Penny-Pinching All-Stars

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The monthly cost of both the ASP and the WAN are written into the contract and billed to the client site as part of the job cost, Go says. (If it's not written into a client's contract, different operating groups at Barton Malow absorb the costs.) This way, Go is able to help the business and fund projects without dipping into his own budget.

"These are investments we must make in order for the job site to be more efficient and for projects to be completed on time,"Go says. "Not many companies do that because they don't see an immediate return, but we're getting very positive feedback from our clients."

Hang a Shingle

Steve Hassell, CIO of the Northrop Grumman Newport News Shipyard (2000 profit margin: 4.5 per cent), took a different route than Go to reach a similar advantageous spot.

In early 2001, in concert with business leaders at the Virginia-based company, Hassell made his IT department a wholly owned subsidiary of the Shipyard. As president of the new entity called Naptheon, Hassell (who retains his CIO title) signed a five-year service-level agreement with the parent company, Newport News Shipyard, and now the IT department operates like a paid consultant. Hassell bills Newport News for all costs related to the department and its services. "Before, we used to have emotional yearly debates about the cost of IT,"Hassell says. "This step took all the emotion out of it. Now we have cost and quality numbers based on standalone research, and we can do an objective business case for any project just like any other service provider."

The move helped Hassell get his arms around the total cost of IT, from maintenance and projects to how much it cost his employees to park their cars. It also gave him a definitive way to ensure his department's service levels are up to par. His department benchmarks itself against other IT service providers to ensure good cost benefit. Another benefit: the IT and business sides are collaborating more than ever. Each business unit vice president is assigned an IT partner, whose job is to understand how IT can help the unit. When the Shipyard's engineering division needed to implement a CAD package, creating a project team comprising engineering and IT resources was a piece of cake, Hassell says.

"We didn't have a turf war over who was in charge or who would control resources,"he says. "They trusted each other and had been integrated for long enough that they were used to working together as a team. Even the engineering vice president had no problem letting the divisional CIO take leadership of the project."

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* You Didn't Invent a Budget Squeeze

Managing with tighter budget controls may be new to you, but CIOs in low-margin industries have been doing it for years. Budget constraints will force you to be creative and resourceful, but working on a shoestring shouldn't paralyse you, Cargill CIO Taylor says.

"Just because we operate in a tight sector doesn't mean we can't do new or exciting things, like the proprietary plant optimisation system we just built,"he says. "You just have to watch the pennies."

Do you have pointers on how to manage budgets during tough times?E-mail them to the editor linda_kennedy@idg.com.au.

SIDEBAR: Tips from Low-Margin CIOs

How to get the most from every IT budget dollar.

- Invest only in projects that are linked to business goals and will show ROI within three to six months.

- Survey your administrative and infrastructure costs for unnecessary spending that can be cut.

- Decide whether you can forgo in-house software development in favour of keeping development with the vendors.

- Get more for your money by renegotiating licensing contracts with software vendors and service providers on a regular basis.

- Standardise desktops, servers and major software packages to save in maintenance and operations.

- Take a close look at your expenses to be sure you aren't paying for software or hardware that you don't use.

- Look to charge your IT organisation's customers for the systems and services they use.

- If the chance is there, take your IT department independent and charge your parent company for IT services as a consultant.

Copyright © 2002 IDG Communications, Inc.

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