CIOs Focus On Cost Control

On average, IT maintenance eats up more than $6 out of every $10 in the IT budget. In a bid to battle the maintenance misery and control costs, firms are eyeing everything from replacing old equipment and re-evaluating warranty coverage to outsourcing and architecting their systems differently.

When it comes to IT spending, there's good news and bad news, according to Robert Hegarty, vice president of the securities and investments practice at Needham, Mass.-based TowerGroup. The good news is that IT budgets are on the rise and the securities industry is emerging from a three-year spending slump. Hegarty says the industry will spend $71.5 billion globally on technology this year - with North America accounting for 42 percent of that spend - led by investments in asset-management technologies. But there's a dark side to increasing IT budgets, he says: much of the money still goes toward maintaining systems.

In the '90s, about 67 percent of IT budgets were dedicated to maintenance, while 11 percent went to replacement technology and 22 percent was dedicated to new IT spending, Hegarty says. Fortunately, he adds, "maintenance [spending] is on the decline." Today, 61 percent of IT spending is dedicated to maintenance, spending on replacement technology has crept up to 12 percent and new IT spending has increased to 27 percent. By 2010, Hegarty projects that maintenance spending will drop further, to 55 percent of overall IT spending; replacement technology will account for about 15 percent; and new technology will jump to 30 percent.

Out With The Old

Hegarty says the decline in maintenance costs "has got a lot to do with the declining costs of hardware and telecom." It's now cheaper to replace outmoded systems than to fix them.