IS Budget Allocations for Outside Services Is Increasing

September, 2003

From 1999 to 2002, the use of outside services by IT organizations has steadily declined–especially in medium to large organizations. However, the use of outside services is on the increase again, according to Computer Economics’ 2003 Information Systems Spending study. The annual study defines large organizations as having revenues of over $750 million and medium organizations as having revenues between $250 million and $750 million.

In 1999, the use of outside services in large organizations consumed 10.5% of total IS budget, by 2002 that figure had dropped to only 5.7%. This year large organizations reported the use of outside services is now commanding 7.1% of the IS budget–nearly equaling the 2000 level, but still far below the 1999 level.

In medium organizations the trend has been equally pronounced. In 1999, the use of outside services represented 10.4% of the IS budget and plummeted to only 5.2% in 2002. Despite a brief upswing in 2001, the downward trend in the use of outside services in medium organizations has been just as dramatic as in large organizations. Likewise, 2003 marked a change in this trend as medium-sized companies are showing an increase in IS budget allocations in this area.

This is good news for IT organizations that have experienced staffing cuts and have had to postpone or juggle major project schedules due to lack of resources. This is also good news for IT service vendors that have experienced a significant drop in project work (and revenues) over the same period.

The use of outside services is expected to grow back to the 1999 level over the next two to three year period. This will be largely the result of an increase use in consulting services to assist in strategic/tactical planning, software development, platform consolidations/migrations, and a variety of staff augmentation needs. Figure 1 illustrates the use of outside services as a percentage of the IS budget in large and medium organizations between 1999 and 2003, including our projection for 2004.
The Use of Outside Services as a Percentage of the Total IS Budget 1999 – 2004

Outside Services








Large Organizations







Medium Organizations







Figure 1

September 2003

The 2003 Information Systems Spending study is now available. This important tool has assisted hundreds of senior IT managers in making critical budget and technology forecasting decisions for almost 15 years. To order your copy, contact us at 1-800-326-8100, ext. 123.