BUDGETING is a critical aspect of every Information Technology (IT) leader in his or her duties.
Is your IT department operating with a budget?
Is your budget aligned with the business objective?
Is your budget focus on short term, or medium term or long term goals?
A proper planning and implementation of a budget is key in order to create value.
The aim of this article is to help you understand and appreciate the importance of a budget, who is affected, and implementation, whether you are a small and big enterprise.
The article will answer the questions regarding whom does IT budgeting affect and budgeting tips and best practices.
An established IT department in a large organization operates with its own budget.
In some small businesses, the IT department operates without a budget and in others, it operates under finance or general administration.
The IT budget is the total allocation of IT spending over a 12-month period.
IT spending or budget can come from anywhere in the enterprise that incurs IT costs, and it is not limited to the IT organization.
It includes estimates by enterprises on decentralized IT spending and or shadow IT.
The IT budget covers hardware, software, personnel, outsourcing, and disaster recovery and occupancy costs associated with supporting IT within the enterprise.
Costs also include all taxes (except value-added tax where it is recovered or refunded to the organization). – Gatner.com
The concepts in our conversation are credited to Patrick Gray.
Patrick works for a leading global professional services firm, where he helps companies rapidly invent and launch new businesses.
Whom does IT budgeting affect?
While IT budgets are usually presented and overseen by IT leaders, everyone from line managers to consultants could have a hand in preparing the budget.
The activities your employees and consultants will be engaging in during the year are defined by the budget, so it’s a critical document for taking your priorities from concept through to execution.
IT budgets may seem narrowly focused when you are doing them at the departmental level, or they may seem disconnected from the thousands of staff who support your efforts when you are a Fortune 500 chief information officer (CIO).
But they directly affect the people and initiatives you are able to deliver.
Like it or not, they are also subject to the constraints of the organization as a whole.
A high performing organization, with the perfect set of initiatives and a correctly sized budget, may still be subject to painful and arbitrary cuts if the overall organization is suffering.
Budgets also affect your external partners, ranging from software vendors to strategy consultants.
Most are more than happy to help you through the budgeting process.
However, it is important to remember that they have a significant vested interest in the portion of your budget that affects them and tend to see your needs through the eyes of the solution they bring to the table.
A cloud provider will see every budgetary problem solved by shifting funding; to the cloud, just as a consulting provider will see the answer to every problem in a dramatically increased consulting services budget.
These organizations can provide valuable benchmarking and planning assistance, so certainly use them as a resource.
Just be aware that the perspective that is provided may not always directly align with your interests.
What are IT budgeting tips and best practices?
A well developed and presented budget should be the numeric manifestation of your IT strategy that is well communicated and understood by your peers.
When done right, budgets should merely affirm what is already been understood and should get approved with minimal pushback.
Consider how deeply the budget can affect your organization at all levels and put the appropriate time and diligence into its creation.
It is easy to see budgeting as a painful administrative process; however, it truly is the financial manifestation of the strategy and direction your department or organization will take over the coming year.
Ideally, the process of developing your budget begins immediately after the previous budget is approved and leverages the past budget as a starting point.
Monitor your spending against a budget of last year, and as you see variances or ways to allocate funds more effectively, use them as input to an ongoing draft budget.
Several months before your budget is due, review the budget of last year and the expenses for the current year and identify areas that could be reduced or reallocated.
When you arrive at the budgeting cycle with activities already launched to reduce extra fat it will be easier to justify a budget that is optimized rather than larded up with unnecessary items.
Some organizations demand more diligent defense of a budget than others.
So if you work for an organization that demands justification of every line item, it is especially important to start selling your budget before you even write the first line, while communicating and gaining consensus for your IT strategy.
A massive IT project is more easily justified at budgeting time when everyone knows its purpose, impact, and objectives than if budget season is the first time anyone hears of it.
If you have gained agreement on your strategy, it is harder to simply dismiss budgetary categories or demand arbitrary reductions, since there should be a direct tie between the previously agreed strategic imperative and the budget item.
When you must make cuts, a solid understanding of your priorities can help identify cuts that will have the least impact on the effectiveness of your strategic plan.
If you do not already have an IT strategy, use the budgeting period as an opportunity to craft a light strategy that is presented immediately before your budget.
If you have a cohesive and well-conceived plan, the money to execute that plan is less likely to be questioned.
Finally, if you are required to make significant reductions in various areas of your budget, highlight the capabilities that will be affected by the cuts.
As you review the budget, remember that rather than just a pot of money for your department, it is a prioritization of initiatives and capabilities.
Unless your organization is rife with unused capacity, a cut in one area will affect an element of your IT strategy, and there is no harm in collaborating with the approver to determine which capabilities should be cut first and how that will affect the overall organization.
The more closely you can map your budget to past results, the easier it is to justify future expenditures. – Credit Patrick Gray in CXO, www.techrepublic.com
The author is a speaker, mentor, educator, trainer, professional and community leader, IT and cybersecurity leader. For comments email: ICTMatters@kingston.co.zm; www.kingston.co.zm.