Case Studies

Building a Better IT Budget

Technology veterans say it takes a village, alignment and accountability to craft an effective budgeting process.
This story appears in the November 2006 issue of BizTech Magazine.


“Adopt a process that keeps your people from scrambling to meet periodic deadlines — one that allows the capture of information you anticipate may impact your strategic plan,” recommends Phyllis Culbertson of R.J. Reynolds Tobacco.

As important as technology is to organizations today, there’s surprisingly little “technology” involved in the information technology budgeting process.

Experienced IT managers told BizTech that their budget processes include information-gathering from stakeholders, measurement, alignment with corporate strategy and a healthy dose of discipline thrown in. Although following these guidelines will help ensure a workable and accurate IT budget, no budget is created in a vacuum. To ensure that the IT budget remains relevant throughout its intended term, it’s crucial to build flexibility into the process.

IT Takes a Village

Rick Casteel has learned from experience that it takes a village to create an effective IT budget.

Casteel, vice president of information systems for Upper Chesapeake Health, has learned the importance of including feedback from as many people within the organization as possible in the budgeting process. At best, without that feedback, an IT budget simply won’t reflect potential pitfalls, which leads to cost overruns, missed requirements and ultimately failure.

Before involving more stakeholders, the Harford County, Md., nonprofit health- care system with two hospitals took a top-down, autocratic budgeting approach, Casteel says. To address the issue, Casteel helped spearhead a planning process where directors and managers solicit pertinent information from their teams. The information is augmented by an annual satisfaction survey. These changes help management better understand end-user demand for equipment and services and how much the organization relies on IT for daily operations. This all helps the organization grapple with the significant growth of IT in the health-care industry.

Alignment Counts

Michael Connelly, vice president for IT at FranklinCovey, a Salt Lake City training, consulting and consumer products company, directed a sea change when he took over the acting CIO role last year. In prior years, the IT budget would decrease or increase based solely upon whether the company was growing or declining. Individual departments would determine how to make their budgets work.

Instead, Connelly put processes in place to assess tech needs from the top-down and bottom-up. The process starts by assigning technical leads in each business unit, who meet with groups to learn how systems meet or fail to meet needs. The result is a wish list of hardware, application and workflow improvement requests and problems requiring resolution.

On the top-down side, Connelly works with his CEO and CFO to understand the company’s “Wildly Important Goals” — a FranklinCovey concept. This view provides insight into required changes in the business during the coming year. The budgeting process culminates in meshing the two assessments to determine the most effective approach to IT budgeting.

“It’s a process of marrying those two visions,” Connelly explains. “It gives us the tools we need to support what we’re building into this year’s IT budget.”

Forward-thinking executives such as Casteel and Connelly are on the right track, says Vince Callaghan, a partner at B2B CFO/CIO, a Phoenix consultancy that provides financial and technology support for senior managers.

“It’s crucial not to be an outsider when creating an IT budget,” Callaghan says. “To do it right, you have to work with the finance people, the strategic planning people and everyone else the budget will impact. You have to know from help-desk managers, for example, what kind of calls they are getting and what’s not working. That will tell you where the training budget should go.”

Disciplined Execution

Phyllis Culbertson, director of the program management office at R.J. Reynolds Tobacco, a subsidiary of Reynolds American in Winston-Salem, N.C., agrees that the IT budgeting process must be sound and logical for the budget to be effective.

“Adopt a process that keeps your people from scrambling to meet periodic deadlines — one that allows the capture of information you anticipate may impact your strategic plan,” she advises.

Building a solid process also involves exploiting certainties that can be built into budget projections, Culbertson explains, such as assuming that the company has finite labor capacity for projects but understanding that in aggregate, the labor estimates would require three times the capacity to complete the projects in the projected timeframe.

“Plan early and adjust often,” Culbertson advises.

But Connelly cautions not to think of IT as a cost center like Human Resources, because if you do that, you’re not viewing it as a strategic enabler.

“IT is pervasive throughout the organization and needs its own category,” Connelly says. “If IT were just a cost center, when we determined that our voice-mail system was aging to the point where it needed to be replaced, we would have chosen the least costly replacement and continued paying licensing on the voice-mail application. Instead, the IT department chose to look to innovation and determined that we could provide this service plus additional tools to the business by implementing Microsoft’s Unified Messaging capabilities.”

Culbertson also points to the importance of frequent review and monitoring of budget variances and performance indicators — something she says is essential for influencing decisions and driving improvement. To conduct monitoring and reporting more effectively, she advises defining specific metrics for predefined critical success factors, which can provide insight and early warning if the budget or the project is slipping off target.

CEO takeaway
When determining whether IT is making the best budget choices, ask the team the following before reviewing new technology recommendations:

• Is the IT budget aligned with the highest priorities of the business?
• Are the systems from which we are pulling information accurate and up-to-date?
• Did the information-gathering process include input from all departments?
• Did those stakeholders understand industry trends and internal business drivers, such as server virtualization and managed services, which would impact their decision?
• Have we implemented effective accountability and measurement processes?


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