The fluctuations of financial services firms’ business volumes reflect the cyclical nature of the overall financial markets. These dynamics are often caused by specific crises—such as the most recent subprime mortgage problems—or a slowdown in the economy. These fluctuations require that executives and technology leaders have the ability to restrict spending levels in market downturns and quickly scale up when business volumes rise again.
During previous periods of market turbulence, executives have demanded budget cutbacks and cost savings from their IT organizations. However, because many IT costs are fixed, IT executives have limited options for reducing expenditures. Typical cost-saving initiatives entail rationalizing IT assets and resources and renegotiating vendor contracts.
Fixed IT costs cannot be scaled back easily to react quickly and appropriately to market downturns. Optimization of the “operating leverage,” which is defined as the percentage of fixed costs relative to overall operating costs, increases a company’s ability to lower its IT operating expenses quickly during an economic slowdown.
This issue of the Financial Services Technology Journal discusses approaches to optimizing operating leverage. We examine key areas or “levers” that often transition well from a fixed- to a variable-cost basis. Including articles that relate to these levers and provide key considerations for defining and assessing how to better manage IT costs.