Fiscal Cliff Could Force IT Managers to Cut Serious Costs

With only a few hours to go until the end of 2012, the U.S. government seems determined to drive at full speed off the edge of the so-called “fiscal cliff,” after which a set of tax hikes and draconian budget cuts will go into effect. Those measures were originally put in place to compel President Obama and the U.S. Congress to come to an agreement over the federal budget; and unless those two parties make that happen, there’s a good chance (according to a number of economists) that a lengthy period of raised taxes and decreased federal spending could send the nation sliding back into a recession.

Whether or not the federal government comes to an agreement quickly enough to avoid the worst economic damage, the “fiscal cliff” highlights IT managers’ need to focus on cost optimization—the better to handle sudden cuts in budget.

“Cost optimization remained an important issue throughout 2011 and 2012, but we are already seeing an increased focus in the federal space, in anticipation for what might happen next year,” Andrea Di Maio, a Gartner analyst, wrote in a Dec. 31 corporate blog posting. “Many of the approaches to reduce IT costs are the same: better vendor management, extending useful life for equipment, consolidating and sharing assets and services within and across agencies.”

That being said, Di Maio added, the harried IT manager has some tools to help with wangling costs: cloud-based services, social networking, and consumer-grade mobile devices can all help achieve “economies of scale” and get more done with less.

Given the number of commercial vendors that depend on the federal government for contracts, zooming over the fiscal cliff can have a ripple effect on industries far beyond Washington, D.C. But Di Maio sees other looming fiscal situations—such as the sovereign-debt crisis in Europe—as equally dangerous for the economy. In the face of such uncertainty, a little preemptive cost optimization—or at least considering the options—is probably appropriate.

Meanwhile, other analysts are suggesting that predictive analytics can help lawmakers find common ground and potentially avoid future fiscal cliffs. In a recent research note, the Mesabi Group’s David Hill suggested that analytical models can help economists and lawmakers judge the potential effects of policy actions, which could—at least in an ideal world—help speed up the associated legislative debates.

The Congressional Budget Office, he pointed out, already uses complex formulas to determine the impact of federal taxation and spending. “The output of economic models is not as easy to accept as business models that may give results (such as increased revenues) that everyone finds acceptable,” he wrote. “Instead, the outputs from every policy action may have some positive benefit, but also have an unpalatable side effect.”

But that would also require that legislators agree on a particular set of analytical tools and data-sources—and given the current political climate, that may prove too big of a leap to make.

 

Image: Victorian Traditions/Shutterstock.com

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