Most IT managers hardly consider the budgeting process a healthy exercise. It's often painful, prolonged and takes on a life of its own -- separate from the real work of your company. But what if it could be a more productive process, providing real choices to senior management and illuminating the value that IT brings to the business
As 2007 approaches, here's some advice on how to make budgeting healthier, for you and your company, although I cannot promise that it will always be fun.
Doing more with less
IT managers might be buoyed by the fact that, on average, IT budgets for 2006 increased about 4% over 2005. But don't be fooled into thinking an upward trend will continue. From what I see, many companies are upgrading and investing in IT, both in infrastructure (hardware) and applications. Aging ERP systems don't get the job done, and reporting requirements demand more robust systems. This means that, in the short term, companies will have to spend more on IT to keep competitive and be in regulatory compliance.
So as you begin the budget process, do so with the mind-set of how to deliver more with less for 2007 -- even if you are able to get more budget dollars. You will be feeling cost pressures and the need to show business value for what you spend.
Keeping the lights on vs. building the new
As you budget, separate the costs for running your IT shop on a day-to-day basis from what you propose to spend on new applications and infrastructure upgrades. Show the percentage of dollars you spend on each. Most of the IT budgets that I see are heavily weighted toward keeping the lights on -- often as much as 80% to 90%. A relatively small mount of money is spent on new investments or initiatives. But companies need investments in IT that will improve their business performance -- like systems that dramatically improve their supply chain or change a customer experience.
On a year-to-year basis, you should aim to change the mix of your spend, less on day-to-day operations (by getting more efficient) and more on building for the future. Show these percentages and trends from year to year. It may help you make the case for required funding to do the new work.
Showing value, not just costs
Your CEO and CFO want to know what they get for their money. So try to illustrate next to every budget category the business value that you will deliver. For example, for the cost of running the infrastructure, show how the efficiency of the company's work is improved, how customers get faster responses, how operating costs are reduced. For investments in new systems, project the benefits for the business.
Identifying the pressure points
IT budgets are increasingly subject to cost increases driven by the demands of the business. The business is just using more IT resources. This is particularly true in the area of storage. The storage resource looks free to people in the company, so they build -- and may not use -- large databases and keep massive numbers of email messages and electronic files.
The business needs to know where IT usage is driving up costs and may want to reduce excesses.
Are you being radical enough?
There are two sometimes unpopular ideas to consider as you look at costs and value: outsourcing/offshoring and standardization. Your business partners -- even in a medium-sized company -- are looking at these possibilities, so they will expect you, as an IT manager, to do the same.
The movement of work to a place where it can be done at a lower cost -- whether inside or outside your company -- is the natural result of a "flat world". Maybe just considering these options will help you identify how to reduce your own costs or deliver more for less. Looking can also give you some cost benchmarks. Your business partners want to know whether you are being competitive with your own costs.
Standardization is another route to efficiency. Can you eliminate redundant systems and even redundant business processes? How many email systems do you have, do you have a standard desktop configuration, does each one of your sites have its own human resources system? Standardization isn't always welcome -- people like to be free to do what they want with technology -- but standardization can both lower costs and make IT and your company easier to run. With these kinds of actions a budget becomes a healthy exercise and more than just a set of numbers.
James Champy is chairman of Perot Systems Corp.'s consulting practice and head of strategy for the company. He is also the author of the best-selling books Reengineering the Corporation, Reengineering Management, The Arc of Ambition and X-Engineering the Corporation.