The time of year when most departments, including IT, submit preliminary budget requests for 2016 is upon us. Are you prepared … or are your budgeting practices stuck in a time warp?
The IT budgeting process faces many pressing demands, ranging from IT consumerization to new technologies. According to InformationWeek’s most recent IT Budget Outlook, stagnant IT budgeting strategies hold many organizations back from taking a more strategic approach to IT spending. One reason is that many organizations with $100MM+ IT budgets still rely on general corporate budgeting and planning solutions, or gasp, manual budgeting processes.
According to the chart below, 50 percent of survey respondents use spreadsheets – yes, those old clunky Excel things – as a means to collect IT spending data. The 50 percent figure is up from only 47 percent last year. We’re definitely headed in the wrong direction on that trend.
The means for IT budgeting is cause for unhappiness within IT. Satisfaction with IT budgeting processes dropped year-over-year. Those that were “very satisfied” with their IT budgeting process dropped from 14 percent in 2013 to 8 percent in 2014. These time warped budgeting processes are not only cause for this downward spiral in happiness among IT professionals but also make it difficult, if not impossible, to accurately forecast or prioritize IT spending.
With more businesses relying on technology as a competitive advantage, organizations cannot afford to remain with legacy budget processes and practices. Trends such as the consumerization of IT (BYOD), cloud computing and more marketing-initiated IT spending have also set the stage for more robust IT financial management. These trends result in business unit management taking greater responsibility and control of their own technology budgets. This trend has contributed to the emergence of shadow IT budgets, along with additional challenges for IT and corporate business leadership. 37 percent of respondents stated the rate of outside spending on IT was on the rise, up from 22 percent last year.
The bring-your-own-device trend and web services make it possible for non-IT personnel to provision their own technology, but they lack the specialized expertise to determine appropriate security, standards, support and services. According to the InformationWeek survey, 43 percent of respondents either don’t have an IT governance board, up from 39 percent last year, or if one does exist, it has little influence on IT spending. While business units may be able to bring in devices, the IT department needs to be able to handle the critical internal infrastructure, security, data integration and help desk services. InformationWeek stressed the importance of governance, “Governance isn’t bad. Maybe the word rubs IT buckaroos the wrong way, but strong IT leaders should want their non-IT colleagues to have a seat at the table, not for technical decision-making (gigabit or 10 Gig for core networking?) but for important business decisions (like figuring out the proper resource levels for IT). IT organizations can’t and shouldn’t be making those calls on their own.”
The InformationWeek survey also noted that centralized IT isn’t dying as 63 percent of survey respondents reported that they 70 percent of IT services are budgeted in central IT. But partial visibility into spending isn’t enough. Corporate budgeting and planning systems can help with cost containment, but they cannot provide the level of detail a focused IT financial and business management solution offers.
With old-school IT budget processes, businesses cannot manage change such as when an unexpected expense arise. Nor can they accurately forecast for future technology consumption. IT budgets are typically planned six to nine months in advance, yet tend to change significantly based on business and/or IT requirements even before being implemented. Less than half of survey respondents stated that their budgeting process is flexible enough to deal with such changes, while 16 percent said there is not wiggle room for change. The result is disconnection between IT forecast and actual spend, resulting in variances and worse, an inability to prioritize technology investments.
With 28 percent of respondents indicating they expect to see an increase of at least 5 percent in IT spending, it is time to put much greater rigor and financial discipline in their approach to technology deployment. A majority of respondents note that IT budget requests, approvals and tracking are too cumbersome with their current process. The result is an inability to set future direction for critical spending.
Conversely, with a state-of-the-art IT financial management (ITFM) software solution, organizations can now implement more effective IT governance. Using a data-driven approach, IT organizations, in concert with corporate business management, can prioritize IT funding and have the flexibility to respond to unanticipated projects and expenses. An ITFM solution helps CIOs assess the business of IT from different perspectives such as defining and understanding fixed verses variable IT products and services cost structures, benchmarking those costs/rates against peer groups, or comparing the cost of delivery against a third-party alternative like outsourcing or delivery via private, public or hybrid cloud infrastructure. It also increases overall transparency and creates a heightened sense of shared corporate responsibility with the CIO, IT leadership and line of business management, resulting in more accurate and dynamic technology budget process and practices.
Visible, accurate IT budgets that drive greater technology value and organization-wide technology ROI start with two things: deep, clear data about consumption and spending and a flexible process for allocating the costs across business units based on consumption – the right ITFM solution can deliver both.
As IT plays a greater role in your company’s success, isn’t it time you got your budgeting practices unstuck?