Create an IT Budget your CFO Will Love

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Presented at InnoTech Austin on October 20, 2011. For details on InnoTech, visit www.innotechconferences.com

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Create an IT Budget your CFO Will Love

  1. 1. 8627 North Mopac, Suite 110 Austin, TX 78759 (512)249-6080x318 office (512)567-6758 cell www.gcsaustin.comCreate an IT Budget Your CFO Will Love!IntroductionAs a consultant I’ve worked with more than a thousand organizations in need of IT solutions. The vastmajority budget and plan technology expenditures poorly. This presentation will highly the failures andsuccesses I’ve encountered throughout the years.  Average IT Budget Distribution for Orgs $25M - $100M: o Salaries: 53% o Consulting: 3% o Training: 1.5% o Licensing and Maint: 10% o Hardware: 5% o Services: 5% o Telecom: 10% o Other: 12.5%What Does a CFO Love?Most CFOs live in a very black and white world of profit or loss. Expenditures which demonstrateincreased profit or decreased risk are easy to approve. In every modern organization there is intensecompetition for these expenditures. A CFO must believe that IT’s proposals are more profitable oraddress key risk better than other departmental requests.  Predictability  Value  Business FocusChallenges for IT ExecutivesFew IT executives rank budgeting among their strengths. All would agree that good budgeting is criticalto long term success. The skills required for effective budgeting are not prerequisites for success instrictly technical positions.  Minimal Financial Expertise
  2. 2. 8627 North Mopac, Suite 110 Austin, TX 78759 (512)249-6080x318 office (512)567-6758 cell www.gcsaustin.com  “Selling Uphill” – Using FUD - Fear, Uncertainty, and Doubt  Unlimited Demands from the Business/Organization o At Zero Cost Demand is Infinite o Methods Must be Implemented to Restrict Access to IT o Expectations Must be Managed Carefully  Surprise Requirements for Non-IT technology spendingBasic Financial Elements of a BudgetAt GCS we essentially run a large IT department as a business. Our budgeting and planning rules areeasily adapted to internal IT departments. At GCS, like with all businesses, we work to keep ouroverhead low while focusing on controlling direct costs – costs that are directly tied to income. In mostIT departments direct costs are operating expenses. Overhead costs are capital expenditures.  Operating vs Capital Expenditures  Operating Expenses o Highly Flexible o Recurring o Similar to Direct costs / varies with volume of business  Capital Expenditures o Depreciated over 3 – 5 years (IRS = 5 Years) o Similar to Overhead costs o Decreases in volume of business do not affect costs o Increases in volume of business require large investmentsRoadmappingDay-to-day and year-to-year purchasing decisions require long range guidance. Information Technologyundergoes rapid strategic changes that must be considered in the context of each organization’s specificneeds.  Strategy to Guide Spending  18 – 24 Month Focus  Guidelines to Assist In Individual Purchasing Decisions.  Incorporate IT Strategy Shifts such Server and Desktop Virtualization, Cloud Computing,  Include Proof of Concept $ in Every Budget  Centralized Storage Example
  3. 3. 8627 North Mopac, Suite 110 Austin, TX 78759 (512)249-6080x318 office (512)567-6758 cell www.gcsaustin.comCloud Computing – Align Income and Expenses at a Huge PriceThe impact of cloud computing is entirely on the balance sheet today. This section will examine thecommon misperception that cloud computing reduces cost. We will examine the cost flexibility of thesesolutions and quantify that value.  Flexible  Expensive  Security ConcernsPredictabilityPredictability is achieved with effective capacity management, accurate cost estimates, and a limitedscope. Surprises of any sort sour the relationship between IT and the business.  Capacity Management  Service Level Agreement  Supported Technologies  Project Management Capabilities  Refresh/Upgrade CyclesValueMost CFOs, like most humans, are penny pinchers. They write big checks more easily when they believethey are getting a great deal. RFP processes have been relied on for decades but frequently emphasizecost over value.  Competitive Bidding / RFP Processes  Zero Based Budgeting o Starting from scratch in each category  Comparison to Peers – Baselines o Average US company spends $2k - $8k per user per year on IT o By Industry 2% - 4% of Gross Revenue on IT o 80% Maintenance / 20% Development or New TechnologyBusiness FocusThe vast majority of IT budgets emphasize IT focused projects. Version upgrades, management software,or architecture changes are but a few examples. The CFO hears far more about IT from the business
  4. 4. 8627 North Mopac, Suite 110 Austin, TX 78759 (512)249-6080x318 office (512)567-6758 cell www.gcsaustin.comthan he hears from IT about ANYTHING. Address the concerns and requests he hears most often for longterm success.  New Technology Rollouts  Minimize IT Department “pet” Projects o Management Improvements and Maintenance Projects  Role of a Steering or Advisory Committee  Consumerization

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