while a scant 4% enjoyed an increase. Average declines of 7.2% were seen by those companies that reduced IT spending. Counting all companies, including those with flat budgets and increases, the average decline was 4.7%.

“CIOs reported that renegotiating vendor contracts and head count reductions were the primary focus areas for accommodating budget reductions,” Gartner analyst Mark McDonald says in a press release. “CIOs report shifting more work to in-house resources and delaying capital expenditures more than reducing IT project investments.”

The findings are based on a survey of 900 CIOs from across the globe, encompassing $77 billion in IT spending. The survey, conducted in March and April, was compared to results from a similar survey of 1,500 CIOs conducted from September to December.

Budget cuts spanned all types of enterprises both in terms of size, geography and industry. Health-care organizations reported an average budget increase of 2.2%, but CIOs in every other major industry reported a decline in the first quarter, Gartner said. Ten percent budget cuts were seen in the professional services, telecommunications and high-tech sectors. An 8% budget cut was reported in manufacturing, and 4% cuts were reported at utilities and financial services organizations.

Many CIOs say further cuts in 2009 are unlikely, and that they expect the economy to recover between the first and third quarters of 2010. But they are bracing for the possibility of further budget reductions.

“The percentage of CIOs with a contingency plan for the remainder of 2009 has more than doubled compared with 2008,” Gartner reports. “CIOs with additional contingency plans for 2009 are planning for the potential of renewed IT spending, as well as additional reductions. While 44% of CIOs do not believe they will need to tap into their contingency plans, those that do believe they will [expect to] do so during the next six months.”

CIOs are already planning for ramping up IT spending, once the economy recovers. Increases in “IT investment projects and workforce levels” will be the top priorities for CIOs during the expected turnaround, according to the survey. “Software, hardware and infrastructure investments are also high on the CIO's agenda on the path to economic recovery,” Gartner says.