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Build an IT Budget That Demonstrates Value Delivery


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Your Challenge:

IT cost pressure is fueled by negative sentiment; IT can be perceived as a high cost that does not deliver value.
Budgetary approval is difficult because finance executives have a limited understanding of IT and use a different vocabulary.
Detailed budgets must be constructed in a way that is transparent, but too much detail results in complexity that is confusing.

Our Advice:

Critical Insight:
An effective IT budget tells the story of how IT is going to deliver value to the business.

Make the business your partner to understand their future needs.
Know how much money you’ll need and the value you’re going to deliver.
Communication matters; present clearly and credibly.
Help the organization make the right decisions by explaining the implications of its choices.
Impact and Result
Knowing the initiatives business units will propose allows you to get a head start on forecasting IT costs.
Presell ideas. Quick face-to-face chats about how a new initiative could benefit the organization can go a long way.
Do not pad key innovation project budgets; building the case for approval is difficult enough as is.
Forecasting operating costs requires an accurate view of historical costs and an understanding of how business changes will affect IT costs.
Anticipate the questions that will be asked; discretionary projects are often criticized and challenged. Think about areas that people will focus on, do research, and be ready to respond intelligently.
An IT department can’t squeeze dollars out of rocks. Tie cost reductions to service reductions and deferred projects.

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Build an IT Budget That Demonstrates Value Delivery

