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Community IT Innovators - IT Budgeting for Nonprofits 022714
 

Community IT Innovators - IT Budgeting for Nonprofits 022714

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IT costs are often a mix of equipment refresh cycles, convoluted software licenses, and often confusing IT service provider proposals. Add into the mix, cloud computing and managed service providers ...

IT costs are often a mix of equipment refresh cycles, convoluted software licenses, and often confusing IT service provider proposals. Add into the mix, cloud computing and managed service providers and how do you even start to develop an IT budget?

This session provided an overview of an Excel-based IT budgeting approach that enables organizations to take a more proactive approach to managing their IT investment.

It also covered some basic IT knowledge that non-technical managers need to know to validate the budgets that their IT Managers may be submitting to them. Lastly, it focused on techniques to shift management’s perspective of IT from a cost to an investment.

Key Takeaways & Insights:
o How to develop a detailed IT Budget based on types, categories, and classes of IT spend
o How a detailed IT budget can supports better cash flow and financial management
o How to segregate mandatory from discretionary IT spend for organizational agility
o Understand IT hardware lifecycle risk and refresh cycle impacts
o Understand common software licensing models and cost model impacts
o Look at managed service providers and cloud computing and their impact to the budget
o Switching the IT paradigm from cost to investment and tying to organizational strategy

Presenter Bio
Donny ShimamotoDonny Shimamoto, CPA.CITP, CGMA, is the founder and managing director of IntrapriseTechKnowlogies LLC, a CPA consultancy focused on organizational development and advisory services for the middle market and nonprofits. An active CPA, Certified Information Technology Professional (CITP), and Chartered Global Management Accountant (CGMA), Donny is a recognized national expert in IT management and international author/speaker on business intelligence initiatives.

Donny helps many nonprofits by bridging accounting and IT to strengthen organizational governance and risk management, improve business processes through technology, and increase the effectiveness of decision through business intelligence and evidence-based management.

In addition to being a frequent speaker for the Nonprofit Technology Enterprise Network (NTEN), Donny is the chairman of the American Institute of CPA’s (AICPA’s) Information Management & Technology Assurance Executive Committee and a former member of its Governing Council and Assurance Services Executive Committee.

Donny was recognized as one of 2013′s Top 100 Most Influential People by Accounting Today, and was a Top Thought Leader in Public Accounting by CPA Practice Advisor in 2012 and 2013, received the 2009-2010 President’s Award from the Hawaii Society of CPAs, was named to CPA Technology Advisor’s 40 Under 40 list in 2007 & 2009, and was also a Hawaii Top High Tech Leader in 2004.

Donny works with a variety of nonprofits including community foundations, social service agencies, educational institutions, and membership associations.

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    Community IT Innovators - IT Budgeting for Nonprofits 022714 Community IT Innovators - IT Budgeting for Nonprofits 022714 Presentation Transcript

