IT Budget Priorities in Perspective
At one time, the IT staff's mission was to stay out on the bleeding edge -- first adopter, first adapter, first developer, first to market. But now the frontlines have changed, withdrawing to more cautious ground where bottom-line hemorrhaging can be stemmed and new strategies drawn.
"Without IT and business goal alignment, there is a high probability that IT will be working on implementation projects that are not the top priorities for business," says Andrew Bartels, an analyst with Forrester Research in Cambridge, Mass. "That means that business will be charging ahead, trying to attain its goals without the necessary IT support to achieve success."
The three top IT budget pitfalls, according to Bartels, are:
- Failing to distinguish between IT spending for ongoing operations and maintenance, and IT spending for new initiatives.
- Failing to plan for more positive, or more negative, business results than projected in a coming business year.
- Preparing an IT budget in isolation from the business budget.
"The IT budget needs to be prepared in parallel with the business budget," says Bartels, "with IT costs to support new business initiatives included in the relevant business unit budgets. Also, the IT budget needs to be adjusted based on which new business initiatives that involve IT investment are approved and funded, and which are not." (article continues)
"Executives who feel that they need the latest and greatest often get caught with an IT infrastructure that doesn't drive the full potential of their productivity," explains Edward E. Endicott, Account Manager of Business & Financial Services with Frost & Sullivan in Palo Alto, Calif.
However, slashing IT budgets and adopting a more cautious and even cynical approach to IT planning is not, in and of itself, a strategy for success. Forward momentum must be maintained and constantly measured.
Endicott recommends asking two questions: Will this technology or infrastructure improve our bottom line? And if so, how will it accomplish the improvement? In other words, the best IT strategy is in support of the organization's business goals. Something easier said than done in light of obstacles ranging from turf wars to budget restraints and increasing regulations.
So how can the budget get done? According to Bartels, the way to make it all happen is as follows. At the macro level, have an IT strategic plan that is prepared in conjunction with the business' strategic plan, with business strategy feeding into the IT strategic plan but also with IT's input on the business strategic plan. And at the micro level, have IT relationship managers who are part of the IT department with a solid line reporting to the CIO, but who are assigned to work with business units on a dotted line basis. The IT relationship leaders should ideally be part of the business unit's executive team, where they participate in weekly staff meetings, keep track of business unit initiatives, and monitor, if not lead, IT projects in support of the business.
It becomes clear that there should be a tight connection between the strategic plan alignment of business and IT and the day-to-day alignment between business unit and IT. And that should be done by the IT relationship leader. (article continues)
Working in Concert
"Often, the disconnect between what IT and business goals should be stems from not understanding how the IT infrastructure can improve business," says Endicott. "Both sets of goals can get caught up in thinking that the latest and greatest technology will or will not help business. Because of this, budgeting errors can be easily made."
In the end, the alignment of business and IT goals must be credibly tied to productivity and revenue benefits -- but this is not a function of budget alone.
By itself, IT/business goal alignment has no impact on productivity or revenues. "But," Bartels adds, "goals are abstractions until there is execution at the project level. Implementation projects that both put the right technology in place and change the related business processes are the key to achievement of productivity and revenue benefits."
As the experts advise, budgets should be developed so as to support and promote the business units of the enterprise. And IT executives should make sure the business owners understand and support the goals of the IT projects included in the budget. And, of course, be prepared to revise the budget and its plans based on changes in the financial status of the organization and business units just as any other sector of the organization does.