Monday, November 12, 2012

Is IT Budget Planning Still Too Yesterday

 Effective budgeting management, can flex to changing business needs. 

IT is playing a more critical role in business growth and innovation, the emerging digital technology trends such as cloud, mobile, consumerization of IT, social enforce business agility and increase employee productivity, IT reaches the new milestone in catalyzing business transformation.

However, from a recently released IW survey report, IT budgeting process in many organizations still stuck in the past, half think their company’s budget process isn’t consistently flexible enough for changing business needs. Three-fourths don’t have a formal way to address unforeseen expenses. And barely half think the company will add enough IT resources to meet business objectives as the needs change, further, IT looks a bit complacent: 60% are very or somewhat satisfied with their budget process.

1. IT Budget Statistics, Practice Today

  • The yearly IT budget remains a fixture—64% of the respondents to the survey say their company does an annual budget; only 23% do quarterly or twice-a-year budgets. Budgeting is based on modeling the future.
  • IT Budget Formula: Businesses calculate IT operating budget as a percentage of the corporate operating budget, followed by IT operating budget as a percentage of revenue (31%), and cost per employee served per year (16%). IT also has been doing more transaction budgeting—tracking IT costs on a per-unit basis.
  • Centralized IT spending is actually up. The survey data doesn’t suggest a drop in centralized IT spending just yet. About eight of 10 companies represented in the survey have centralized 60% or more of their IT spending—up from two-thirds of companies two years ago. IT organizations aren’t on a starvation diet during this time of change: 47% of respondents to the survey expect to get an increase in IT spending next year, and just 18% expect a cut.
  • Centralized IT Budget has advantage to achieve cost optimization:  The survey data suggests central IT budgets are in fact far from dead—eight out of 10 still centralize most IT spending for logic reason, because business will still need to budget centrally to handle critical internal infrastructure, security, data integration, etc, to ensure the business as a whole more effective than sum of pieces.
  • The data does show the tension around business units buying more technology. Could marketing ends up spending more than the IT department on technology or even controlling IT, IT budgeting hasn’t changed much to account for these trends so far.
  • “Keep the Light on” budget is still high: Spending on IT maintenance and mandatory changes for legal and compliance reasons will remain stubbornly high, at 67% of total IT spending. And the IT budgeting process at most companies still looks like the same old exercise in containing IT costs.
  • The 2013 projected budget increase reflects higher operational expenditures only—capital expenditures are projected to be flat, limiting the opportunity CIOs have for continued innovation.

2.    Lack of Agile Governance for IT Budgeting 

Just 22% of respondents to the survey say their IT governance board has a major influence on the IT budget. Another 35% say it has some influence, which isn’t bad. But 43% say they don’t have an IT governance board at all, or it has little influence on spending. Need to take on an unexpected expense? Just one-fourth of the 351 respondents to IT Budget Survey have a formal process to deal with such changes while one -third rely on “ask the CEO.”

How good governance, like budgets, can flex to changing business needs, when emerging technology such as Cloud and Mobile become a business catalyst, governance has to move at that same pace. You can’t have a nimble governance and resource allocation process with a governance team that meets twice a year.

So the report suggests businesses to:

  • Govern right: Build a governance model that’s participative and proactive;
  • Display agility: You can't ask for budgeting flexibility if IT operations and project delivery aren’t flexible.
  • Benchmark: Comparisons create credibility that will emphasize that budget requests are reasonable.

3. There’s Positive Changes in Budgeting

  • Information & Collaboration Investment continue up:  For the third year running, information management and collaboration projects represent the largest category in the project budget. On average, this category accounts for 32% of IT project budgets, compared with 30% for process automation.
  • Applications Go mobile, Budget Up in the Cloud: Spending on mobile application development will grow by 50% in 2013. Up in the cloud: Fifty-four percent of IT organizations plan to increase spending in the public cloud next year.
  • Doing More with Innovation- CIOs are planning to drive significant change next year, by moving money around. While keeping total spending mostly flat. An essential question for IT leaders is whether their IT budgeting matches the level of tech innovation they expect.
  • End-to-end IT services go mainstream: In the last two years, there’s an upsurge of interest in end-to-end IT services. This services model takes all of the technology (applications infrastructure, data, etc.) needed to deliver a specific business outcome and packages it together as a service.
  • Chargeback & Show back Practices: The practice of chargeback to business units for IT services is always controversial, only about 10% of companies practice charge back for some or all of their IT services, another practice is: Show back—whereby IT costs are reported to business units but not billed is less controversial but still quite effective, such practice can improve IT service transparency, and enhance mentality to run IT as business.
IT agility not just means agile software development methodology, it’s the mindset shift and best practice for overall IT management discipline. 

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