This Thing is Going Down

U.S. stocks have been on a historic run over the past few years, that's for sure. I trust you have enjoyed the run.

It will end. That's an absolute certainty.

And the cassandras among us are already preparing for the inevitable downturn.

What do market data and information managers need to do to prepare?

It some sense it's a question of divided loyalties:

• you want to lock in multi-year agreements with vendors to ensure your users have access to the resources they need should budgets be cut, but,
• you know that senior management is eyeing a bull market that's long in the tooth and they're preparing for the inevitable recession or economic downturn. 

Ideally, as part of your budget process, you have already created some sort of cash flow table for your contracts that shows the dollar value of contracts as they expire: this way you and senior management know how much cash will be freed up, and when.

A simple illustration of the concept:

You've also tiered your contracts by importance - must have, nice to have, take it over leave it - so you can get a realistic picture of how much you can cut, when, and at what impact to the business.

My advice? Consider locking in longer term agreements for your strategic vendors with must-have services, without which the business would suffer materially. For less critical services, stick to single year agreements. In fact, this is probably a good idea at any point in the macroeconomic cycle: you want some flexibility in your contract book - a good rule of thumb is that you should be able to cull 10% of your spend within 6 months of being ordered to do so.

Do keep in mind, of course, that a lot of your strategic vendors with must-have services are expensive and you're going to have a lot more spend with these contracts than you will with less critical services. Depending upon the scenarios senior management is envisioning (a 20% reduction? 30%?), you may need to earmark some portion of your strategic, business critical for potential elimination as well. The last thing you want to do is go to your CFO and tell him you quite literally don't have any cash you can spare for another 18 months. Not a good look.

An economic downturn is never fun when you manage a big book of indirect spend like market data or information services. However, it's a lot easier to manage the fall out from a severe downturn in business when you've already got a plan for reducing your spend that aligns with what senior management are planning for.