Five major IT budget mistakes you never want to make

When you make your case for next year's IT budget, be mindful of these potential oversights, which could result in serious risks and more costs.
Written by Mary Shacklett, Contributor
Budget season can be a time of rising hopes and disappointing defeats, depending on how well new IT projects are received, and where IT ranks among other corporate priorities when it comes down to how operating and capital money will be spent in the upcoming year.

There are various reasons why IT leaders might buckle during the budget process. For instance, IT projects are challenging to describe to business users who aren't techies. (Remember how difficult it was to explain virtualization and cloud computing?) And, in today's lean corporate environments, it's hard to sell a major capital investment with fixed expenses over time, or an investment of training dollars for IT personnel who could be working instead of attending classes.

Here are five of the most common budget mistakes that IT leaders make, and advice on how to avoid them.

1: Fail to project longer-term cloud expenses

A selling point of cloud-based applications is they can be expensed operationally and either expanded or contracted as needed. This is a comfortable model for CFOs, who measure corporate performance from quarter to quarter, and who want to know there's flexibility in the budget if they need to achieve specific financial targets. It's also easier for an IT budgeter to enter a budget meeting if she can present a scenario where an expense is operational and, therefore, discretionary.

However, if your long-term goal for a particular IT application requires that you have full governance control over it, and you envision that application to be part of your corporate IT for years, you owe it to yourself and to the CFO to extrapolate the costs of continuing to pay a third-party rental cost. You could expense the asset with a fixed amortization, and that might actually work out to be cheaper over time.

2: Underinvest in training

Training is a discretionary expense, so it's customary to schedule training in the second or third quarter -- or at least at the point when the company knows it will have a good year.

With the current IT skills shortage, delaying or cancelling training can be highly detrimental. Training is an area where the CIO and his or her leadership team should be continuously educating management on the importance of having staff prepared to run the new technologies the company wants to implement. Once other C-level executives can connect the dots between the training investment and the new technologies the company needs to enable, it's easier for them to understand the role that training plays.

At the budget table, you should be prepared to discuss the skills taught in the proposed training, and how these deliverables will contribute to the company's capabilities.

3: Throw money at storage

The amount of data under management is growing exponentially, and so are purchases of cheap storage. Cheap storage is a major reason why storage is thought of in IT and business circles as a commodity item that you simply buy more of when necessary.

The problem with this thinking is that the nature of data and storage is changing. IT should be deciding which data should be on fast-moving solid-state storage; which data should be stored on mid-range hard drives; and which data can be stored on cheap, slow, but reliable archival storage.

Without a storage architecture, it is hard to argue for more effective means of managing storage, such as investments in tiered storage technology and storage automation.

4: Put off hardware and software upgrades or replacements

Companies continue to use outdated hardware and software because, even though everyone knows these assets have been targeted for sunsetting, no clear asset retirement dates have been set. Consequently, employees use these resources until they fail, which exposes the company to risk.

A better approach is to use an asset management system that tracks assets and flags which ones are approaching end of life. An IT budgeter who comes to a budget meeting with an asset report that addresses the risk management aspects of potential hardware and software failures has a better chance of getting those assets upgraded or replaced.

5: Misuse outsourcing and consulting resources

IT often resorts to outsourcing when it is determined that there's not enough money to hire additional staff. In other cases, consultants are retained when specific skills are needed that IT staff doesn't have.

Those presenting and approving budgets often have an easier time financing outsourcing or consulting than they do authorizing new staff positions. With the former, they know they don't have to invest in the long term.

An alternate way of looking at outsourcing and/or consulting is from the standpoint of longer-term corporate health and investment into the company's human capital pool. In other words, if you outsource a key project, there should be a point in that project where the vendor (as part of your agreement) transfers knowledge to your staff. In the budgeting process, it's easy to forget this final outcome of staff education, which should be an integral part of every outsourcing and consulting contract.

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