    • Community IT Innovators Webinar Series IT Budgeting for Nonprofits Donny Shimamoto February 27, 2014
    • Webinar Tips • Ask questions Post questions via chat • Interact Respond to polls during webinar • Focus Avoid multitasking. You may just miss the best part of the presentation • Webinar Powerpoint Powerpoint will be shared after the webinar
    • About Community IT Community IT Innovators partners with nonprofits to help them solve their strategic & day-to-day IT challenges. Strategic Proactive approach so you can make IT decisions that support your mission and grow with you Collaborative Team of over 40 staff who empower you to make informed IT choices Invested We are committed to supporting your mission, and take care of your IT network as if it were our own Nonprofit focus Worked with over 900 nonprofits since 1993
    • About the Presenter Donny Shimamoto Founder & Managing Director IntrapriseTechKnowlogies donny@intraprisetechknowlogies.com @donnyitk
    • IT Budgeting for Nonprofits February 27, 2014 Community IT Innovators Presented by Donny C. Shimamoto, CPA.CITP, CGMA v1.3
    • Speaker Biography Donny C. Shimamoto,   CPA/CITP, CGMA Donny Shimamoto, CPA.CITP, CGMA, is the founder and managing director of IntrapriseTechKnowlogies LLC, a CPA consultancy focused on organizational development and advisory services for the middle market and nonprofits. Donny is a recognized national expert in IT management and international author/speaker on business intelligence initiatives. Donny helps many nonprofits by bridging accounting and IT to strengthen organizational governance and risk management, improve business processes through technology, and increase the effectiveness of decision through business intelligence and evidence-based management. Donny was a member of the AICPA Governing Council and is the chairman of its Information Management & Technology Assurance Executive Committee. Donny was recognized as one of 2013’s Top 100 Most Influential People in Accounting by Accounting Today, Top Thought Leaders in Public Accounting by CPA Practice Advisor in 2012, 2013 and 2014, received the 2009-2010 President’s Award from the Hawaii Society of CPAs, was named to CPA Technology Advisor’s 40 Under 40 list in 2007 & 2009, and was also a Hawaii Top High Tech Leader in 2004.
    • Audience Polls – Demographics  Organization Type/Size – – – – –  Small Organization Medium Organization Large Organization Government CPA Firm  Role in Organization – – – – – Lead Executive Executive Leadership Dept Director/Manager Dept Staff Auditor or Consultant Part of Organization – – – – Accounting/Finance Information Technology Line of Business, Programs/Departments Consultant or Auditor Choose one from each set of options that best matches how you view your organization and your role at work.
    • A Systematic Approach to IT Budgeting  Anatomy of an IT Budget – – –  IT Asset Lifecycle Planning – –   Tying IT Risk to Hardware Refresh Cycles Software Licensing Explained Understanding Managed Service Providers Adding some Cloud into the Budget –  Types of Expenditures Categories of Expenditures Classes of Expenditures Comparing Cloud vs. On-Premise Solutions via the Budget Summary
    • A Systematic Approach to IT Budgeting  Challenges with IT Budgeting – Personnel knowledge challenges   – Many IT decisions have multi-year impacts, but many IT budgets focus on only one year at a time    – IT costs incurred at varying times and recur in multi-year patterns; single year focus can result higher long term cost Not just standard personnel and non-personnel costs May not be the same from year to year Unable to distinguish mandatory and discretionary IT costs  – Accounting doesn’t understand IT IT doesn’t understand Accounting Often all intermingled and inseparable Apples-to-apples comparison often difficult due to lack of consistency in vendor quoting and technical nuances Let’s deconstruct the anatomy of an IT Budget to see how we can address the above challenges
    • Anatomy of an IT Budget – Types of Spend  Types of IT Spend – Personnel  – Salaries & Benefits – employees and associated costs Non-Personnel     Hardware – equipment and other fixed assets, installation costs, maintenance contracts, warranties Software – licenses and support contracts Subscriptions – could be associated with hardware, software, training, cloud computing and managed service providers Services – advisors, consultants, service providers, auditors, legal counsel Once you identify the Type of Spend then you ask the right questions to better understand the cost
    • Anatomy of an IT Budget – Personnel  Personnel Budget Questions – – – Are there any anticipated changes to salaries? Are there any anticipated change to benefits/benefits eligibility? Are there any licenses/certifications to add/maintain/end?   – Are there any terminations / layoffs planned?  – Which positions and when? Are there any new hires anticipated?     Do any of those have training associated with them? Do any of them have exam or license renewals? Is this a full-time or part-time position? What benefits would the person be eligible for? Is there any training that needs to be budgeted for? Competitive Analysis Question: – How does our compensation package compare to market?
    • Anatomy of an IT Budget – Hardware  Hardware Budget Questions – – – – –  Additional Hardware Questions – – –  What hardware is at end-of-life? How long will new hardware last? Are there any maintenance or support contracts needed? Are there any subscriptions associated with the hardware? Which costs have to be capitalized? Do we have enough computers for planned new hires? Are there any other dept plans that will require hardware? Are there any projects that may impact current hardware? Competitive Analysis Question: – – What is our competition doing—what HW are they using? Have we considered virtualization or cloud-based alternatives to hardware/infrastructure?
