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7 Steps to Winning
Budget Approval
By Info-Tech Research Staff
The crush of the economic crisis has put the squeeze
on North American IT budgets; freezing, and in some
cases, eliminating discretionary spending and new
projects altogether.
While most organizations polled in a recent
Info-Tech Research Group survey said they are doing
everything they can to avoid layoffs (only 13
percent have committed to staff changes to date),
nearly half way through 2009 the outlook remains
stark:
• 65 percent are cutting back on discretionary
spending and postponing or cancelling projects.
• 48 percent are reducing their contracting and
consulting budgets.
• 40 percent have been taking the time to
renegotiate vendor agreements to make them more
affordable.
In uncertain times, having a strategic plan and a
solid budget ready is the best thing IT leaders can
do for their departments.
“Knowing where excess resources are being spent is
the dream of every IT manager who is forced to make
cuts and spend smarter,” says Andy Woyzbun, lead
analyst with Info-Tech Research Group.
To prepare for winning budget approval, Info-Tech
offers the following seven recommendations.
Recommendations
1. Align today’s budget to strategy.
A long-term
strategy provides a context for today’s
expenditures. A three-year strategy can effectively
demonstrate why developing “A” today is necessary to
implementing “Z” in three years.
2. Perform a budget review.
Arrange an annual or
project-by-project budget review meeting to show how
the allocated money has been spent. Use industry
benchmarks to demonstrate that the department’s
spending habits are in line and to give an
opportunity to justify unexpected factors that
affected the budget, such as changes in price or
technology. Explain what worked out as planned, what
didn’t, and why.
3. Separate “need to have” from “nice to have.” Know
the difference between essential investments and
those that are merely helpful. Business-driven
investments should already have this distinction. IT
should make this difference clear in the budget for
IT-driven projects – actually label each line item
as either essential or non-essential. Spell out the
risks and consequences of not having essential
items.
4. Create budget sub-sections. Separate the budget
into projects (investments in new functions or
infrastructure) and operational (day-to-day
maintenance expenses). In lean times, evaluate
investments based on business value returned. For
operational expenses, look for ways to improve
efficiency to reduce cost.
5. Use a sharp pencil.Research purchase costs for
each line item carefully. Use current market values
and look for lower-cost alternatives. Establish a
vendor management program at the organization to
develop a mutually beneficial client/vendor
relationship. Negotiate preferable terms and prices
with vendors. Using proven negotiation tactics to
receive best prices will make many IT leaders look
like the very essence of thrift.
6. Get line-of-business support. Encourage
line-of-business managers to vocally push for items
in the IT department’s budget. Senior management
loves an IT budget that supports business priorities
(i.e., bolstering the bottom line or increasing
competitiveness).
7. Be credible. Past performance on designing and
adhering to budgets will go a long way toward easing
the approval process this time around.
• Use industry benchmarks.
• Don’t be overly optimistic in the projections –
most companies simply can’t swallow cost overruns in
the midst of a recession or downturn. Be realistic.
• Be complete in the itemization – don’t forget
maintenance and consulting.
• Triple-check the figures. Erroneous numbers will
paint an amateurish picture in front of senior
management.
• Justify every request and number in the budget
itself. Match requested increases to the company
growth rate. Keep operational budget increases in
line with the rate of inflation.
The Bottom Line
Winning approval for IT expenditures may continue to
be an uphill battle this year. With a thaw on frozen
budgets nowhere on the horizon, Info-Tech recommends
following these seven simple budgeting steps to
avoid unnecessary angst, win approval for spending,
and build a reputation as a responsible spender in
the process. Using a custom IT budgeting benchmark
is another great way to level-set your spending and
compare your projections to those of your peers.
---Source: Information Management
Magazine June 11, 2009 (www.information-management.com).
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