IT budgeting can be a painful process. There's never enough money for all the organization's priorities, running day-to-day operations is costly, IT is now tasked with digital innovation (whatever that means), and despite all this, there are usually demands to trim the budget year over year. It all seems like a process that should be completed as quickly as possible to move on to the 'real work'. However, that would be a costly mistake.
Follow the money
Willie Sutton, the famous bank robber, was supposedly asked by a reporter why he robbed banks, to which he responded, "That's where the money was." (Apparently the quote was fabricated by the reporter, but Sutton later used it, including it in an autobiography title.) Similar thinking is appropriate for the budgeting process: The IT and larger organization will ultimately place funding in the areas they see as priorities, so budgeting is a great way to validate whether your IT strategy actually mirrors the organization's priorities.
According to the Tech Pro Research 2019 IT Budget Research Report: IT spending increases due to business conditions, security and revenue opportunities, 63 precent of survey respondents said that security is a top IT budget priority, 48 percent said cloud is a IT budget priority, and 44 percent said internal employee training is a top IT budget priority.
However, if your organization has lots of flowery talk about the importance of security, digital, customer experience, or some other hot area, but no budget is available to back up the talk, the organization either places minimal importance on that area or has a minimal understanding of the benefits provided by that technology. The budgeting process ultimately allows you to see if the organization follows the old adage of placing its money where its mouth is.
SEE: Quick glossary: Corporate budgeting (Tech Pro Research)
This presents the perfect opportunity for IT leaders to spur discussion around these mismatches between what's been said and what is being funded. Generally, a gap is the result of one, or a combination, of four things:
- The topic might be important enough to warrant discussion, but ultimately falls well short of being important enough to garner funding, despite stakeholders having a good understanding of the costs and benefits. This is an indicator that these areas are not as important as you may have been led to believe and should be de-emphasized as you execute your priorities.
- The organization is not mature enough to fund initiatives around that area. For example, there might be lots of talk about a 'digital customer experience', but the organization can't meet basic customer expectations, and therefore isn't ready to embark on more advanced initiatives. In this case, look for foundational and related initiatives that might better position the organization in the future.
- Stakeholders might publicly support an initiative but don't fully understand the benefits in the context of other items in the budget. Keeping basic IT functions like email and networking up and running might be seen as more important than longer-term initiatives to migrate to the cloud, for example. If this becomes the case for most of your big-ticket budget items, it may be time to have a talk with your leadership, as IT could be perceived solely as a utility -- a tricky situation if the IT leader is trying to act in a strategic capacity.
- Stakeholders lack confidence in the organization's ability to successfully execute an initiative, thinking that they might end up throwing away money on a failure versus an initiative with a higher probability of success. In this case, examine your track record and realize that you may need to get your execution capability in order before you're funded for more complex, strategic initiatives.
Understanding the budget is understanding the organization
Assuming your budgetary numbers are reasonable, when some of your proposed initiatives are not funded at the levels you've requested it's critical to understand why, based on the drivers listed above. This can require some detective work. For example, in a collegial organization, stakeholders might be hesitant to express their lack of confidence in success and point to a generic line of reasoning like 'market conditions' or 'other priorities'.
Sanity check these reasons around the organization. If you're being told times are tough, while gold-plated handles are being installed in the restroom, deeper forces are clearly at play. Once you've identified the high-level mismatch, you can start having productive discussions to change key stakeholders' positions.
SEE: Research: Digital Transformation 2017: Strategy, Returns on Investment, and Challenges (Tech Pro Research)
If there's a lack of confidence in the organization's ability to execute successfully, perhaps partnering with a vendor will mitigate that concern. According to Tech Pro Research's 2019 budget survey, both IT and end users want vendors to help them successfully answer any questions that CFOs and CEOs will ask about a technology proposal.
Further, 41 percent of survey respondents expect vendors to help them develop a return on investment or total cost of ownership for their particular implementation that's convincing for themselves, their CFO, and other budget reviewers. Fifty-four percent of respondents want to see the vendor provide a no-obligation, proof-of-concept implementation of the technology so that those who will present it for budgetary approval can see with their own eyes that it will work for the business purpose for which it's intended.
If there's a gap between what's been stated and funding (a frequent occurrence around budgetary items like security and employee tools), discussions can uncover the true organizational priorities and either highlight the mismatch or aid your future planning.
A dramatic mismatch between your proposed budget and what the organization is willing to fund could indicate a troubling gap between IT's priorities and the rest of the company, providing an early indicator of the need for some significant discussions and mitigations. For example, if you perceive IT as being a key player in pushing the business's strategy forward, but your budget is trimmed to merely run and maintain activities, there's an obvious and disconcerting difference between how you view IT and how the broader organization sees it.
This is a recipe for disaster as you try to manage your organization one way, while the broader organization expects something completely different. Interestingly, according to Tech Pro Research's 2019 budget survey, half of the respondents said that perception of value of the IT budget by executives is equally important to other business units. Seventeen percent of respondents said that the IT budget is more important than other business units.
SEE: New equipment budget policy (Tech Pro Research)
While the budget process will likely never be an activity most of us relish, it's perhaps the best tool for separating what the organization says and what it actually does. It provides an unparalleled view into what the organization values, how it perceives technology, and how we as IT leaders have performed in educating our peers about our capabilities and abilities.
The budgeting process also provides the ultimate report card on IT's competency. Leaders who look at the budget process solely as a painful administrative exercise are missing one of the most powerful tools at their disposal for evaluating their performance and moving the organization forward.
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- IT leader's guide to optimizing vendor relationships (Tech Pro Research)