    • Anatomy of an IT Budget – Software  Software Budget Questions – – – – –  Additional Software Questions – – –  Are there any software licenses that need to be renewed? What period is the software license valid for? Are there any subscriptions associated with the software? Are there any installation costs? Which costs have to be capitalized? Do we have enough software licenses for new hires? Are there any other dept plans that will require software? Are there any projects that may impact current software? Competitive Analysis Question: – – What is our competition doing—what SW are they using? Have we considered cloud-based alternatives to software?
    • Anatomy of an IT Budget – Services  Services Budget Questions – – – – –  Additional Services Questions – – –  Is the service level adequate for our coming needs? Are the services provided still needed? Are there additional services needed? Has our volume of services changed? Impact to price? Does the service have a required period associated with it? Are there any other dept plans that will require services? Are there any IT projects that may impact current services? Have services associated with projects been isolated from operational costs? Competitive Analysis Question: – – Have we considered outsourcing non-core IT functions? Have we considered managed service providers?
    • Anatomy of an IT Budget – Subscriptions  Subscriptions Budget Questions – – – – –  Additional Subscriptions Questions – – –  What is the level of usage of the subscription? Should we renew at a different subscription level? Does the subscription have a period required by contract? Are there any installation costs? Which costs have to be capitalized? Do we have enough subscriptions for planned new hires? Should we convert any software to subscriptions? Have all subscriptions associated with hardware and software been included in the budget? Competitive Analysis Question: – Have we looked a new subscription offerings/pricing models to validate that we are optimizing our software and subscriptions cost?
    • Anatomy of an IT Budget – Types of Spend  Types of IT Spend – Personnel  – Salaries & Benefits – employees and associated costs Non-Personnel     Hardware – equipment and other fixed assets, installation costs, maintenance contracts, warranties Software – licenses and support contracts Subscriptions – could be associated with hardware, software, training, cloud computing and managed service providers Services – advisors, consultants, service providers, auditors, legal counsel Remember to focus on the coming year and also on future periods that may impact purchase decisions
    • Anatomy of an IT Budget – Categories  Categories of IT Spend – Defined – Capital – expenditures that will need to be considered as part of the capital budget (usually needs to be capitalized)   – Operating – expenditures that are related to operations  – Subscriptions, maintenance, support for HW/SW usually here Project – expenditures that are tied to a discreet effort    Hardware and large software license purchases usually here Significant repairs, parts replacements, upgrades May or may not need to be capitalized May be required or discretionary expenditures Consider allocating personnel costs among these categories to better understand how IT personnel resources are being deployed
    • Anatomy of an IT Budget – Categories  Categories of IT Spend – Considerations – Capital – expenditures that will need to be considered as part of the capital budget (usually needs to be capitalized)   – Operating – expenditures that are related to operations   – Has a greater cash flow impact, but may also be eligible for financing from vendors or banks Consider impact to the financial statements Usually “required” expenditures related to day-to-day ops Usually somewhat of a fixed cost; focus usually to minimize Project – expenditures that are tied to a discreet effort    May have associated capital or operating expenditures Usually discretionary, but not executing may have impact too Timing may be adjusted for cash flow Proper categorization can help to analyze impact to cash flow and financial statements
    • Anatomy of an IT Budget – Classes  Classes of IT Spend (Run – Optimize – Innovate) – Run – activities and projects that keep the organization running at its current level of service/operations   – Optimize – projects and initiatives that help to improve organizational efficiencies and effectiveness   – Most Operating expenditures fall here Project expenditures related to support and maintenance of the IT infrastructure also fall here Many Project expenditures fall here, particularly when they are related to business improvement activities Many Capital expenditures fall here Innovate – providing new capabilities, products, or services   Also thought of as ‘Research & Development” Some Project and Capital expenditures fall here When trying to “tweak” the IT budget, Run usually should be kept, Optimize and Innovate should be prioritized
    • Anatomy of an IT Budget – Classes  Classes of IT Spend – Analyzing your budget (Laggards) (Mainstream) (Leaders) Your Org? Run 80% 60% 50% ?? Optimize 20% 30% 30% ?? Innovate 0% 10% 20% ?? IT Budget Entity C Entity B Entity A None of these spending patterns are “wrong”. They just represent different types of IT roles/investment.
