Business managers play key role in shrinking Merrill IT budget

Merrill Lynch has stemmed IT cost overruns by shifting the responsibility for technology project costs to business managers and away from IT managers.

“In 1999, 34% of the technology budget was owned by the business side, and the balance was owned by technology groups,” said Marvin Balliet, chief financial officer of the global technology and services division of Merrill Lynch, during his Thursday morning presentation at Waters Magazine’s 2002 Financial and Risk Management Technology Congress at the New York Palace Hotel. “Now, 79% is owned by the business and the remainder is owned by technology groups.”

Under the new strategy, technology budgets are kept in check because business managers are required to make cuts in other areas if they want to increase technology spend.

“Cut the number of traders, or don’t move into new offices if you want to increase spending, but don’t go over budget,” Balliet says.

That said, the company is encouraging business managers to cut IT costs without deferring projects that have potential for offering competitive advantage. The firm’s IT spending strategy is to “shrink the overall [IT spending] pie but maximise strategic investment,” says Balliet.

Other savings came from a policy of increased oversight. In particular, projects are generally restricted in length to 18 months, and reviewed quarterly (in some cases monthly) to ensure they are on budget and still pertinent to current market conditions.

“The day of the massive five-year project is dead,” Balliet said, noting that those technology projects would often run over budget and continue well after they were no longer relevant to the market.

The company has also found cost savings by shifting some of its IT development work oversees, to “offshore development centers”. In particular, Merrill Lynch has a relationship with an IT development firm in India that has helped reduce its labour costs. Labour generally represents about 60% of an IT budget, Balliet says.