From: www.itworld.com

Five CIOs talk about managing IT costs in a weakened economy

by Linda Rosencrance

December 30, 2008 —

Because of the current economic slowdown, which many expect to last through 2009, CIOs are faced with some hard choices when it comes to investing in IT. And they're cutting or delaying projects and not investing in new technologies that aren't increasing revenues, creating business or boosting operational efficiencies.

ITworld asked five CIOs in various industries to discuss how they're planning to weather the softening economy and balance the needs of the business with shrinking IT dollars; what three projects they're currently doing or plan to do over the next year; and what projects have fallen off their lists completely because of the economy.

John Halamka, CIO at Boston-based CareGroup Healthcare System, CIO and Dean for Technology at Harvard Medical School, and a practicing emergency physician.

2009 will be a challenging capital year. We will have enough to keep the trains running on time, to ensure our disaster recovery efforts continue, and to remain compliant with all our regulatory requirements. We're limiting major capital purchases, extending timelines, and focusing on the highest priority projects and we will refine and improve what we have. Eventually, the economy will improve and we want to be in the best position when that occurs. I believe that economic challenges are good for IT organizations because it forces customers to prioritize their projects, matching their demands to limited IT resource supplies.

First I want to focus on compliance. In healthcare there are always elements, projects and software that are always 'must dos' because they're compliant. So you do those and usually you can do those in phases [as long as you] make sure you're showing demonstrable progress.

I work really closely with the business owners because the CIO really doesn't make the priorities of the organization -- maybe I prioritize infrastructure and compliance things but the CFO, the COO and in my case, the doctors and the nurses, they decide the very few 'must have' projects to make sure we're delivering safe, quality care.

I also want to focus medication reconciliation, which means we're hooked up to nationwide e-prescribing networks like SureScripts-RxHub, so that we and the hospital have an accurate history of every medication that has ever been dispensed by a pharmacy or has ever been paid for by an insurance company for each patient. There are not only compliance incentives to do it, but Medicare is offering incentives to use e-prescribing this year. So when the docs say, 'We want quality and safe care and we want to do what is dictated by our various government payers and local payers,' medication management is a really high priority project.

As I look at the sources of harm that can occur at a hospital, one of the things I want to do is make sure all of the patients and medications are positively identified with bar codes or RFID chips, so you give the right medication to the right patient at the right time. We're doing a lot of bar code and RFID work. We're also tagging our equipment with RFID tags so you can locate them really rapidly.

And we're going to extend the life of our desktops to six years. Most of our applications are web-based so if you run a web-based app on an older desktop, do you really notice? So we just say leave that hardware out there, replace it if it breaks and the web browser will still work. We'll also go slower on maintenance and infrastructure like network components or storage components or server components where I can get away with it without causing downtime.

Phil Go, CIO of Barton Malow Co., a Southfield, Mich.-based construction services firm

Obviously in the business we're in, the credit crunch probably is what hit us the worse and we're feeling it now, where six months ago we were still fine. And the commercial construction industry has been going strong for a long time and we feel the effects of the economy much later than most people do. It has been affecting us over the last two or three months.

We've got to be more stringent in terms of capital projects that we are investing in. We're still investing in capital projects, but we've probably raised the bar even higher to make sure that the returns are really there. We have a portfolio of projects we are doing and want to do and we are reviewing them to see if they still make sense.

We are embarking on an ERP (enterprise resource planning) implementation as we speak. We're implementing SAP for our organization. It's the first time in 20 years we are doing a new ERP implementation so that's one of the projects we are looking hard at to make sure it still makes sense. And so far, it makes sense because it's a strategic investment in the future that makes sense to do even in a tough economy. So far we are continuing.

Other projects that are in the works, but not approved yet, are more technical things like the whole server virtualization project, which makes a lot of sense from an operating efficiency [standpoint] and from a more effective use of our computing resources standpoint. We're looking at it even harder. If it was six months ago I would say definitely it's going to happen. But now six months later we don't know.

Also another capital project is our wide area network acceleration. We're a construction company therefore a lot of our offices and job sites are outside of the headquarters. So part of the challenge has been the connectivity in order to access centralized information systems. A lot of times the challenge has been the accessibility, the performance of the network under those types of conditions. We started it back in August; we piloted it and about a month ago we said it was a great idea but it's still a lot of money on a per office basis so we're going back to the offices and asking them if they want to invest in this or not. Five or six months ago this would have been a slam dunk. Now the question is if we think it's still worth it. I would be surprised if it's not worth doing because this technology will just make the end user productivity significantly improved because suddenly the network resources that you're accessing behaves over a wide area network as if it were local to your location. We just [recently] asked for approval to continue with this.

Nothing has fallen off out list totally, but we might slow some things down a bit or defer them. One project we want to do from an enterprise content management standpoint we probably will slow down but we will not cancel it. We'll take baby steps and just do a little here, a little there, [as] opposed to doing a big bang thing throughout the enterprise, which is what we wanted to do. It's a million dollar investment. The bottom line, just be smart in spending money regardless of the situation.

Joanne Kossuth, Vice President for Operations and CIO, Franklin W. Olin College of Engineering, Needham, Mass.

Like everybody else we're going back and taking a hard look at all our budgets. We're reviewing all our budget lines and we're going back to vendor partners and trying to rework maintenance agreements to allow for some new projects and innovations as opposed to being in strictly maintenance mode. We're reducing staff overtime, revisiting cost comparisons with outsourcing opportunities as opposed to in-house, reviewing all hires and deferring some of them until the end of the fiscal year, when we hope to have a better idea of where the economy is going. The focus on budgets has also revitalized collaboration opportunities with other institutions.

