IT leaders need to start planning now for potential budgets cuts in light of the worsening global economic outlook, according to IT advisory group Gartner.

The fallout from the sub-prime crises is starting to spill over into enterprise budgetting, suggested Jorge Lopez, managing vice president at Gartner.

“Although the CIO doesn’t control the budget, they need to have a plan in place so when the CEO knocks on their door, they are prepared,” said Jorge L Lopez, Gartner managing vice president. “The problem is that many CIOs are left waiting for a decision to be made, while the CEO considers cuts or seeks a suitor to buy the firm out.”

Lopez said that spending on hardware and discretionary projects focused on innovation would be leading candidates for cutbacks. CIO may also need to consider reducing headcounts and invest more heavily in outsourcing.

Firstly, Gartner said CIOs need to establish a cost cutting team. “The team should include: staff who understand the whole IT process, staff who understand contract distinctions, staff with strong system knowledge of hardware and software networks, and specialists, such as database personnel and programmers,” said Lopez.

Day-to-day tasks of the cost-cutting team should be removed, financial bonuses should be based on the amount of money the team saves, and teams should update senior management with weekly progress reports, said the report.

Gartner also advised IT departments to enlist an internal auditor to quantify progress, and a legal team colleague to ensure cost reduction is made without increasing the company’s liability.

The global economy dominated discussions at this year’s NASSCOM event, an annual industry get together for IT services companies with Indian operations. Early indications suggest increasing demand for low-cost offshore services, said Hilary Robertson, offshore development director at Steria.