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5 Things to Expect from Cuts in CIOs’ Tech Budgets due to COVID-19

March 31, 2020 | 3 minute read
Proven Optics

Written by:
Proven Optics

Due to the COVID-19 pandemic and how it has influenced economic forecasts, CIOs and tech leaders are trying to hit the brakes on spending. Goldman Sachs is predicting a 6% quarter-on-quarter drop in the U.S. GDP in the first three months of the year and a 24% decline for the second quarter. Enterprise Technology Research (ETR) polls CIOs and senior tech executives regularly on their spending intentions. Coming into 2020, ETR’s research suggested a 4% increase in global spending. However, the CIOs’ outlook has become far more pessimistic as the coronavirus spread has worsened. Forrester issued a forecast suggesting global IT spend could still rise by 2% this year, but there’s a 50% chance it could shrink by 2% or more year-on-year in the event of a deep recession. 

Here is how tech leaders are reacting:

1: Immediate and longer-lasting IT budget cuts in some industries

ETR’s results indicate that less than a tenth of CIOs have decided to make permanent budget cuts for 2020, meaning that spending could increase if the downturn is short-lived. However, tech leaders in industries that have seen drastic declines in revenue suggest their budgets will end up considerably lower than they were in 2019.

2: Increased spending on technologies that support remote work

CIOs have had to spend more than expected in some areas in 2020, one of those areas is supporting people working from home. Investments include virtual private networks, desktop infrastructure, and security software to protect these remote workers.

 3: Cancellation of non-essential tech projects and hires

As part of their digital transformation strategy, CIOs have been launching exploratory projects that offer new capabilities. These projects will most likely need to be delayed or canceled to pull back spending. Almost a fifth of the respondents to ETR’s survey stated they have already frozen IT deployments and new projects that aren’t essential.

4: Cuts in budgets for software and service providers

Stephen Minton of research firm IDC states that software investment typically falls one or two quarters after hardware spending because a certain percentage of the spend is tied up in contracts that would take time to cancel or renegotiate. Services that help companies tackle large tech projects (like Accenture or IBM) will also get short-term protection from ongoing contractual commitments, but CIOs could look for cost savings here too. A lot of the money spent with these firms is tied to new IT deployments and projects. If these are delayed or shelved, their services will no longer be needed.

5: A more turbulent transition towards cloud computing

This global crisis may give a boost to cloud computing and cloud-managed services in the same way the Dot Com boost at the turn of the century caused a huge swing towards IT outsourcing. However, some companies may choose to delay big cloud implementations as a way to cut costs. 

There is a great deal of uncertainty that CIOs will have to deal with during this time. Proven Optics delivers results-driven IT Financial Management and Technology Business Management Services. Our professionals will work alongside you to help you understand and manage your IT spending and how it has been impacted by the COVID-19 pandemic. Build your IT Value Story today.

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