We're finishing implementation of ERP modules; working on additional implementation of portal modules for constituents; and an identity management system.

We've been doing an enterprise resource product for awhile now and we're just doing the institutional advancement portion -- the fundraising part of that -- and the constituent modules sort of ties into that. We can use it to give our trustees access to information; it can be used for giving the folks who are applying to the college some access; and it can be used for parents. I guess we're moving from looking internally at our systems like finance, registration, and student billing to [asking] how we use these tools to communicate with our external constituents.

And for that same reason identity management floats to the top as being really important because we need to understand how we're identifying these people and verifying who they are and then giving access [to information] based on that identification.

Nothing has fallen off our list yet, but some projects are being deferred. We might [have talked about] upgrading all the software applications to the latest and greatest, but now we're having conversations about whether we can live without this upgrade until next year and will it really negatively impact the experience of the students or the curriculum if we do that. We've also deferred replacement plans for our computer equipment so instead of people getting replacements in three years, it's four years based on their jobs and the requirements of their jobs. Some projects have had their budget cuts. We were doing replacement of blades in our data center, [but] we've cut that budget because that was more of an insurance policy piece, so now we've bought a spare instead of upgrading things.

Ben Berry, CIO, Oregon Department of Transportation (ODOT)

The ODOT receives its revenues from the gas tax revenues; we're not a general funded agency. For ODOT, because the projections of the gas tax revenues are down because people have stopped driving as much or because they don't have jobs or because the gas was $4 a gallon when we last took the forecast, we estimated about a $324 million deficit in the gas revenue over a six-year period, which would impact the services ODOT provides to the public.

So we did an internal review of the kinds of things we could restructure in our current budget for IS. We constructed a worse case scenario of all the different kinds of savings we could possibly come up with in IS to go toward the restructuring of the agency budget and I think I came up with $3.3 million that I could save by putting projects on hold or by taking longer to hire people such as hiring frost not a hiring freeze. I didn't have to undergo those things, but I wanted to be a good corporate citizen and show what I could do.

One thing we're working on with the rest of the state of Oregon government is an enterprise architecture program. We're teaming with two or three other agencies for what makes business sense to better understand our business architecture, our information architecture, our data architecture and the underlying technology architecture in which to make better business decisions. Then to some degree if we expose those architectures then we can see across the board versus the silos that we see today. And if we can see across the board then we can make better decisions around consolidation, around collaborating, by sharing costs.

We're also looking at information assets management, not just for the things you might see in office buildings but for the linear assets along the highway so the bridges, the mile posts, having a standardization of the nomenclature for what the various ODOT divisions call these things because they're not always the same. If we can standardize on that then we should be able to do more productive things with our systems.

We are partners in the Oregon state data centers and 2 ½ years ago we took 11 agencies and 19 data centers and we consolidated that into one state data center, so we are still maturing that data center and trying to reduce the costs of the consolidation efforts through virtualization and through reducing the number of mainframes from three to one. We're no longer buying storage for individual servers, all the storage is being bought for the storage area network now. We're establishing disaster recovery plans for those agencies that can pay for the [disaster recovery] service and we are continuing at the CIO level to help support that data center administrator.

One thing we stopped doing is our new ERP program. We were doing the requirements analysis for that. It was a $26 million dollar project for the next biennium [July 1, 2009-June 30, 2011] that we simply put on hold so we're not requesting those dollars for the next biennium. That gave the agency some relief in terms of those dollars that aren't going to be spent. We may return to it in two or three years. We are looking at how to right-size the agency given the economic slowdown.

I've also tried to go through a refresh on my strategic plan. When we did it two years ago it was for a four-year window. So over the next 30 days I'm working with my customers to determine if their business needs are the same and is the IT strategic response likely to be the same or different.

Dale Franz, CIO Auto Warehousing Co., a Tacoma, Wash-based full service auto processing company

The first thing that we've looked at is capital expenditures for new equipment and software. We've cut practically to zero unless it's absolutely critical to the business. So we're not expanding network infrastructure, we're not adding new servers, we're not making any capital investments unless we're replacing or repairing a piece of equipment or bringing on new or additional business. We've taken our entire replacement calendar and we've suspended it six months.

We have been trying to accelerate our deployment of our business intelligence software -- things where we don't need to spend any additional money but were we can increase efficiencies using systems and thereby reduce labor needs or reduce fuel needs. So I guess we're trying to increase efficiencies and cut all capital expenses to zero, which is unusual for us.

One of the big areas of our business is we install small parts. You may only receive 25 cents or 30 cents per unit install on a new vehicle but when you run that across 5 ½ million cars, plus a bunch of other stuff, it turns into big dollars. We've been trying to implement new financial accounting systems that will improve the electronic reconciliation process. We've been working hand-in-hand with the finance department to increase the speed and efficiency of that reconciliation process so it requires less manual intervention. So the big thing that's going to go forward regardless of [the economy] is the electronic revenue and reconciliation processing for the finance department.

We are also rewriting our core application from an older language in Power Builder because the core application wasn't compatible with [Windows] Vista. We're rewriting it in Java so it can run natively on multiple platforms. That development project will continue as well.

We've put staff expansion on hold; we're just kind of dropping into cash conservation mode. We're OK at this point and our CFO is just trying to make sure we weather the storm. We were going to increase the speed of our network. We were going to move to full gigabit switches in 2009 but we've put that on hold because of the cost of equipment and not wanting to spend the cash.

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