For one thing, the last few years have seen substantial investment in IT infrastructure. That investment, in most cases, was based on the assumption that business expansion would continue for the foreseeable future.
But now the expenditure is being questioned, it is not easy to reverse.
“We’ve just put in a brand new data centre which cost us a lot of money,” explained an IT manager from an international investment bank. “The business is asking how we can cut that cost, but they don’t realise you can’t just switch it off. It will take at least a year and a half to move out; how can we make decisions like that if we don’t know what conditions will be like at that time?”
An IT consultant who works with investment banks said that while cheaper IT systems are possible, the cost of migration has many banks trapped. “In the investment banking sector, the cost of moving transactions on to a new system is prohibitively high,” he explained. “They just don’t have the cash available.”
He added that even virtualisation, widely considered to be a panacea when it comes to cutting IT infrastructure costs, was not necessarily going to help. “Virtualisation is far from being a no-brainer,” he said. “You might end up paying more money in extra licences than you save in server consolidation.”
Certainly, the consensus round the table was that many IT projects will be put on ice. Attendees confirmed that they are currently assessing which IT projects and systems can be axed in order to save money. “We are looking at our application development projects and assessing which ones are cost-justifiable,” said an IT director for a stockbroker.
But another attendee, a consultant who was formerly a chief finance officer in the sector, expressed concern that the standard techniques for assessing the viability of IT projects are not up to the job.
“Cost-benefit analysis looks at things the wrong way round,” he said. “Generally, you already know the cost; it’s the benefit that needs to be assessed.”
The group acknowledged that although they faced some difficult questions, they could not afford to dither. “You don’t want to suffer a death by a thousand cuts,” explained an IT service provider attending the debate. “You need to be able to identify cost savings effectively and execute them quickly.”
Short vs long term
But the long-term impact of decisions made today weighed heavily on their minds. “I’m concerned that cutting costs now will result in a loss of capability in the future,” said the IT director of another international bank.
But the crisis facing the financial services sector is so serious that difficult decisions must be made, even if their impact needs to be reversed in years to come, the group concurred.
“Our business is very short sighted. In two years’ time, we’ll probably be spending twice as much as we are now to get back the kind of service we can provide today [having cut cost],” said one.
With household name banks having disappeared in the past few months, short-term survival now trumps long-term strategy, he added. “For some companies, the three-year plan is simply to remain existent.”