Intro
It’s that dreaded time again. Go ahead and say it out loud with the same lack of enthusiasm as the classic Dunkin’ Donuts commercial: “Time to make the budgets.”
When it comes time for IT budget planning, I’m sure it often feels like the last trip to the door in the commercial when he comically says “time to make the donuts”, opens the door to see himself coming back home, and tells his other self: “I made the donuts.”
In this article, we’ll share some budgeting tips and suggest new ways to think about budget categories, purposes, and benefits.
Budgeting Tips
First, let’s walk through a few strategies to help in gaining perspective on the budgeting process and to make it less of a blindfolded game of horseshoes and more of an intentional process to affect positive change during the next round of reviews and approvals. With any luck, these tips will lead to better proposals, stronger justification, and greater success in acquiring more of what you need with less effort.
When preparing a budget:
Prioritize. After making a list of proposed budgetary items, it’s important to spend time with key stakeholders to prioritize projects. While each stakeholder may have a vested interest in their project, it’s best to consider how each project relates to one another relative to the overall goals of the organization. This will help you pinpoint potential dependencies that might not have been previously identified. Coming to a consensus on project prioritization will help in shaping your budgetary inputs and provide a sanity check on whether the prioritization at lower levels is truly in line with the organization’s broader strategy and goals.
Assemble your team of champions. While most technology projects are enabled by IT, it’s still the business that should be driving strategy. By assigning the key stakeholder and the business unit(s) project champion from which the project will benefit, you’ll accomplish the following things that lead to broader success.
– Create broader ownership of the project and its success.
– Open discussions on sharing cost with the business unit to absorb some or all of the
project’s budgetary needs.
– Develop project success metrics important to the business highlighting IT’s impact and success across the organization. When the business can clearly see and regularly track IT’s contribution to the same business goals by which they’re being measured, better business and IT partnerships can be formed. Conversely, without visible strategic and action alignment at hand to build trust and a shared sense of responsibility, IT and its requested budget is often viewed as a necessary expense with uncertain results and no accountability. Who wants to fund uncertainty with anything more than what is absolutely necessary to keep the lights on?
Scale your budget appropriately. If you’re budgeting again for something you did last year and nothing has changed, go ahead and let your previous year’s costs, renewals, and quotes guide this year’s budget with a minimal buffer of 5 to 10 percent. However, if this is a new area of work, your first time implementing a given technology, or your first in a long time to integrate a new process and/or technology across business functions and regions, add an appropriately sized contingency reserve to the budget.
If there’s a small to medium risk of missing the deadline or budget for all the above factors, you might start with 15 to 20 percent contingency. If it’s a big, complex project, you might add 30 to 40 percent contingency over your original estimate. This will let you absorb common scope additions and project delays, bring in SMEs for consulting as needed, and smooth over any number of smaller issues that arise during a larger, integrated project. In the end, you’re managing expectations. And if you don’t touch the contingency fund, it’s money saved. If you’ve budgeted wisely for it from the beginning, you don’t need to request more to cover scope creep or unforeseen circumstances and issues that arise through no fault of your own.
Be flexible. If the COVID-19 pandemic has taught organizations anything, it’s flexibility. To survive and thrive, we need the ability to quickly adapt to new conditions, market factors, and other circumstances. The same rings true for budgeting. While it’s important to thoughtfully plan your budget a year or more out, it’s equally important to be prepared to pivot, realign, and redirect budget funds when necessary. It’s also critical to capitalize on the opportunities that change can create.
Budget Categories
Now that you’ve refreshed yourself with some budgeting tips, let’s look at some categories you may not use today but might want to include in your budget going forward. Here we provide an overview of the more well known categories covering strategic needs and ongoing expenses.
But we also add two new categories you may not currently use: innovation and technical debt. Strategic Needs. Most managers at higher levels are familiar with strategic needs. Examples include digital transformation programs, capital projects and equipment investments for manufacturers, business continuity solutions, and expenses related to exiting out of the datacenter management business whether to a private cloud, public cloud, or some hybrid solution that fits your specific needs.
