IT Operational Budgets at Highest Levels Since 1997

Despite recent growth, many large companies continue to outsource IT work.

IT operational budgets, as a percentage of company revenues, are at their highest levels since the late 1990s, but that increase comes as large enterprises continue to outsource IT work, according to a recent survey by research firm Computer Economics.

The survey, "IT Spending, Staffing and Technology Trends," found that median operational budgets across the IT board represented 2 percent of overall company revenues in 2006, up from 1.7 percent in 2005 and 1.9 percent in 2004.

The 2 percent figure is the highest in the survey since 1997, when the IT world was in the middle of the dot-com boom and Y2K spending, said Frank Scavo, the president of Computer Economics, based in Irvine, Calif.

The survey also found that IT operational budgets grew 4.1 percent in 2006, compared to 2.5 percent growth in 2005, while the expectation for operational growth in 2007 was about a 5 percent increase.

"Its a period of organic growth," Scavo said. "Its the highest point since 1997, but its a more normal growth period for IT and for business."

The growth, however, comes with a price, as large enterprises continue to outsource large portions of IT work and the market pool of qualified professionals remains tight.

The survey, which was conducted January through April and released on July 2, involved 184 CIOs and senior IT managers in the United States and Canada.

The study is in its 17th year.

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Business services saw the most operational growth in 2006, leading the way with 9.7 percent growth. That was followed by health care at 6.5 percent, pharmaceutical and medical devices companies at 5.9 percent, retail at 5 percent, and banking and financing at 4.5 percent.

On the downside, the survey found that capital spending for large projects was much lower, about 1 percent, and that responders expected no growth at all for next year.

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Despite growing budgets, large companies continue to outsource more and more of their IT work, especially software development, Scavo said. Projects and work continue to be farmed out overseas and assigned to freelances as a way to cut costs, especially in the face of rising health costs, he said.

In addition, large companies are not adding as much IT staff with median increases at zero and more than 25 percent of large firms reporting that cuts were made in staff. This coincides with increased outsourcing.

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