IN 1999 WHEN ABDALLAH SHANTI, CIO at American Axle & Manufacturing, created a five-year strategic plan, his company was enjoying the same boom as everyone else. The Detroit-based manufacturer’s earnings were up and Shanti’s budget reflected the company’s profit sheet: fat and sassy.

And Shanti knew it couldn’t last.

"It’s like the Native American saying," he says. "As you prepare for battle, you must plan ahead so that if you are faced with your death, you are not afraid."

Now, amid headlines screaming about layoffs, bankruptcies, and the dire state of the national and global economies, Shanti and his company are sitting tight. Like everyone else, they’re feeling the pinch of reduced sales and a bearlike market, but as of press time, there were no layoffs in sight for American Axle.

So how did they do it?

Back in 1999, Shanti decided against staffing up his IT group with full-time employees, knowing that when the inevitable rainy day came, it would be easier on morale to lay off part-timers. He also negotiated flexible terms with his outsourcing partners, stipulating what would happen if the economy headed south.

Shanti was smart back then, but how can that help CIOs now? Well, the principles behind these strategies reflect widely agreed on best practices.

For IT executives, the shift from boom times to hard times has been particularly difficult. Instead of frantically recruiting, CIOs find themselves faced with mandated staffing cuts. Instead of managing runaway growth (see "Let’s Not Forget the Good Times"), they’re being asked to cut costs. For CIOs who reached the top of their game during the Internet boom, this sudden scarcity of resources, not to mention the pressure from the business side, can be disorienting and even frightening. Pressure and fear can lead CIOs to make hasty?and bad?decisions. "When it comes to this downturn, executives are headed toward short-term, rash decisions that appear to make sense but eventually damage their competitive positions and financial performance," warns Darrell Rigby, a director at Bain & Co., a Boston-based global consultancy.

Opinions vary regarding the best ways to manage during hard times. Some say a downturn is a great time to consider outsourcing, while others say it’s the worst. Some argue for immediate cuts across the board; others suggest it’s better to examine processes and projects in order to trim fat, not internal organs.

What’s best for one company may not be ideal for another, but after speaking with many IT executives coping with these hard times, we have assembled some best practices for managing during an economic downturn.