  1. 1. Info-Tech Research Group 1Info-Tech Research Group 1 Info-Tech Research Group, Inc. is a global leader in providing IT research and advice. Info-Tech’s products and services combine actionable insight and relevant advice with ready-to-use tools and templates that cover the full spectrum of IT concerns. © 1997-2017 Info-Tech Research Group Inc. V4 Build an IT Budget That Demonstrates Value Delivery Get the budget you need to enable IT to deliver to its full potential. Info-Tech's products and services combine actionable insight and relevant advice with ready-to-use tools and templates that cover the full spectrum of IT concerns.© 1997 – 2016 Info-Tech Research Group
  2. 2. Info-Tech Research Group 2Info-Tech Research Group 2 For any organizational function that is structured in a hub-and-spoke fashion (a central unit delivering services to other units) without a direct connection to revenue, presenting the value of investments will always be a challenge. Cost information alone is not enough context for a business audience to understand the value of IT investment. The challenge becomes about how exactly IT should communicate the benefit of investment to fulfill the value equation. The best recourse is to align investments with confirmed organizational priorities, goals, imperatives, and essential outcomes. Your IT budget and presentation must include this. David Glazer Research Manager, CIO Practice Info-Tech Research Group Value = Benefit – Cost ANALYST PERSPECTIVE
  3. 3. Info-Tech Research Group 3Info-Tech Research Group 3 Resolution Situation Complication Executive summary • Budgetary approval can make or break your year. IT is often viewed as a cost center and getting enough funding can be challenging. A bad budget proposal can be subjected to fiscal attack preventing you from meeting the needs of the business. A good budget proposal can get you the funding you need to deliver extraordinary value. • IT cost pressure is fueled by negative sentiment; IT can be perceived as a high cost that does not deliver value. Budgetary approval is difficult because finance executives have a limited understanding of IT and use a different vocabulary. Detailed budgets must be constructed in a way that is transparent, but too much detail results in complexity that is confusing. • As traditional IT capital expenditures have been replaced by cloud services and other “as-a-service” models, the line between capital and operational budgets has blurred. A lack of clear definitions confuses finance and undermines IT’s budgetary goals. • Our approach speeds up the process of information gathering with customizable forms, templates, and best practices. • Our program focuses on working collaboratively with the business in order to identify, categorize, and prioritize costs. Help the business achieve its strategy by communicating the value of IT investments and accurately forecasting costs and benefits. Your audience won’t understand the value of IT if you can’t communicate the benefit(s). • An IT budgeting process must contain adequate measures to capture and communicate the benefit of IT investments. • This begins with the collection of data and ends with effectively presenting the benefits IT investments will have for the business.
  4. 4. Info-Tech Research Group 4Info-Tech Research Group 4 This Research is Designed For: This Research Will Help You: This Research Will Assist: This Research Will Help You: This Research Is Designed For: This Research Will Help You: This Research Will Also Assist: This Research Will Help Them: Our understanding of the problem Chief Information Officer (CIO) Determine how better budgeting can help your IT department and organization. Clarify budgeting goals and objectives. Develop an accurate forecasting methodology. Develop a better approach to collecting and communicating the benefits of IT investments. Improve chances of getting the funding you need through enhanced presentation and negotiation. CIO Direct Reports Clarify budgeting goals and objectives. Develop a forecasting methodology for their specific silos. Help strengthen the budget via peer review and collaboration. Develop budgeting skills that will improve your IT department’s IT financial management capabilities.
  5. 5. Info-Tech Research Group 5Info-Tech Research Group 5 It’s not just you; everyone feels the pain of IT budgeting of CFOs said their organizations’ budgeting processes needed improvement.37% of CFOs claim their staff was too busy with daily tasks to make the changes needed to keep their budgets up to date. 62% of CFOs describe their current financial planning and analysis system as effective.40% Source: Grant Thornton, 2015
  6. 6. Info-Tech Research Group 6Info-Tech Research Group 6 IT’s success depends on delivering benefits 45% 30% 25% Resource Optimization Benefits Delivery Risk Mitigation “Which business objectives should IT be able to support best?” Historically, IT departments have been mandated to optimize resources and mitigate risks. Today, IT success means delivering benefits by generating revenue and creating value for stakeholders. Source: Info-Tech Research Group
  7. 7. Info-Tech Research Group 7Info-Tech Research Group 7 Many CIOs misestimate the size of their next IT budget CIOs Accurately Estimated CIOs Overestimated CIOs Underestimated 43% of CIOs overestimate the size of their next budget. 23% of CIOs are too conservative and underestimate their future IT budget. Increase 16–30% Increase > 30% Increase 6–15% Increase 1–5% Decrease 1–5% Increase 16–30% Increase 6–15% Increase 1–5% Decrease 1–5% Decrease 6–15% CIO Expectation CEO Expectation Source: Info-Tech Research Group
  8. 8. Info-Tech Research Group 8Info-Tech Research Group 8 Organizational priorities should drive IT priorities; there’s misalignment on shareholder value Based on responses from 63 CEOs, their most important goals are… 1st Maximizing stakeholder value (CIO: 4th). 2nd Improving operational efficiency (CIO: 1st). 3rd Improving customer experience (CIO: 3rd). CEOs and CIOs agree that significant improvements are required for… ● Metrics measuring success of IT projects. ● Business stakeholder satisfaction. ● An IT strategy clearly defined, published, and aligned with business goals.
  9. 9. Info-Tech Research Group 9Info-Tech Research Group 9 Common challenges with budgeting The funding I get just isn’t enough to deliver everything that business units demand while maintaining service levels. Important IT improvement projects get put on the back burner because funds aren’t available. Symptom Cause The projects led by business units demand IT support, consuming a large proportion of the IT budget. Limited funding is provided for IT improvement. Downward budgetary pressure results in service-level reduction, layoffs, and outsourcing. The great irony is that the budgeting process itself is expensive! It takes a lot of people and a lot of time to get it done, and then the back- and-forth rework is endless. There is often inadequate time given to the budget creation process. Often, the business unit planning necessary to forecast IT costs does not conclude until shortly before the IT budget is due. Furthermore, IT budgets are rarely approved on the first submission, leading to more work and budget reductions. Defending my budget is impossible because IT cost forecasting is complicated by thousands of variables. If you drill down on any number deep enough, you’ll find assumptions that are tough to defend. And we just don’t have the data to make the budget accurate. Forecasting cost is complicated and there are a number of factors that cause inaccuracy. Data provided by finance frequently includes obsolete and unnecessary line items, leading to over-budgeting. Furthermore, the deferral of planned business projects causes budget and cost variance, decreasing the credibility of the IT budget process.
  10. 10. Info-Tech Research Group 10Info-Tech Research Group 10 Do’s and don’ts of budgeting • Wait for business planning to conclude before budgeting, resulting in a time crunch. • Present budget for the first time at budget meeting. • Use fast and simple incremental budgeting that does not account for changing wages or vendor prices. • Maintain all non-discretionary expenses and cut most innovation projects. • Present budget proposal using the bare facts and technical jargon. • Have preliminary talks with business units to understand their plans for the fiscal year. • Presell ideas, making business units into advocates for the budget. • Start budgeting early, with a sound forecasting methodology. • Prioritize discretionary projects. • Reduce budget through improved efficiency, application rationalization, and outsourcing. • Present budget proposal using a visual and engaging presentation that shows value for money. Do’s Don’ts
  11. 11. Info-Tech Research Group 11Info-Tech Research Group 11 IT Department Enablement Effective budgeting can provide these benefits Budgetary approval can make or break your year. A good budget proposal can get you the funding you need to meet business needs. A bad budget proposal can result in downward cost pressure that decreases service levels. A solid budget proposal is a planning tool that will help govern IT operations. A good IT budget outlines your IT department’s future costs, which are directly traceable to what your people will actually be doing. The budget can be used to guide projects and operations, track cost-budget variance, and make ad hoc adjustments to spending. Doing IT budgeting right this year will make IT budgeting next year easier and more accurate. A sound forecasting methodology is a lasting asset that will aid future IT financial planning. The budget process itself is draining, difficult, and strenuous, especially when the budget needs to be reworked multiple times. Submitting a good budget and presenting it with a compelling presentation improves the chances of approval the first time, saving time and energy. Operational and Project Planning IT Financial Management Faster Budget Approval 1 3 2 4
  12. 12. Info-Tech Research Group ‹#› Info-Tech Research Group Helps IT Professionals To: Sign up for free trial membership to get practical solutions for your IT challenges  Quickly get up to speed with new technologies  Make the right technology purchasing decisions – fast  Deliver critical IT projects, on time and within budget  Manage business expectations  Justify IT spending and prove the value of IT  Train IT staff and effectively manage an IT department •“Info-Tech helps me to be proactive instead of reactive – a cardinal rule in a stable and leading edge IT environment. - ARCS Commercial Mortgage Co., LP Toll Free: 1-888-670-8889