Rethinking your engineering budget during a downturn

During a downturn, engineering managers must rethink their budgets, focus on running efficient services, and motivate their team through difficult times.

The macroeconomic situation in 2023 has been challenging to say the least. Inflation has run rampant, interest rates have soared to counter that, and the threat (or reality) of a prolonged period of recession or economic stagnation is something that we are all contending with.

This latest economic shock comes hot on the heels of the COVID-19 pandemic and has rattled CFOs worldwide, causing them to tighten the purse strings and batten down the hatches just in case the world’s economic problems persist.

As an engineering manager, what are the steps you need to take to manage through these economically challenging times?

Managing shrinking budgets

Tighter spending rules mean that one of the biggest challenges you are likely to face is securing additional budget. While the people charged with signing off budgets will often see the benefits of a new technology investment or project, they will often scrutinize the costs closely.

To offset this, think about budget decisions as a set of scales. On one side you have necessity and on the other cost. A project’s necessity has to outweigh its cost for it to win. The higher the cost, the higher the necessity has to be.

Now there is a third weight to consider: the economic outlook and how it impacts your business. The better the outlook, the more weight is added to the necessity side of the scales, meaning projects with lower necessity may get approved. But in tighter times, costs become the focus and only the most necessary projects will get signed off.

In order to secure those scarce budgets, it is more important than ever to gain broad support for your initiatives and build out a solid business case which includes any cost savings, productivity or efficiency gains that may result from your project. There may be less appetite for new investment during downturns, but a business case that tackles the things that your executive team are most worried about is going to have a much better shot at getting signed off than ones that don’t. 

Remember, narrative is everything. Don’t focus on things like “developer experience” or “friction,” instead focus on “increasing productivity” and “improving velocity” to more directly show the benefit of your project to decision makers outside of engineering.

Focus on efficiency

As leaders, your job is always a balancing act between perfection and expediency, and perfection is the enemy of done.

Now is the time to look at your products and hunt around for cost efficiencies. Maybe that involves looking at wasteful processing in a service, resulting in higher cloud bills. Or a lack of caching causing unnecessary upstream calls. Whatever it is, people notice when you cut costs in a downturn.

Embrace that challenge and get your team(s) to focus on driving out unnecessary costs and create room in your budgets for new investment.

This desire for cost savings and efficiency can lead to opportunity. Don’t be afraid to propose a big project during tough times, just be sure to emphasize the cost saving or efficiency gains of that project. This could be an overdue migration from a legacy technology, addressing a chunk of technical debt, or buying a functional solution instead of building something perfect in-house.

Motivate your people

People are at the heart of everything we do, yet churn in our teams is inevitable. During a downturn we encounter a new problem: headcount freezes.

Suddenly, it becomes harder to hire new people, or even replace existing headcount. Shrinking teams can quickly lead to a downward spiral effect, with remaining team members coming under more pressure from increased workload, and starting to look at the exit door.

Be cognizant of this risk and double down on retention. Put in the extra effort to make everyone feel valued, recognize people’s effort, and make them feel seen and appreciated.

If you find yourself in a position where you’ve lost team members, use it as an opportunity to hunt down those efficiencies, and use their engineering expertise to make things better.

Give them the resources or support they need to enact those changes and you will come out of the downturn in a stronger position. Then, when new headcount finally comes, you will be able to do more with more.

Downturns don’t have to be gloomy

There’s no denying that a downturn increases the pressure on leaders, but they also open up a world of possibilities and can be very rewarding when you come out the other side in a better place.

With interest rates higher than they have been for some time and looking like they will stay there for the foreseeable future, most organizations will keep an eye on expenditure for a while, so you can’t bury your head in the sand. The situation may not result in a budgetary tightening, but it is likely you will have to work harder for every penny you want to spend.

Leaders are most valuable during turbulent times. By focusing on what is necessary, driving efficiency, and paying extra attention to your people, the future should be anything but gloomy.