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CIOs urged to re-examine budget amidst currency fluctuations

CIOs urged to re-examine budget amidst currency fluctuations

“This exchange rate challenge will be managed by good planning — not by rapid response,” says Roberto Sacco of Gartner.

Gartner says 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.

Gartner points out how in the past year, the euro, Japanese yen and Brazilian real have all dropped by about 20 per cent relative to the US dollar.

As a result, products priced in dollars will become more expensive in local currencies.

"We expect that this drop will hold through at least the end of 2016," says Roberto Sacco, research director at Gartner, in a statement.

"As the CIO, the most important action is to review your project plans through the second quarter of 2016,” states Sacco. “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."

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

Roberto Sacco, Gartner

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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 US software providers, says Sacco.

"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," he states.

As the year progresses, and contracts hit their anniversary dates, Gartner analysts expect US software suppliers to reflect the shift in the euro with price increases of up to 20 per cent. 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 reprioritise and complete projects within budget.

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"See where you can minimise 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," says 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," says 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 IT leaders who fail to act on these shifts will learn about the impacts of currency drift through proposal surprise, contract ambush and cancelled orders.

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These impacts will occur through to 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,” concludes Sacco.

Send news tips and comments to divina_paredes@idg.co.nz

Follow Divina Paredes on Twitter: @divinap

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