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For Your Business March 14, 2022

6 cost management strategies for CIOs amid geopolitical disruption

​The pandemic and Russia's invasion of Ukraine alike show how swiftly disruptions can arise and push organizations to address them. 

In early 2020, COVID-19 lockdowns altered a variety of business operations and economies seemingly overnight, severely impacting revenues and markets.

Fast forward to early 2022, and the Russian invasion of Ukraine is similarly having financial and business implications for all enterprises, especially those with material operations or revenue generation in the affected regions. 

Enterprises that fail to act may not survive this disruption or may see their subsequent recovery delayed. In times of crisis, the impulse to make hasty decisions must be tempered with thoughtful considerations of reprioritization, divestment and even strategic investment. 

Here are six strategic cost management actions for CIOs to take in order to protect their organizations from financial distress amid geopolitical conflicts, such as the Russian invasion of Ukraine.

1. Reduce and pause spending

Gartner has spoken to IT leaders who, in the early days of a given crisis, have literally started with a blank sheet of paper and worked with the business to reprioritize requirements and set spending levels that the organization can actually afford. This was a common exercise when the pandemic broke out.

CIOs have been successful in reducing IT spend rates by classifying actions into the following groupings:

  • Can/must reduce: This category includes vendor/supplier agreements and payments that can (and therefore must) be ceased, deferred or delayed.
  • Could/should reduce: Includes those that could be ceased, deferred or delayed. For these, identify the specific spend reduction actions (e.g. defer an upgrade, delay a project) and associated risk mitigation steps that will be required to execute them.
  • Can't/don't reduce: Includes those that should not be ceased, deferred or delayed given their importance to the business. 

Within this exercise, consider what happens if the vendor fails to perform or terminates services. This will be particularly important for smaller vendors and those with higher levels of debt. 

2. Evaluate existing investments

In-flight projects must be immediately reviewed and broken into two categories: noncritical and critical projects. 

Their definitions speak for themselves, but the critical projects can be drilled into further to determine if any aspects within such can be immediately reduced. 

Where possible, CIOs may reduce the current project scope or keep a much closer eye on scope creep. Other options include migrating fewer users to new software products or delivering fewer features in critical development projects, deferring the "nice to have" ones.

3. Defer any new spend

There tends to be no room for new IT spending when crises ensue. 

As geopolitical disruption persists, cash will become increasingly important to affected organizations. Defer or cancel all uncommenced and uncommitted spend on projects, staffing, assets or software or hardware upgrades. 

Release any retained third-party resources, and the service or infrastructure expenses related to these. Defer any and all future or planned expenditure.

4. Reevaluate service delivery spend

Beyond tackling the largely discretionary project portfolio, it is also important to address the current service portfolio. 

Here, you should identify opportunities to:

  • Provide a lower service level — for example, help/service desk or end-user support
  • Reduce hours of service to core business hours 
  • Reduce the number of software applications available to users and,
  • Of course, consume less.

Inspect current consumption and spend levels on all variable operating expenses, such as infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), software-as-a-service (SaaS), voice and data communications. 

On a service-by-service basis, either completely eliminate or take control actions to reduce enterprise-wide consumption levels by restricting or managing supply and renegotiating contract terms as necessary.

When it comes to cost savings from headcount, it's critical to ensure that personnel reductions are conducted carefully across temporary and permanent staff, and only once if possible. 

5. Negotiate consumption

The rest of the executive team will need to help decide on key changes to operations, such as terminating services or applications, or encouraging users to work in different ways to reduce variable operating costs – and potentially the fixed costs – of the business.

When reducing consumption, ensure core business outcomes are protected. Actions proposed should not damage ongoing revenue and cash flow.

6. Anticipate spending increases (and initiate decreases)

Another parallel CIOs can draw from the pandemic and apply to evolving geopolitical situations is how IT spending shifts as remote working increases. 

For instance, if offices or work locations are partially or completely vacated due to conflict, can enterprise- or office-based utilities, communications/access, infrastructure and services be suspended or deferred? Will costs pertaining to personnel well-being and remote working, including collaboration software, rise?

Anticipating and planning for increased costs will impact the IT budget, so CIOs need to communicate this to CFOs early on to ensure they can be met as well as proactively identify what can be reduced and how.

Assess and manage risk through informed decision making

Even though decisions must be made quickly, a pragmatic assessment of organizational dependencies (risks) such as technology, workforce and service providers can create valuable insight. With the Russian invasion of Ukraine, specifically, end users and service providers with IT services delivery centers in these regions are uncertain about service continuity.

Gartner estimates there are over one million IT professionals in Russia, Ukraine and Belarus altogether, of whom around 250,000 work for consulting or outsourcing firms that serve clients outside those countries. The imposition of sanctions against Russia will increase the complexity for many businesses and service providers with IT staff and local IT operations in Russia and other impacted countries.

Paying wages, expenses and invoices to local suppliers, moving staff in and out of the region, and controlling site security will all become vastly more difficult.

While leadership will be forced to choose winners (preserve/invest) and losers (cut/divest) across every aspect of organizational operations, processes and goals, they should take care to make informed decisions that do not needlessly mortgage the future.

In this environment, the priority for CIOs is to identify the risks that are inherent in the decisions they have taken. They can then actively work on mitigating those risks, while also doing all they can to achieve their primary goal of cash-flow protection.

 

This article was written by Chris Ganly from CIO Dive and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.

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