We struggle with our IT budgets every year. As the year draws to a close, we try to estimate all that is in store for the next year and go about jotting it down. The problem is that the ‘budget’ not only carries what we want to do, but also carries the demands that users and user departments make. The challenge is two-fold—one is to arrive at a realistic estimate of expenses, and another is to get them approved by the management. Now how does one go about these tasks?
The act of making a wholesome budget and getting it cleared by the management is an art. It consists of a series of steps—right from carrying forward unfinished tasks from the previous year, to undertaking new and fresh programs in the New Year. The budget also covers routine tasks and maintenance of the current systems, aka keeping the ‘lights on’. A tricky job, this.
I suggest the following steps to make sure that we are right in our budget making:
1. Requisitions from functional departments: Ask departments to list out their requirements of IT support, along with their business plans which trigger these requirements. Try not to accept simple requests for the PCs, printers and software without them specifying the accompanying business need. This needs careful handling, as mere collation of requirements run contrary to our stated objective of being effective CIOs. We have to ensure that IT serves the business’ purpose. Unless the assets are put to right use, you cannot obtain benefits.
2. Bring out the Information Systems plan: Prepare a plan document that states the main business issues that IT plans to address. For example, these may include process automation in the plant, supply chain efficiency, ERP, work flow in specific areas, or sales force automation. This is the language that business understands, and the management is also clear about the addressed business challenges. In such cases, budget approvals are not very difficult to obtain. Routine expenses including maintenance and AMCs are usually not discussed on such occasions.
3. Translate in to an IT plan: Once the main direction for IT receives approval, we need to translate this in to a list of necessary equipment and software to be bought (or hired). This has to be executed carefully, taking into account new technologies and solutions offered in the market. It is advisable to review the current status of hardware and software—suggest upgrade or replacement where necessary.
4. Estimation of prices: This is often a challenge. I have been in both spots—situations when prices used to go up every year as well as the latter environment when prices saw a drop every year. In either case, it is best to apply our best judgment by obtaining prices from vendors—either formal or informal. You can formally ask vendors to submit their budgetary prices and then apply your judgment. This way, we come to a financial figure which may not vary widely with time—unless of course there are unforeseen changes.
5. Presenting to the management: On this front, you can put up a presentation to explain IT’s efforts to enhance business capability or efficiency, or send a note that clearly explains the direction being pursued and considered assumptions.
During my career, I have taken this approach and seen it work. I admit that getting a budget approved is not always easy—all the more so at times of low growth and recession, but proper persuasion would help avoid drastic cuts to the IT budget. The IT budget is often the first victim when cuts are imposed on spending, but if put across as a business initiative, spends may look justified. Lastly, it is important to work on the approved plans during the year and come out successfully–let us remember that we again have to approach the Board next year for approval of our budgets.