Easing the IT Budget Process

By Peter Coffee  |  Posted 2002-09-23

Easing the IT Budget Process

Like the cobblers children who go without shoes, an IT department may be fully engaged in equipping enterprise profit centers with the latest management tools and yet find itself without effective budgeting aids or processes. eWeek Labs, therefore, offers the following perspectives on how to get those priorities supported with funds and with non-IT management commitments.

An IT budget is not merely a shopping list, but rather represents an entire sheaf of policy statements. It asks, and answers, such questions as:

  • Who are the users of enterprise information assets, and how will we make those assets accessible to them?

  • What is our current portfolio of IT assets, and how are we assessing the returns on the capital thus employed and the cash flows thus committed?

  • How do we acquire the assets needed to support new IT initiatives, and are we doing so in ways that minimize present-value cost and technical risk?

  • What are the effective "lines of business" within the IT function, and are we in those lines of business out of habit or because theyre actually the best way to meet enterprise needs?

  • Does the IT budget accurately reflect the costs of assuring privacy of data, security of systems and continuity of operations?

  • Are other enterprise functions well-served by IT in obtaining the information that they need to achieve their goals?

    The breadth and depth of IT budgeting systems must grow to meet this increasingly complex charter of more difficult decisions. But IT staff, with above-average confidence in its ability to use such stick-shift tools as spreadsheets and e-mail, may not recognize the handicap they impose on themselves by failing to capture data and manage their budget workflow with automated (or at least well-streamlined) aids. Challenged to show quick paths to compelling returns on new investment, IT needs the leverage of modern budgeting technologies—including the standards-based, Web-oriented facilities they are probably promoting to others.

    Even experienced IT managers may never have encountered the skeptical, even hostile climate that their spending proposals may have to face for perhaps another year or more.

    Entering the 00s, its been a shock to both sellers and buyers to deal with a new paradigm of IT budgeting against a base line of near saturation. Almost every apparent IT need has been met—in many cases by a second- or even third-generation solution—and general management has developed a critical eye thats quick to focus on anything that looks like upgrading out of habit, without a demonstrable business benefit.

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    Theres a greater need to track, with precision, whats being used now and how—to estimate, without hype, what would result from added expenditure and when. At the same time, the portfolio of IT options has become far richer in opportunities and corresponding complexities.

    Its also increasingly important for IT departments to shed an image, all too often deserved, of being cavalier about meeting targets in terms of both time and money. Late, overbudget deliveries are one thing when the alternative is giving competitors a critical lead in time to market with a crucial new customer service or operations aid; theyre another thing when scarce capital could equally well be applied in some other domain with less commercial or technical risk.

    IT budgeting tools and processes must make a good-faith effort not only to quantify risk, but also to integrate into each line item the related costs that are sometimes left to someone else to consider—costs such as assuring continuity of operation and including appropriate security measures, rather than treating contingency planning and IT security as if they were separate line items.

    IT departments may also face growing pressure to identify opportunities for cost reduction, both immediate and long term, by varying degrees of open-source adoption. This may be through the promotion or enforcement of the use of nonproprietary data formats, or even more aggressively by replacing commercial off-the-shelf products with a combination of open-source software and site-specific services.

    Faced with a growing number of build-vs.-buy opportunities, its crucial for IT budget developers to speak in terms of the business mission rather than anything that looks or smells like technology for its own sake. "Acquire and deploy office suite upgrade" might have been an unremarkable item in an IT budget in 1997, but, today, its likely to trigger questions as to what new tasks will be supported or what productivity gains will accrue.

    Whats needed are budget line items that closely correlate with tangible results. "Shorten job cost analysis cycle from six days to 6 hours," for example, is a line item thats likely to trigger interest rather than enmity. To pursue such goals, IT managers need to get off the upgrade treadmill and blaze new trails that begin as close as possible to where the work is being done.

    In the case of Nevada-based Cashman Equipment Co., the worlds seventh-largest distributor of John Deere and Caterpillar heavy equipment, thats literally on the shop floor. Cashman IT Director Bill Glassen chose analytic tools from Hyperion Solutions Corp., in Sunnyvale, Calif., to integrate data on shop activities and costs.

    "[Using Hyperions tools,] we can parse it down to the level of a shop foreman or up to the level of a company executive," Glassen said. "We can determine if a work order is profitable, if its on time; we can give that shop a better idea of how well its working. Some supervisors were surprised to find out how much time wasnt being billed to customers but to internal activities."

    Indeed, Glassens example shows that shedding light into previously dark corners of enterprise operations, rather than changing the light bulbs in the data spaces that are already well-lit, is the prospect that will propel new IT activity.

    Also essential are IT budget analyses that fully reflect life-cycle costs, so that business units can be confident that an IT initiative will yield benefits that they can afford to enjoy. A massive IT investment, such as a centralized analytic platform, might have a long list of strategic benefits, but cost- and head-count-conscious business line managers wont buy into such initiatives until they know what their own budgets will have to contribute.

    Steve Foley, CEO at analytics vendor Clareos Inc., in Herndon, Va., suggested in a conversation with eWeek Labs that a two-year effort consuming several million dollars can all too easily produce a result thats too costly to use. "If ITs answer to a business unit request is that they need a staff person, they need to set up the tables and the queries, they need $100,000 in software licenses and six months, the answer is, Forget about it," Foley said.

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    Going through a Web-based trial or an on-site evaluation period, with participation from actual business units, is a proven way to build line-of-business acceptance—and to highlight deficiencies and costs that might otherwise turn even a "successful" deployment into an immediate white elephant.

    When an IT department modernizes its budgeting process, it also builds the credibility of that department as a solutions provider to other departments. In particular, its important for IT to demonstrate that any brief inconvenience is worth the effort of integrating legacy systems into the standards-based network, even in the current climate with its pressure to minimize short-term cost.

    "The Internet is the only way forward. Its the common language, and the browser is the common view," said Earl Newsome, vice president and CIO at international glass and plastics maker Owens-Illinois Inc., in Toledo, Ohio. "What lies underneath begins to matter less," Newsome added, an important consideration for companies making international acquisitions.

    "As you look at global information capture, you want to make sure that your labels and your math are consistent across the globe," Newsome said. "A clear and consistent strategy for making sure that were speaking the same language, thats the foundation."

    Technology Editor Peter Coffee can be reached at peter_coffee@ziffdavis.com.

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