The budget squeeze - a continuing series on a fictitious company's MIS strategy - Technology Transfer - Column

Paula the Pragmatist, manager of the PC development group, the Frank the Follower, manager of the mainframe development group, at Acme Services Co., were a few minutes early for a user meeting. Paula, "Did you hear that they plan to cut the IS budget this year?"

"Yes, I did," Paula said. "It seems a little scary, doesn't it? I heard that they simply want to hold growth to 5% this year. I also heard that some departments will still have increases, but others might have to do some cutting."

"Is that right? Do you know who will be asked to cut?" Frank asked anxiously. He wanted to hear more, but the meeting was getting ready to start.

At lunch that day, Frank mentioned what he had heard to his boss, Lou the Lifer, head ot application development. "Paula is right," Lou responded. "Management revised the revenue budget, and asked us to change our departmental budgets a bit. This year's budget was supposed to be about 25% higher than last year's, but now they're asking us to limit the increase."

Frank thought for a moment. "Doest this mean I won't be able to hire the new person I planned to add? My users will be very upset if I fall any further behind on their projects," Frank said.

Edna the Entrepreneur, manager of technology researcy, overheard Frank's last comment. "I don't think they have decided where the cuts will be," she interjected, "but some expenses are not optional. I was talking to Sam in systems and he told me that he did not have much control over the software expenses in his budget. Vendors normally increase maintenance and license charges each year, and there is little that can be done except pay the higher charges. Some software has been going up more than 15% a year," she said.

"Couldn't we just use less expensive software?" asked Frank.

"We could," said Edna, "but we would face about the same charges with most companies. And some software companies have almost a virtual monopoly with their products. Besides, even if you could save a little money by switching, there is almost always a conversion cost and somd kind of inconvenience involved."

"That doesn't sound good," Frank said. He was thoughtful for a moment. "What about the hardware budget? It seems that I'm always reading that mainframes are becoming cheaper."

"As a rule, mainframes are becoming less expensive," she said. "However, we keep needing larger mainframes."

"Just a minute," Frank interrupted. "I've been reading that the mainframe is dead. The last big project I got from Lou was a client/server application. And we just purchased a customer service application. There is also more work moving out to workstations. So why do we need bigger mainframes?"

"You're right, Frank," said Lou. "We have developed a few client/server applications. But most of our work is still on the mainframe. We have a tremendous investment in mainframe applications. We just can't throw them away or rewrite them overnight. Some new development is being directed to workstations and we are looking at other platforms. But all that takes time."

"Frank, we have been looking at how we might be able to take advantage of new platforms," added Edna. "New applications are usually good candidates, but much of the demand for increased processing power comes from enhancements and changes to existing systems. Our users have wish lists a mile long.

"Until we can reengineer some old applications, we are going to continue to upgrade processors. Even when you design a new system, you sometimes need to keep it on the mainframe because it is closely tied to other mainframe opplications."

Frank was getting discouraged. "Then it sounds like most of our increase will go for things we can do nothing about."

INCREASED DEMAND, LIMITED RESOURCES

The next day Lou called a meeting of all his managers to discuss the proposed budget cuts. "I have a few things to pass on," he began. "First, Don the Director [of information systems] just gave us the official information about the budget changes. The rumors were right. The budget will be limited to a 5% increase this year.

"This will affect us more than some other departments," Lou continued. "Many IS increases are beyond our control, at least in the short term. The bottom line is that we in application development will need to cut some costs this year. Specifically, this means we will not be able to add most of the new positions we had budgeted for, and we'll need to cut back on training and travel."

Frank jumped in, "That doesn't seem fair, Lou. I know we can't do anything about software and hardware costs, but that doesn't help us get our work done. If we don't provide enough training, we will lose some of our good people. Besides, most of our training this year was for rapid development methodologies so we could get more work done. And our users keep demanding more. What are we supposed to do?"

Paula added, "Lou, we formed the PC development group only two years ago, and work requests have been coming in at an incredible rate. We already have more work than we can do in the next three years. If I don't expand my staff, there is just no way we can get the most important work done."

"I know that," Lou responded, "and I think Don and Betty and Businesswoman [the head of corporate adminstration] are also quite aware of that. This brings me to the second item I wanted to mention. Don has called a meeting to discuss some alternatives. Betty is thinking about using chargebacks to control demand, but I think Don would rather see better use of cost/benefit analysis. I'm not sure how this will shake out, but I'll try to keep you up-to-date on the situation."

Later that day, Don met with his staff managers to lay the facts before them. "We are facing somewhat of a crisis. Our users are constantly demanding increased service, but our budget is limited. It is hard to find money to pay for the systems we develop and the resources it takes to run them.

"Betty and I had a long talk about this," he continued. "She seems to believe that the easiest thing to do is install a chargeback system. I shared my feelings with her on the pluses and minuses of chargebacks. She pointed out that no solution sill be without drawbacks and said she wanted us to look into chargeback systems."

Russ the Reactionary, who runs the data center, interjected, "It may sound easy to you and Betty, but it will be a real pain for me. We will have to monitor more data, devise pricing algorithms, prepare bills and put up with a lot of politics. Besides, who is going to sell this to our users?"

"It will be a big cultural change," Lou added. "I'm not sure we are ready for it."

"We may just have to get," Don grumbled.

"Don, I sense that you are not convinced that chargeback is the way to go," Edna said. "Frankly, I'm not either. Maybe I could get my staff to research the more important benefits and drawbacks. Then we could present them to you and Betty," she offered.

Lou backed her up. "We really have to have our act together if we're going to propose this big of a change."

Don nodded. "I agree. Let's get together in two weeks and see what you come up with."

COPYRIGHT 1993 Wiesner Publications, Inc.
COPYRIGHT 2004 Gale Group