IT Budget Planning: Roadblocks and Getting Back to Basics
IT initiatives, both big and small, are critical to business success. IT budget planning involves some challenges however, especially when it comes to communicating why company budgets should support key IT initiatives. So what are some of the major challenges involved in IT budget planning, and how can leaders overcome them?
Roadblocks to successful IT budget planning:
Planning with company goals in mind
One of the biggest roadblocks to successful IT budget management is not taking the company’s goals into consideration when planning IT initiatives. While IT budgeting processes may vary from company to company, it’s critical that IT initiatives are designed to align with overall business initiatives. As a starting point, IT managers should first review short- and long-term goals for the company in order to have better perspective and sense of timing for spending on bigger and smaller initiatives. Ken Cohn, CIO of Pepco Holdings suggests that IT leaders plan expenditures only with the lines of business to drive the corporation ahead. Looking at how these initiatives will impact all the departments and employees is also often overlooked and important to consider.
Misunderstanding of IT Spending Needs
Another major issue that is involved in IT budgeting is miscommunication between IT and finance. When finance does not fully understand the IT process and finance does not understand the needs of IT, budgeting for IT becomes a challenge. This type of misunderstanding can also occur with business leaders. To overcome this, IT managers need to be able to clearly lay out the reasoning for IT spending, be it to increase productivity, improve a product offering, etc. Cohn reiterates on the importance of being well-versed in the strategic plans of all other divisions in the company in order to establish clear communication to all departments.
Key Components of IT Budget Planning
- Run Budget – Run budget tasks go to keeping everything running the way it is with the current environment. For example, these could include software updates or mission critical server replacements. Cutting the run budget should be avoided because it could lead to operational risk; network or server failures could seriously impact daily operations and get in the way of keeping business running.
- Grow Budget – Grow budget items have to do with introducing new capabilities or improving those currently in place. Such tasks could include purchasing a new firewall to protect against potential cyber threats or new software to make operations run more efficiently. These are the items that should be tied directly into a company’s strategic initiatives. Because these tend not to be mission critical tasks, there is some timing flexibility involved, which means it is best they are implemented when there is additional cash available.
- Transform Budget – Transform budget tasks are activities that require intensive research and development. New product or service offerings and major changes to business processes are at the heart of the transform budget. Small scale testing of business applications and prototypes are a few examples of this type of spending. These are usually the first to be overlooked when budgets are tight. It’s important that the transform budget items are carefully considered, however, since they can often be a key to an organization’s long-term success.
Categories of IT spending
To break the IT spending down even further, let’s go over the three main categories of IT spending:
- Capital – Capital expenditures are part of the capital organizational budget. These include buying large software licenses, hardware, parts and major upgrades.
- Operating – Operating expenditures involve maintenance, support and subscriptions for hardware and software services
- Project – Project expenditures are often flexible; depending on the current budget, they can be pushed back or moved up the schedule. These expenditures are tied to a discrete effort.
Beyond the IT Budget: Moving IT Forward
Showing how IT can help improve the overall business to its leaders is essential in moving from “keeping-the-lights-on” initiatives to IT innovation. According to Zetta’s CTO, Jeff Whitehead, the heart of successful IT budget planning involves, “painting a picture with the current pain points of the business, and how the IT initiatives will help make everyone’s lives easier in the future – and help business progress.“
Though IT budget planning can come with some challenges, having the right tools to communicate the importance of IT initiatives will not only make everyone’s lives easier, but will help grow business – and that’s something everyone can get on board with.