Tuesday, October 28, 2014

What percentage of your IT budget is spent on project-related work?

Keep the light on is fundamental, but investing on value adding projects is progressive.

IT has quite a few impressive mantras such as, doing more with less, doing more with innovation, every budget is business budget, IT is business. However, every CIO knows that walking the talk is not an easy task due to the complexity of IT, the legacy system in traditional organizations and the emerging changes with accelerated speed. From IT management perspective, what percentage of your IT budget is spent on project-related work? Also, do you see this percentage changing in future in order to manage IT more efficiently and effectively?

It depends on the size of IT organization. Let's assume that a project (at minimum) consists of a basic plan, schedule, and has regular status (progress) reports. This percentage may vary greatly based on the types of business and the degree of IT support, the maturity of the IT organization. Smaller companies have more nimble approaches, there’s high percentage ratio (50/50) of development vs. support. Even established companies under 500M can move pretty quickly. But they also tend to have 1-2 big projects not 50 ! The medium companies (500-1.5B) have an interesting mix. Most grew through acquisitions so the mix tends to swing down to 30/70 of development vs. support. Some better, some worse. For the over 1.5B crowd, it's a lot more complicated, 20% development joined by 10% refresh (making existing applications fit new roles) and the massive 70% maintenance.

IT maturity matters more than the size: Yes, size matters, but the types of systems have a greater effect than size. While larger companies are more likely to have huge legacy systems that require a lot of maintenance. Also, let's take the example of the $1.5B companies: wouldn't a percentage of the support and maintenance work be project-related? Certainly a refresh is project related? For the overall IT budget that includes, support, outsourcing and salaries, project spending is not easy to go above 30%. With the emerging Cloud technology and on demand SAAS model, more IT organizations are shifting from CapEx to OpEx, it has better opportunities to spend more on growth and transformation driven projects.

It also depends on the methods of budget calculation: some companies charge project work to the business if they are doing business initiatives, but if the project is part of an IT initiative, it usually has a 25/75 ratio (New project/ maintenance). It also depends on how you calculate the project cost. By "project-related work", are you including the staffing costs for the project? If a developer spends 50% of his/her time on projects, half his/her salary should be considered as a project related expense. Does that change the percentages of IT budget ratio?

There’s no magic formula to assign IT budget with one size fitting all solutions. The wise IT leaders just have to set the project priority right and focus on overall business strategy, keep the light on is fundamental, but investing on value adding projects is the way to improve IT maturity and enable business top line growth, it takes analytics and practice to run IT in the most efficient, effective and agile way.


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