The crush of the economic crisis has put the squeeze on North American IT budgets, freezing and in some cases eliminating discretionary spending and new projects altogether.
While most organizations polled in a recent Info-Tech Research Group survey said they are doing everything they can to avoid layoffs (only 13 percent have committed to staff changes to date), nearly half way through 2009 the outlook remains stark: 

  • 65 percent are cutting back on discretionary spending and postponing or cancelling projects
  • 48 percent are reducing their contracting and consulting budgets 
  • 40 percent have been taking the time to renegotiate vendor agreements to make them more affordable

In uncertain times, having a strategic plan and a solid budget ready is the best thing IT leaders can do for their departments.  “Knowing where excess resources are being spent is the dream of every IT manager who is forced to make cuts and spend smarter,” says Andy Woyzbun, lead analyst with Info-Tech Research Group. 
To prepare for winning budget approval, Info-Tech offers the following seven recommendations.   Recommendations

1. Align today’s budget to strategy. A long-term strategy provides a context for today’s expenditures. A three-year strategy can effectively demonstrate why developing “A” today is necessary to implementing “Z” in three years. 
2. Perform a budget review. Arrange an annual or project-by-project budget review meeting to show how the allocated money has been spent. Use industry benchmarks to demonstrate that the department’s spending habits are in line and to give an opportunity to justify unexpected factors that affected the budget, such as changes in price or technology. Explain what worked out as planned, what didn’t and why. 
3. Separate “need to have” from “nice to have.” Know the difference between essential investments and those that are merely helpful. Business-driven investments should already have this distinction. IT should make this difference clear in the budget for IT-driven projects – actually label each line item as either essential or non-essential. Spell out the risks and consequences of not having essential items.
4. Create budget sub-sections. Separate the budget into projects (investments in new functions or infrastructure) and operational (day-to-day maintenance expenses). In lean times, evaluate investments based on business value returned. For operational expenses, look for ways to improve efficiency to reduce cost
5. Use a sharp pencil. Research purchase costs for each line item carefully. Use current market values and look for lower-cost alternatives. Establish a vendor management program at the organization to develop a mutually beneficial client/vendor relationship. Negotiate preferable terms and prices with vendors. Using proven negotiation tactics to receive best prices will make many IT leaders look like the very essence of thrift. 
6. Get line-of-business support. Encourage line-of-business managers to vocally push for items in the IT department’s budget. Senior management loves an IT budget that supports business priorities (i.e., bolstering the bottom line or increasing competitiveness). 
7. Be credible. Past performance on designing and adhering to budgets will go a long way toward easing the approval process this time around.

  • Use industry benchmarks.
  • Don’t be overly optimistic in the projections – most companies simply can’t swallow cost overruns in the midst of a recession or downturn. Be realistic.
  • Be complete in the itemization – don’t forget maintenance and consulting.
  • Triple-check the figures. Erroneous numbers will paint an amateurish picture in front of senior management.
  • Justify every request and number in the budget itself. Match requested increases to the company growth rate. Keep operational budget increases in line with the rate of inflation.

The Bottom Line

Winning approval for IT expenditures may continue to be an uphill battle this year. With a thaw on frozen budgets nowhere on the horizon, Info-Tech recommends following these seven simple budgeting steps to avoid unnecessary angst, win approval for spending and build a reputation as a responsible spender in the process. Using a custom IT budgeting benchmark is another great way to level-set your spending and compare your projections to those of your peers. 
To help IT professionals budget more wisely, Info-Tech has introduced Measure IT, an open access (free) peer benchmarking tool that identifies excessive or  thrifty spending.

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