    • Audience Poll  Which entity are you most similar to? a) b) c) d) e) Entity A (Run = 50; Optimize=30; Innovate=20) Entity B (Run = 60; Optimize=30; Innovate=10) Entity C (Run=80; Optimize=20; Innovate=0) Other Not sure Remember None of these spending patterns are “wrong”. They just represent different types of IT roles/investment.
    • IT Asset Lifecycle Planning  What is an “IT Asset Lifecycle”? – IT Assets follow a general “life” pattern   – IT Assets have different timelines for their life cycles      From Acquisition (“birth”) To Disposal/Discontinuance (“death”) Hardware – 3-5 years Software – depends on license agreement Subscriptions – usually monthly to annually, depends on agreement Services – depends on contract Understanding the IT Asset Lifecycle helps to – – – – Identify the total cost of an IT Asset over its life Identify points in time with option to change cost structure Identify future impact of current decisions Ensure the IT decisions balance short & long term value
    • IT Asset Lifecycle Planning – Hardware    Acquisition costs usually capitalized Costs in other phases usually expensed Option to Repurpose usually forgotten/skipped Acquire Maintain Dispose Replace Repurpose
    • Tying IT Risk to Hardware Refresh Cycles  How often an organizations refreshes its hardware depends on its level of risk tolerance – – – Different IT Assets have varying risk of failure as they age Consider the criticality of the IT Asset to operations Consider the ease of replacement in the event of failure Risk of Failure Laptop Desktop Virtual Terminal Servers Firewall Low <2 yrs <3 yrs <6 yrs <3 yrs <4 yrs Moderate 2-3 yrs 3-5 yrs 6-8 yrs 3-4 yrs 4-6 yrs High 4+ yrs 5+ yrs 8+ yrs 4+ yrs 6+ yrs Ease of Replacement Moderate Moderate Easy Hard Moderate
    • Tying IT Risk to Hardware Refresh Cycles  Consider repurposing servers and workstations into a lower risk role (e.g. login/DNS/file/print server, etc.) when they reach a Moderate risk of failure Acquire Maintain Dispose Replace Repurpose
    • IT Asset Lifecycle Planning – Software     Acquire/Replace costs may be capitalized Maintain/Renew/Dispose costs usually expensed Upgrade costs might be capitalized Replace/Renew/Upgrade is a key decision point usually tied to the software license agreement Acquire Maintain Replace / Renew / Upgrade Dispose
    • Software Licensing Explained  Types of License Programs – Outright Purchase  – Defined Period  – “retail” software license – one time cost One time cost; Only valid for a defined period Defined Period + Subscription  Usually large one time cost, plus subscription –  – annually usually 15-20% or original purchase price Only valid for a defined period, subscription = renewal Subscription     May have one-time activation cost Usually has regularly recurring payments (annually/monthly) Usually has a defined period with renewal option Upgrades usually included / available
    • Software Licensing Explained  Types of License Programs – Impact to Budget – Outright Purchase  – Defined Period   –  One time expenditure in year of acquisition Recurring subscription cost in subsequent years Subscription    One time expenditure in year of acquisition Potential renewal cost at end of period Defined Period + Subscription  – One time expenditure in year of acquisition May have one-time expenditure in year of acquisition Recurring subscription cost in subsequent years When analyzing a purchase decision be sure to look at the costs in out years / total cost
    • Software Licensing Explained  Microsoft License Programs – OEM = provided with purchased equipment    – Retail = purchased from a “store”    – Only valid for that equipment (can’t be moved/transferred) Can’t transfer to virtualized environment No previous version rights Can be moved/transferred between equipment Can transfer into virtualized environment No previous version rights Open License = purchased from a “retailer”     Can be moved/transferred between equipment Can transfer into virtualized environment Rights to use previous versions with Software Assurance Has a license period, may be treated like a subscription
    • Software Licensing Explained  Microsoft Open License – Open Business   – Open Value / Open Value Subscription      Two-year periods, pay upfront Software Assurance optional Three-year periods (one-year allowed for subscription) Pay upfront or pay annually (subscription) Must include Software Assurance Can purchase Online Subscriptions, but must pay annually Microsoft Online Subscriptions – – – Priced monthly, pay monthly Different plan levels with different costs Annual contracts, increases allowed at any time, decreases only at annual renewal point
    • IT Asset Lifecycle Planning – Subscriptions     All costs usually expensed Replace/Renew/Upgrade is a key decision point usually tied to the subscription agreement Increases usually allowed at any time Decreases usually only at Renew point Acquire Maintain Replace / Renew / Upgrade Discontinue
    • IT Asset Lifecycle Planning – Services    Capitalize/expense depending on type of work Lifecycle depends on contract with service provider Managed Service Provider contracts often behave like Subscriptions; and may have software associated with it Acquire Maintain Replace / Renew Discontinue
    • Understanding Managed Service Providers  Managed Services is the practice of transferring day-to-day related management responsibility as a strategic method for improved effective and efficient operations inclusive of Production Support & lifecycle build/maintenance activities. –  A Managed Services Provider (MSP), is typically an IT services provider, who manages and assumes responsibility for providing a defined set of services to their clients either proactively or as they (not the client) determine that the services are needed. – Most MSPs bill an upfront setup or transition and an ongoing flat or near-fixed monthly fee, which benefits clients by providing them with predictable IT support costs –  Source: Wikipedia, http://en.wikipedia.org/wiki/Managed_services Source: Wikipedia, http://en.wikipedia.org/wiki/Managed_services Could bookkeeping be considered a managed service?
