Budgeting for IT: Four pitfalls to avoid

The 2008 budgeting season is here. Get the latest advice on how to avoid common pitfalls during the budget planning process.

The CIO serves many masters, so it's little wonder that budgeting for IT has many pitfalls. Here are four common pitfalls to avoid during this 2008 budget season.

Pitfall No. 1: Not understanding the company's strategic goals.

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CIOs, having reached a certain level in their companies, know how to budget within their own departments. The trick is working at a higher level, which may or may not be facilitated by your organization's structure. Even if you are not involved in corporate goal-setting, you have to make it your job to understand those goals. What are the key initiatives for the coming fiscal year? How will corporate goals be met short term and long term? What role does IT play in the process?

Sadly, many companies plan key strategic initiatives without consulting IT, thereby making decisions without understanding the total, true cost and return of the project. But as the CIO, you know well the implications on your budget. You need additional hardware, software and/or people to support new initiatives.

The bottom line for avoiding this pitfall is to get access to the highest-level corporate planners. If you're not on the executive committee, make sure you have access to someone who is.

Pitfall No. 2: Going over budget as a result of other departments' needs.

Every CIO has experienced this: Your budget is submitted and approved, and then you hear of another department's major project for the year, which requires considerable IT support and investment, and about which the department head insists you were consulted. Yet it's not reflected in your budget.

It is imperative to understand how IT will be affected by individual department needs. Will the finance department need a new General Ledger system? Do you need to incorporate a CRM system in sales and marketing?

If your company's budgeting process doesn't encourage interdepartmental communication, then make it happen yourself. You are essentially running a service organization within the organization, and everybody expects you to meet their needs, whether it's the core IT services or the support of a new initiative. To make sure you can do that, reach out to all managers before setting your annual budget.

Pitfall No. 3: Failing to research and analyze new technologies and services.

Few CIOs have time to stay current on the latest technologies and services in the ever-changing IT world. That can be a costly mistake. Rely on your staff and consultants to some extent if you can, but you can't be completely excused from staying current.

What hardware needs to be purchased? Do you lease instead of buy? Regarding software, do you have the staff expertise and time to build applications addressing your industry-specific needs? If not, do you buy packaged software or custom? Do you jump on the latest industry trend, Software as a Service (SaaS), and outsource an entire function? You can't make the right choice unless you commit to a thorough cost analysis of the options, and allot enough time in your budget development schedule to conduct that analysis.

Pitfall No. 4: Not using the tools available to you.

Many CIOs -- even, ironically, those at technology companies -- don't take advantage of budgeting software tools, which are particularly helpful for creating "what-if" scenarios that analyze the impact of various initiatives on your budget and the overall corporate budget. You don't need to rely on your accounting software or spreadsheets to build your budget -- they're not equipped for the job anyway -- or dole out the bucks for a massive enterprise resource planning application. Effective, inexpensive budgeting tools exist, and they work right out of the box, giving you more time to work on avoiding pitfalls one through three.

These pitfalls may sound easy to avoid, but clearly they aren't, or fewer companies would be stumbling over them. Circumvent them, however, and you'll end up with a precise, well-thought-out budget, and be prepared for the real challenge of delivering the services your budget promises.

John Orlando is CFO at budgeting and forecasting software provider Centage Corp. in Natick, Mass. His more than 25 years' experience in finance and accounting includes extensive experience with both high-growth Fortune 500 companies and startup businesses.

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