CIOs To Revisit IT Budget Ahead Of Price Hike

by CXOtoday News Desk    Aug 13, 2015

itbudget

CIOs of non-US-based companies are being advised to reasses their technology product budgets in light of the continuing strength of the US dollar in relation to other currencies. Over the last year, the euro, Japanese yen and Brazilian real have all dropped by about 20 percent relative to the US dollar. As a result, products priced in dollars will become more expensive in local currencies, believe experts.

The warning comes from Gartner, which says in a recent note that CIOs of any country whose currency has weakened against the US dollar need to re-examine their budget plans and account for a 20 percent increase in the price of dollar-based IT products for 2015 and beyond. 

“We expect that this drop will hold through at least the end of 2016,” states Roberto Sacco, research director at Gartner. “As the CIO, the most important action is to review your project plans through the second quarter of 2016. Assume there will be a 20 percent euro price increase on dollar-based IT products, and then make a plan to deal with it. This exchange rate challenge will be managed by good planning — not by rapid response.” 

Because of currency fluctuations, European CIOs can also expect server prices to increase by up to 20 percent. Clearly, server manufacturers will not sell products at a substantial loss, so there will be no room for negotiation. The same outcome will happen with the US-based software providers. 

“Suppliers are currently repricing in local currencies. In an attempt to obfuscate this, they are also re-bundling — changing the mix of included modules, such as training and installation assistance,” says Sacco. 

Many foreign firms probably haven’t been affected by the price increases yet, but they’re likely to as soon as their contracts come up for renewal this year.  Gartner analysts expect US software suppliers to reflect the shift in the euro with price increases of up to 20 percent. European software providers may also raise prices to maintain market rates in areas where they are not looking to compete. 

CIOs must have plans to reprioritize and complete projects within budget. “See where you can minimize the impact of these changes, look for other opportunities to cut costs, and identify the risks, opportunities and funding that the plan exposes. Validate the plan with stakeholders, then work with the CFO to close any remaining gaps,” adds Sacco. 

This approach does not only apply to the euro. “Any country whose currency has weakened against the dollar will face similar conditions to those of Europe,” continues Sacco. “In situations in which there are differences in pricing power or strategic importance, some variations will occur. However, the central mechanics of the currency problem are similar.” 

Sacco warns that, without action, IT leaders will learn about the impacts of currency drift through proposal surprise, contract ambush and cancelled orders. These impacts will occur throughout 2015 and into 2016 as new proposals are bid, and as contracts hit annual renewal dates.

“Overspend will put other projects at risk, hence the need for CIOs to re-examine their budgets now,” he sums up.