    • Understanding Managed Service Providers  Benefits of a Managed Service Provider (MSP) – – – MSP usually specializes in the services provided MSP usually incorporates best practices into their service model Services automatically provided as needed within scope   E.g., when there is a problem applying a system patch, MSP will automatically go in and fix it; without additional cost Considerations when using an MSP – Usually requires that you conform to their model / software suite  – Works well for standardized environments When IT staff are employed by organization   Usually shifts non-value-added tasks to MSP May not decrease staffing cost, but allows staff to focus on more value-added activities
    • Understanding Managed Service Providers  Impact of an MSP to the IT Budget – – Usually increases predictability in service costs Usually setup cost, then recurring monthly payments     – Usually higher recurring cost   – Cost driven by number of supported devices May have software licenses included in cost May offer reduced cost of hourly services w/ higher level plan Higher level plans normally include more managed services But total cost can be less depending on level of incidences Total cost may be higher if there is variability in the environment Review the MSP contract to determine   How much flexibility you have for increases/decreases Renewal points and plan levels (options/service levels) MSPs aren’t right for everyone, requires a leap of faith
    • Adding Some Cloud to the Budget  Cloud Computing / Software-as-a-Service (SaaS) – Reduces the need for equipment purchases   – Reduces up-front implementation costs    – Don’t need to pay for setup/config of hardware Don’t need to incur full platform install/setup Sometimes user setup is included with subscription fee Reduces on-going support & maintenance costs   – Vendor is responsible for server equipment / infrastructure However, may require bandwidth/network equip upgrade Vendor is usually responsible for system operations, patches, backups, business continuity, software upgrades Don’t need to worry about hardware lifecycle risks Reduces cost of Replacement phase   Don’t need to incur costs of server upgrade/replacement Don’t need to incur costs of software upgrade/install
    • Adding Some Cloud to the Budget  Impacts of Cloud / SaaS to the Budget / Cash Flow – Usually reduces overall cost of acquisition  – Usually follows subscription lifecycle model    Implementation costs usually expensed Many vendors allow monthly payments Many vendors offer discount for annual payment up-front Budget / Cash Flow Considerations – – – – No “asset” created, so usually not eligible for financing What is the impact to funding eligibility if cost is spread over time instead of up-front? What is the impact to the financial statements (and related performance incentives) if expensed? Does a conversion to a cloud/SaaS solution reduce costs in other areas?
    • IT Asset Lifecycle Planning  Understanding the IT Asset Lifecycle helps to – – – –  Identify the total cost of an IT Asset over its life Identify points in time with option to change cost structure Identify future impact of current decisions Ensure the IT budget decisions balance short and long term value Create a multi-year IT Budget to analyze total cost – Note replacement / renewal points and costs  – – – – Remember to include any associated services with changes Remember to determine if there are disposal costs Balance risk and cost over time Consider the use of an MSP for cost management and better IT staff utilization Consider the impact of Cloud Computing to funding, cash flow, and financial statements
    • Now you have your IT budget created…   After completing the entire budget, go back and look at the big picture that it shows Use multiple versions of the IT budget to do “what if” scenarios – –  Compare costs of physical vs. virtual servers Compare costs of on-premise vs. cloud solutions Creating the budget the first time can be a big endeavor – Maintaining it usually required less effort
    • Call to Action – IT Budgeting for Nonprofits  CEOs/EDs, CFOs/Controllers, and Dept/Program Managers should work with their IT Manager or Service Provider to develop an IT Budget that – Ensures alignment of IT with business strategy & mission – Balances both short-term and long-term IT costs – Balances IT-related risks, costs, and value – Helps with organizational planning for cash flow, funding sources, and financial statements  – Separates discretionary from non-discretionary IT costs Enables informed decision-making for IT projects A good IT budget is both a planning and decision-making tool that can help to maximize the benefits of your IT investments and enable your organization to better achieve its mission
    • Thank you for your attention and participation! Any Questions? Donny C. Shimamoto, CPA/CITP, CGMA IntrapriseTechKnowlogies LLC email: donny808@cpa.com voice: (808) 735-8324 twitter: @donnyitk See also March 2012 Journal of Accountancy article: “A Strategic Approach to IT Budgeting” @ http://www.journalofaccountancy.com/Issues/2012/Mar/20114439.htm
    • Upcoming Webinar March 27 Best of Nonprofit Tech (14NTC)
    • Next Steps • Connect with us • Provide feedback Short survey after you exit the webinar. Be sure to include any questions that were not answered. • Missed anything? Link to slides & recording will be emailed to you.