Beyond Cost-Cutting: How to Nail the IT Budgeting Process

by Granville Triumph

It’s no secret that technology is critical to business success. Rather than focusing solely on tools required to perform basic, day-to-day functions, forward-thinking companies are looking for ways to create competitive advantages, respond to customer needs, and develop new products and services that generate revenue. To maximize operational efficiency and support innovative business strategies, organizations need to make the right IT investments.

Then budget meetings start. When push comes to shove, many organizations prioritize cost reductions over just about everything. Technology is often considered a cost center, so you’ll have to make do with the tools you have and cut expenses where you can. If you have a big quarter, maybe you can revisit some of those IT investments.

To be fair, one goal of the budget process is to identify areas where costs can be reduced. But too many organizations cut across the board with a hatchet instead of targeting specific areas with a scalpel. When it come to IT, organizations often fail to quantify the cost of clinging to legacy infrastructure in terms of maintenance and productivity. Senior executives make decisions without consulting those in the trenches – both IT staff and end-users. In many cases, technology is purchased without considering the value of the tool or the total cost of ownership.

The top priority of IT budgeting should be to align the budget with business goals. This doesn’t happen overnight. IT leaders need to understand business goals, and the financial folks need to understand how technology contributes to the growth of the organization. However, Gartner research has found that the two sides usually work in isolation. IT investment decisions typically have minimal flexibility and are based on whether investments are considered operational or capital expenses. The cost-cutting mentality takes over, and big-picture strategy takes a back seat to line-item slashing.

Gartner offers a number of recommendations for evaluating IT investments during the budget process. First and foremost, what is the business value of the proposed IT investment? What metrics are used to measure value? What is the expected return on investment?

Second, does the investment represent an ideal fit? How does it support strategic business objectives? How does it fit with the organization’s technical architecture? Third, what is the level of risk during implementation and beyond? In other words, is there a significant risk of delays and cost overruns during deployment? Is there a risk that the investment won’t deliver the expected benefits?

Gartner recommends developing a baseline budget before making material changes and using zero-based budgeting to ensure investments are based on current technology and business needs. Account for all IT costs – procurement, installation, configuration, maintenance, staffing, etc., and make sure IT and business leaders are using a common definition of “value.”

Much has been said about digital transformation, which involves the integration of technology with every area of your organization. The transformation comes in the way you improve business processes, decision-making, and interactions with customers. Because digital transformation is a long-term process, organizations should budget with innovation in mind. As a result, lines of business should increase technology spending in their budgets to support innovation in their areas of the organization. Budget not only for next year’s needs, but for your strategic, long-term vision.

With budget season upon us, it’s important to realize that IT budgeting decisions have never been more critical. Take the time to build alignment between IT and business goals and collaborate with stakeholders from both sides to ensure that you make the best possible investments.

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