Special Feature
Part of a ZDNet Special Feature: IT Budgets 2016: A CIO's Guide

The art and science of creating a killer IT budget

Don't head into a budget review meeting before reading these tips on how to craft an IT budget that aligns with business and tech goals.

Developing a strong IT budget requires a mix of art and science. It involves plainly stating business cases, and explaining exactly how the technology you are requesting will help the company meet its short- and long-term goals. The likelihood of gaining approvals for IT budget requests improves if budgets are well thought-out and aligned with business and IT strategies. Here are best practices for developing a great IT budget.

Summarize the strategic background for your budget with a brief front-page narrative.

There is nothing more off-putting for a budget reviewer than to receive a pile of spreadsheets with line items and numbers that have no background for the priorities listed or insights into the reasoning behind recommendations. This is especially true for technical disciplines such as IT, because budget reviewers are unlikely to understand how and why the requested equipment or software is used. This is why IT decision makers who write a well-crafted strategic overview narrative for their budgets enjoy greater success at getting approvals than those who simply present line items and costs.

The front-page budget narrative should not exceed one page. It should state the current and projected business climate of the company, and then go into the IT strategies that will be needed to support the company in its goals to increase revenues, market share, profitability, operational turnaround, regulatory compliance, or whatever the business drivers might be. Then, you should focus on the IT initiatives that will enable the company to reach its goals.

The narrative should be written in plain English with minimal IT jargon, so that it's easily read and understood by non-IT executives and budget reviewers. For instance, you might include a request to purchase smartphones and software for sales, but you may want to skip specifics about more abstract IT topics such as infrastructure.

Separate OPEX from CAPEX and place mission-critical items at the top.

Most corporate budget templates will already have separate categories set up for operating expenses (OPEX) and longer-term capital expenses (CAPEX); if your organization doesn't use a template, create a budget that keeps OPEX and CAPEX separate. This facilitates the budget review, which usually starts with a review of OPEX and then proceeds to CAPEX items.

Within both the OPEX and CAPEX areas of the budget, you should put the most important line item expenses at the top, because these are the items you want to preserve funding for in case you are asked to make cuts.

In addition, you should develop background material for the budget review meeting. This material should consist of ROI documentation for each operational and capital item, because the CFO (or whomever is in charge of reviewing and approving budgets) is going to ask for a business justification and a cost justification for each budget line item. The clearer you can describe the business case and the ROI for each recommendation, the likelier it is you will receive approval for that item.

Provide start and end dates for each line item.

Start and end dates for investments in each budgetary item help you and the finance department identify when cost streams will be coming in, and when they will disappear.

Another tip is try not to 'front load' your budget by scheduling all of your expenditures in the first quarter. A project that starts in the third quarter will cost a fraction of the spend required for a year-long project; this savings might be enough to get the expenditure approved.

Keep a working copy of the budget that notes which items can and cannot be cut.

Make no mistake about it -- the budget process is conducted in the spirit of negotiation and compromise. No business area, including IT, will get everything it requests. It's vital that you know which items you would cut or defer from your proposed budget if necessary.

You should keep a separate version of the budget for your reference that breaks down budgetary items into groups of 'must have', 'would like to have', and 'can do without'. This keeps you focused on those items that you absolutely have to fund to ensure a successful year for IT.

Align the IT budget with your strategic plan.

Even if you cost-justify and describe the business case for each budget line item, it's helpful to describe the longer-term directions for the IT assets that you wish to acquire. The best way to do this is to align your budgetary spend with your IT strategic plan (IT strategic plans are usually three to five years).

Aligning purchases with strategy is especially smart when you are recommending data center or IT infrastructure investments, which can be hard to cost- or business-justify on a single business use case. It's always a good idea to show that a particular investment is necessary in order for the company and its technology capabilities to grow.

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