How to Develop a Value-Driven IT Budget

In the not-too-distant past, technology was considered a luxury, often reserved for a select few business functions and senior executives. Today, technology has become critical to business operations. In fact, many organizations can’t function if technology fails. Beyond day-to-day business functions, the services provided and capabilities enabled by technology create competitive advantages and revenue streams. As a result, organizations need to make wise IT investments from both operational and strategic perspectives.

Unfortunately, IT is still widely viewed as a cost center in many organizations. Instead of trying to figure out how to take full advantage of technology to improve productivity and develop innovative products and services, management sends down a mandate to reduce the IT budget by X percent.

In some cases, cost-cutting may be necessary, but organizations need to make informed decisions when reducing the IT budget. Do you know the true cost and value of each asset or system on the chopping block? How will one cut impact other parts of your infrastructure? Are you automating as much as possible? Are you basing your decisions on sound research or marketing hype? Are you saving real dollars or just kicking the can down the road? These and other questions must be answered before cost-cutting takes place.

Ideally, the IT budget should be aligned with business goals. Achieving such alignment can take months. However, organizations that are only interested in cutting costs focus too much on individual line items and short-term savings rather than big picture decisions. They get hung up on capex vs. opex, and the budgeting process lacks the flexibility to make IT investments that actually drive the success of the organization.

To eliminate this disconnect, Gartner recommends creating a baseline budget prior to making any material changes. When appropriate, use zero-based budgeting, which requires all investments to be justified every year, to build a detailed budget while retaining the flexibility to account for evolving business needs. Make sure you budget for all known IT costs, benchmark IT spending and staffing, and provide full transparency in your budget.

Also, speak the language of business stakeholders to make a direct correlation between IT tools and talent, the value of strategic initiatives, and organizational goals. Work closely with business leaders to integrate IT budgeting with the overall business plan and prioritize larger, strategic goals instead of line items. For example, replacing legacy systems might be painful in the short term but is likely to deliver solid return on invest in the long run due to reduced maintenance costs and greater performance. Remember, IT is a critical part of any organization’s roadmap to sustained success, so you need to have a vision for five years down the road.

SSD specializes in helping organizations navigate the complexity of IT budgets to align technology with business objectives. What are your short-term and long-term goals? Are there gaps in your IT infrastructure? Where are workflow bottlenecks? Is there unnecessary redundancy that can be eliminated? What specific solutions are best-suited for your IT environment and business processes? Let us show you how we can use our IT Spend Optimization Model to develop a comprehensive IT plan and budget.