Innovation. The purpose of this budget category is to nurture the mindset and executive support through funding for innovation—so you can learn and iterate quickly. To be clear, the
goal is not to be successful with every prototype, proof of concept, or trial. Yes, some of your innovation attempts will fail or require a pivot from the expected outcome to consider it a success. But there is still value in learning from those failures.
In some cases, you’ll unearth a reason why your proof of concept won’t work near-term due to other issues that can be resolved outside of your original scope. In other cases, you may find the obstacle to prototype success falling on company culture or the way in which the company is currently organized. Whatever the reasons, your goal should be to look for a decent batting average with your innovations. Go for hits, and the homeruns will come. Remember, baseball players can bat .300 (three hits out of every ten at-bats) and still make it into the Baseball Hall of Fame.
Innovation could be as simple as proving out a modern storage system that dramatically cuts storage costs and backup times while enabling online maintenance without downtime for the first time. Innovation can bring enabling AI and machine learning for automated task execution, error detection, and handling, so your workforce can spend more time providing great customer service and managing routine SAP tasks by exception. Innovation can—and should—lead to insights and results that, in turn, inform your intelligence about funding increases and decreases in the other categories.
Technical Debt. Technical debt is a fairly new topic for a lot of people, and we’ll be publishing more on this topic shortly (update: article and webinar published in July 2020). But for now, the term technical debt refers to any gap that exists in your environment today that slows or prevents the organization from executing its required work without undue risk, time, cost, or retrofitting.
When technical debt accumulates, it most often increases risk, makes things more complex or not possible at all, and causes suboptimal solution design and delays thereby causing money to be wasted. The longer technical debt goes unaddressed, the more it can grow either gradually, in big steps up, or even exponentially as a rise in risk and costs.
Technical debt can take the form of aging software that hasn’t been maintained or kept up to date with patches and new releases. The longer this goes, the more content there is to update when you do decide to catch up. At some point, you may not be able to simply get current by applying all the patches because the vendor no longer supports that version of the software and you need to upgrade to the new release. If this goes much longer, you may find that you can’t even upgrade directly anymore. Now it requires a two-step upgrade from your dated version to the new release, mandating much more time, money, and often more downtime concurrently than your company would otherwise allow in a routine or larger annual maintenance window. Technical debt can also take the form of aging and out of support hardware—or the capability that being on newer hardware gives your competitors to do things in real-time or dynamically without downtime.
One more common example of technical debt is your team’s skills, which need to stay up to date. When your company competency in solutioning, implementing, and supporting your solutions gets too dated, it costs more to train and bring in external consultants. This can eventually cause your employees and contractors to seek other employment opportunities because their skills, interest, and compensation are tied to current projects as opposed to supporting outdated technologies and ways of conducting business.
Ongoing Expenses and Maintenance. We deliberately put this budget category last because the danger in putting this one first to “keep the lights on” is that most organizations spend too much on ongoing expenses and not enough on strategic improvements, innovation, and solving technical debt. Studies suggest that budgets at progressive, growing, and profitable companies allocate roughly 60 to 70 percent of their annual budget on strategic needs and innovation compared to their peers, who allocate 60 to 70 percent of their budgets on ongoing expenses and maintenance. By getting into the mindset of funding your go-forward needs first, funding innovation and solving technical debt, you’ll see fewer reasons for, and a decrease in, the amount of money allocated to the ongoing expenses category. This decrease gives the organization options for continued investment, or even shifting more traditional capital items like software licenses to operating expenses, with a switch to Software as a Service (SaaS) subscriptions thus keeping the organization current with new functionality, patches, and security fixes less the hassle and higher ongoing administration and deployment expense.
Conclusion
When it comes time to create your budget, look for opportunities to address your innovation pursuits as well as your technical debt. With well-rounded budgets to address near-term needs, you can open a path to invest in innovation. You can also reduce current and future risks and costs by addressing technical debt. When you do, you’ll see a change in the way your organization views IT and will enhance its deserved reputation as a business enabler.
If you or someone you know in your organization responsible for IT budget planning could use some help analyzing your situation and needs for opportunities to create a better budget, even reviewing it before submission, we are happy to help “make the budgets”. With this updated approach, thoughtful budgets for IT will begin to yield tasty results.