Posted by: Jamen Koos
IT budgeting, IT cost accounting method, IT Manager
I’m currently reading a book by Tony J. Read, Ph.D. called The IT Value Network. The chapter I’m on deals primarily with cost-accounting methods applied towards IT investments. One particular point which perks my interest is that of generally accepted accounting principles which relate to standards on IT costs. What is most interesting to note is that there are not accounting rules to provide standards for reporting IT costs and investments. This presents a seriously difficult situation for how cash within the organization is allocated to IT. If IT accounting practice is not consistently applied from one company to another, how do my customers know how much they ‘should’ be spending on IT?
According to Read, budgeting ends up being the primary means for managing IT investments, where operational and capital budgets are the two considered. He asserts that the “problem with budgeting is that the planning process is typically based on the previous year’s run rate.” When this is the case, the IT run rate is based on “some percentage of sales or cost of sales and/or administration.” Put simply, investment based on last year’s needs is short-sighted and with this method, “IT management is prone to misallocate and over consume IT resources.”
The more I learn about the struggles an IT decision-maker faces on a daily basis, the better I can help them solve recurring problems. So how do I as an IT solution-provider address this customer problem? On goes my thinking cap.