Now more than ever, budget time is a CIO's personal crucible. Spending on IT was basically flat this year, according to Gartner Inc. research numbers, and Al Case, senior vice president of primary research at the Stamford, Conn.-based research company, estimated that 2003 spending will be equally board-like.
So, pressure one: CIOs must maintain their infrastructure and finance new projects with what they have, financially speaking. Pressure number two: executive boards are scrutinizing
Small wonder, said Paul Strassman, the CIO of NASA, the U.S. space agency. "CIOs are made and broken at budget time," he said. "It's a very messy business. You have to get all the relevant facts and present them. You can't just sit there and look at the server farm."
The result? "It's bet-the-job time for many CIOs," said Tom Pisello, CEO of software maker Alinean LLC in Orlando, Fla. "The stress levels I've seen during this budget cycle are more extreme than I've ever seen before."
Creating an IT budget that has its priorities straight is a tricky business at best. Bet wrong on the multimillion dollar CRM project, and customer relationships could tank. Allocate too little money to the infrastructure, and the company could suffer crippling network outages. So how do CIOs build a budget that ensures that IT spending reflects the company's business mission? There are no guarantees, but the following tips will help:
Involve the business
When CIOs put forward a big-ticket technology project, they are far more likely to be taken seriously if the business folks who will use the technology voice support. "The budget is far more likely to be approved if not only IT but the business units are seen as having a stake in the project," Pisello said. "Without that, you are going to be hung out to dry."
It only makes sense, Case said, to align IT projects with business goals. He recommends putting a steering committee in place that's made up of business unit managers. These folks can collaborate, discuss and wrangle their way to agreement on which IT projects should be funded and in what order. "There has to be some business governance," said Case. "The CIO needs a board of directors."
Build a model of the business and link IT projects to critical functions
CIOs cannot prioritize correctly based on a view of their own IT fiefdom, said Strassman, who is on the board of directors at Alinean. "If you want to survive as a CIO, you really need to look at the workflow of information processing," he said.
This entails being able to build a bird's eye view of the organization from a process point of view and identify the bottlenecks that block the swift flow of products or services, Case said. He called it a critical path analysis, and he said that too few companies fund technology projects this way. "Today's IT spending is designed around who screams loudest -- anything but an analysis of the throughput of the enterprise."
The idea, he said, is that IT systems should be a microcosm of the enterprise model. By understanding the critical path of transformation of labor and raw materials into goods and services, CIOs can choose to invest in IT projects that sit directly on that critical path. "If you look at the process as a whole, where the investments need to be made can be determined fairly scientifically," he said. "These are the projects you take to the steering committee."
Tell the whole story
In the late 1990s, it was fairly simple to request funding to purchase software without having to worry about the ongoing costs of maintenance, training and upgrades. Those days are long over, McCready said. "That way of doing projects has changed," he said. "So many projects have gone over budget in the past that right now it's really hard to go back to the well in terms of getting more money for an ongoing project."
CFOs look askance at an IT executive who has to pull an Oliver Twist on a regular basis, thinking that planning is not his or her strong suit. Plus, McCready said, experience has brought knowledge of how software projects work. "CFOs realize now that the cost for hardware or software will rarely exceed 28% of the total bill," McCready said. "That's why they're saying, 'Yes, I care about the initial costs, but you've got to tell me about the ongoing costs or it's going to kill the IT budget next year, and the year after, and so on.'"
Be able to discuss other peoples' IT spending
It's rare to find a technology organization that controls all of the IT spending in a company. Many times, a significant amount of technology money is spent in the business units as well. While the CIO does not have control over that money -- and it doesn't fall within his budget -- Strassman said that smart IT executives will at least have knowledge of how that money will be spent. "When CIOs come before the board at budget time, the question is, do they defend the spending that's under their direct control or do they explain the spending throughout the organization?" he said. "The board will want CIOs to provide at least an oral view of all technology because it's all interconnected." Failing to do so, he said, will diminish the CIO's status as a senior executive.
And that's the bottom line, after all. In spite of all the stress, budgets can build a CIO's reputation as a boardroom-level executive if he can build a budget with wisely chosen and strategic investments. "That's the real game," Strassman said. "The CIO that doesn't come to the board with strategic investments is going to be just another administrator and not considered to be part of the top management team."
This was first published in January 2003