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12 Worst Practices in IT Budgeting |
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In the "been there, done that" category, many of our CIO Habitat survey respondents have experienced these depressingly familiar tactics. Any of these can turn the annual financial process into a recurring nightmare.
- Mandating across-the-board budget cuts so that every department has to reduce its IT spending by a certain percentage.
- Locking in on a fixed number, as in "the IT budget must be X percentage of revenue."
- Requiring too much financial detail or, conversely, not enough.
- Ignoring emerging technologies because they cost too much.
- Creating budgets without input from the other side, whether it's the CFO ignoring IT or the CIO ignoring the business needs.
- Understating the true costs of an initiative so it will slide under perceived spending ceilings.
- Using spreadsheets that are not linked or backed up, a practice that is especially dangerous in these days of rising compliance demands.
- Varying budget processes between departments inside the enterprise so no one is really comparing apples to apples.
- Allowing unscreened projects into the IT project stream, or allowing initiatives with no business sponsor into the IT project stream.
- Failing to provide centralized supervision of the en-terprise budgeting process.
- Omitting training from the budget.
- Waiting for something to break before putting a replacement cost in the budget.
-- T.M.
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What's Broken About the IT Budgeting Process?
Organizations laboring in bad budget process purgatory (see "12 Worst Practices in IT Budgeting," at right) waste lots of energy just going through the motions of getting the budget done. As one very bright, honest CIO at a multinational bank puts it, "The IT budgeting process is an evil thing. Obviously, organizations need to understand what they are investing in and have a means to prioritize their expenditures. But it seems very difficult, complex and time-consuming to have a large number of people running about based on artificial deadlines."
This bank spends a great deal of its executive time and energy "tracking allocations from client to supplier with a mix of internal, contract and outsourced suppliers," the CIO adds. "It remains a challenge to move resources (dollars, people, assets) from one project to another as priorities shift."
Another bad practice stems from CFOs or business execs creating the IT budget with no input from the technology side of the house. As one southern California IT leader explains, "Worst practice is treating budgets like a Middle East bazaar. Department heads propose ridiculously high spending; the CFO tells them to cut below any sane level. Hopefully they end up in the middle. In this scenario, there's no process content, no thought to anything but numbers and nothing behind the numbers."
That experience echoes the No. 1 complaint in our Habitat survey about the disconnect between business strategy and budgeting. Business schools tell their students that budgeting is part of management, not leadership. Yet in organizations fortunate enough to have well-run IT budget processes (see 12 Best Practices), IT and business leaders make sure the big-picture strategy is linked to where the money actually goes.
Another encouraging finding from our research is that 62.5% of today's business execs are more involved in setting IT strategy and budgets than in previous years. Only 12.5% of the execs were deemed "more involved in setting budgets, less on strategy."
"The only risk mitigation in IT project time and budget estimation is experience. Period," says Gary Baney, a visiting professor of computer science at Case Western Reserve University in Cleveland and CEO of IT consultancy Boundless Flight. "I have seen all sorts of [IT budget processes] based on function point counts, lines of code, [Capability Maturity Model] maturity, etc.," he adds, but the bottom line is that "someone has to estimate the project who has done it, or something like it, before."
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