IT Credibility Challenge #5: Your Budget
The latest benchmarking data estimates that you spend over 70% of your time and resources keeping current operations running, i.e., keeping the lights on. Gartner estimates this at over 80%. Whatever the number, those of you I have talked with agree. It's a big number.
One of the biggest credibility issues CIOs face is that no one else in the business understands this. In fact, the line of business managers think you spend all your time on their favorite initiatives. They don't care that you need to keep all the lights on, they just care about their favorite lights.
And the CEO and the board have stopped giving you credit for any of the existing lights, they want new, and bigger, and brighter lights. So, you have less than 30% of your time and resources to deal with what is most important to your stakeholders.
Credibility problems start right here.
You Spend a lot of Money. Period.
In the company wide roll-up, the IT budget is typically shown as a single line item and is often a bigger number than the profit for the whole company. This sticks out. Meanwhile, your peers in the business units are being squeezed for every last bit of profit through their revenue and expense plans. And they are all looking at your number saying, Why cant we just cut IT?
(This is the conversation where the cut the IT budget 5% directives come from.)
Everyone outside of IT forgets that you have to keep paying for things once you implement them. Nothing ever really goes away in IT. Businesses have a way of absorbing the financial benefit of an IT initiative, and then forgetting that IT investment to support it must go on.
For example, you rollout a successful ERP project, and Wall Street will reward you for cost savings or increased profits that result. But after a few quarters, that impact is absorbed into the business model and is no longer recognized by anyone. But your cost to keep it running goes on. And no one remembers that part.
As a CIO, it is critical you are able to present your budget in a way that you get to keep it. There are three main strategies for this:
- Deal proactively with the budget issues of legacy and keeping the lights on.
- Connect your budget presentation with critical business priorities.
- Create more negotiating room.
As a leader in any function, a big part of your job is to make tradeoffs that create room to do new things. The best way to defend your budget is to be seen as someone who is managing spending. The best way to do this is to proactively reduce the cost of doing business year-on-year.
As a CIO, you need to challenge your organization to reduce the cost of maintaining the existing systems and infrastructure, before being asked to do it. Make this an explicit expectation, internal measure and habit of your organization. This should be a specific goal for anyone who manages a budget. If you dont do this:
· You dont make room to do new things, and you are always seen as asking for more money.
· You create a growing legacy of inefficiency which becomes harder to turn around every year.
· You are not seen as getting the job done compared to someone who can do more with the same budget. (These are the people that end up getting more budget, by the way.)
Showing you can reduce the costs for the steady-state part of your business to make room for new initiatives will build your credibility (and help the business) hugelyprobably second only to your personally bringing in more revenue.
I have made several points in prior articles about understanding business initiatives from a business point of view. And communicating with the business in business terms so they understand what you are talking about. As another specific output of that process, you need to present the IT budget not as a set of line items detailing technology, but as a set of business investments which support the most critical business priorities of the company.
Make IT budget priorities equal the business priorities by explicitly aligning them with the business priorities and tagging the line items using the business names. For example, Instead of Oracle
If you take the time to get the business stakeholders to ratify the IT plan and budget that supports the most critical business priorities, and you present the budget in those terms, you will find that your budget will be less likely to be cut. You will also save a lot of time answering questions about why things cost so much and why you are spending money on one thing over another.
Whenever I manage any kind of project or budget, I always take the approach of using three columns. If you have your budget rolled up into only one column or list, the only conversation you can have is whether or not something should be on or off that list. If you make three lists: one for Musts, one for New Projects, and one for Strategic Initiatives, you can accomplish two key things.
- Once people agree on the Musts you can take that budget off the table. (You have to follow the first two rules to get away with this: 1) Show that you are proactively reducing the cost of keeping the lights on and 2) describe the musts in terms the business will understand.)
- Then you can move all the discussion and negotiation to the second two columns on New Projects and Strategic Initiatives and let the business argue amongst themselves about the priorities of how to spend the remaining money.
This approach gives you a tremendous amount of negotiating power and keeps the debate where it should be: how should we be investing in IT vs. how should be cutting IT.
By being seen as proactively managing spending, and connecting your IT budget more explicitly with business initiatives, you can engage your business counterparts in a discussion of how the company should invest in IT vs. cut and build your credibility in the process.
[Editor's Note: If you are interested in more information about presenting your IT budget so you get to keep it check out Patty Azzarellos CIO Working Guide, which includes budget presentation templates, and more detailed examples on presenting your budget to the business.]
For further reading on the CIO credibility topic, please see Patty's other articles in this series:
Patty Azzarello became the youngest general manager at HP ever at the age of 33. She ran a $1B software IT management business at the age of 35 and was a