IT Spending Outlook for 2009: Could Be Worse

November, 2008

(IRVINE, Calif.) IT organizations decidedly stepped up their cost-cutting measures in the third quarter of 2008. Nevertheless, as they head into 2009, most IT executives are not anticipating deep cuts in IT operational spending or staffing levels, according to a new survey by Computer Economics, an IT research and advisory firm in Irvine, California.

In the October survey of 159 North American IT organizations, one-quarter of the respondents anticipate spending reductions of at least 3%. But another quarter anticipate that their IT operational budgets will rise by at least 5%. At the median, IT organizations forecast that their spending growth will be flat.

IT executives are also focused on retaining their current employees. IT organizations at the median and 25th percentiles forecast no change in their headcount in 2009, while companies at the 75th percentile are actually forecasting a 5% growth in staffing levels.

“If substantial cuts in IT staffing levels have not taken place, it is most likely because IT executives were already taking a conservative approach to staffing since the last recession,” said Frank Scavo, president of Computer Economics. “For many organizations, significant layoffs of IT professionals are not possible without jeopardizing the business.”

Still, the survey found that IT manager confidence regarding budgets dropped significantly in the third quarter. The percentage expecting to spend less than they budgeted for in 2008 rose from 25% in the first quarter to 41% in October, while the percentage expecting to go over-budget declined from 21% to 18% over the same period.

The survey also found that 35% of IT organizations took actions to reduce expenses in the period from August to October, as the economy declined, compared to 11% that increased their IT spending plans during the three-month period.

When asked what steps they were taking to restrain spending over the last three months, the most frequent actions were cutting travel (55%), delaying the start of major projects (44%), and not filling open positions (40%).

“At this point, most organizations appear to be taking only the quickest and easiest actions,” Scavo said. “Most are not yet making the deeper and more painful reductions, such as cutting staff or outright cancellation of major projects.”

Other cost-cutting actions included deferring equipment upgrades (35%), cutting contractors and temps (33%), cutting back on IT training (26%), renegotiating vendor contracts (26%), cutting meals/entertainment (24%), cutting planned pay increases (17%), cutting IT staff (17%), canceling major projects (16%), investigating outsourcing/offshoring (15%), stretching out vendor payments (11%), cutting IT staff hours (4%), canceling software maintenance (3%), and canceling hardware maintenance (3%). Sixteen percent of the respondents said they had taken no action to cut IT spending in response to economic conditions.

Another indication that companies, while curtailing expenses, are resisting staff reductions is that nearly 37% report increasing staffing levels over the past 12 months while only 28% indicate that they reduced headcount. Instead, organizations have been leaving positions unfilled and trimming contract and temporary workers.

Scavo said he views the survey results as a positive sign. “IT spending cutbacks, though increasing, are not reaching draconian levels. It appears that the majority of IT organizations do not yet need to take more drastic measures because they have been running lean for some time. Budget constraint has been the norm since the last recession,” he said.

“Our study forecasts that IT operational budget growth will be flat for 2009. If this forecast proves to be true, it may be because IT organizations have already been proactive about tightening the belt in 2008,” he said.

This media alert summarizes key findings from our full report, Outlook for 2009 IT Staffing and Spending Levels, available at The full report provides an analysis of recent trends in IT spending and staffing in the U.S. and Canada and a forecast for 2009.

For a complete analysis of IT spending and staffing statistics, please see our 2008/2009 IT Spending, Staffing, and Technology Trends study, which provides ratios and other metrics for benchmarking IT budgets and headcount levels. This 25-chapter study provides a breakdown of these metrics by organization size and industry sector.

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