4 Common IT Budget Headaches
IT departments often find themselves at odds with executives and finance managers during the budget planning process. Here are four of the most common headaches you’ll probably deal with when the time comes to tell executives how much everything on their wish list will cost.
While everyone else in the business may be getting excited about new online services, marketing campaigns, or internal software tools, it’s often up to IT to work out exactly how the company is going to run those services. Oftentimes, it will require renting more space in the cloud, buying more servers, or dedicating more employees to manage the new additions — so IT is left to break the news to business leaders that their ideas may break the bank.
But the unfortunate reality is that many executives don’t have the technical background to see exactly how costly their initiatives can be. Pressure from management to provide a high-functioning system in less time and for less money can result in a service that is prone to failures because there isn't the proper infrastructure behind it.
This need not be the case — if there’s effective communication between leadership, finance, and IT, these headaches can be overcome. Achieving that kind of communication will take strong analytic tools and contextualized data.
The biggest challenge for IT budgeting is that it involves forecasting as far as 18 months into the future. The budget cycle often has many complex and unique iterations, requiring different drafts to be created, approved, and revised several times before funds can even begin to be properly allocated.
If you don’t have any analytics to help gauge what workload demands will be like for your current services in 18 months, let alone the for the new, more complex needs being proposed by leadership, the demands of this project can seem almost impossible for IT staff to meet.
One of the first steps of the planning process is meeting with individual business units to predict growth for the following fiscal year. These units provide information on any upcoming changes to the company’s organization and on the expected rate of growth (if growth is expected at all) of the consumer base. Collecting the data that can inform such predictions is sometimes an uphill battle.
The data collection process is often not well understood, both within IT and within the other relevant departments. “The impact on business-as-usual activity can be significant,” says Banking Technology, “with management spending — or even wasting — copious amounts of time chasing data, aggregating disparate information and revising previous estimates.” Without a means to automatically collect and organize all this data, the process will never get easier.
Then there’s the troublesome problem of accountability: budget creation is a collaborative process, but no one wants to be left holding the bag if estimations don’t turn out to be accurate.
Business units across the organization won't commit to their growth projections until they get an estimate of how much it will cost to accommodate that growth from IT; by the same token, IT departments don't want to commit to an expense estimation without a final growth projection from business units. The two factors are dependent on one another, but neither party wants to be the foundation of an ultimately flawed forecast.
This not only leads to a stalled budget, but causes staff members to hedge numbers in order to stay on the safe side. “The more difficult the budget process is, the more difficult the forecasting will be, and the more difficult the forecasting is, the more likely it is that budgets and forecasts will be padded out to err on the side of caution,” Banking Technology points out. This results in inaccurate forecasts and bad decisions, which are often carried over into the next year’s budget.
It’s important to put the budget together with enough flexibility to react to situations that crop up during the year. There may be activities that come up within or across business units that influence where money needs to be spent.
This can be as simple as an unforeseen adoption, or an event that affects spending without being detected by the business. For example: in highly regulated industries like finance or insurance, new working standards from the regulatory agencies can force changes in behavior at any time. This could impact budgets that had been set either in the middle of the budget cycle, or well into the year in which funds were already supposed to be allocated.
Companies with inflexible budgets, poor communication, and trouble with data collection often find themselves unprepared to meet the challenges before them and usually aren’t able to achieve the lofty goals set by leadership. Fortunately, there are third parties that can help.
TeamQuest's tools accurately predict what these projects, services, and initiatives will cost in a concrete way that IT departments can show to executives, so they're not criticized for being naysayers. This way, IT and business leadership can collaborate and communicate more effectively, so that expectations are managed, service is optimized, and IT’s overall value to the business is increased.