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Letters to a Young Manager

Five ways to create budget, #185
LTYM > Financial Management

Dear Sophie,
Getting increases to your IT budget can be very difficult, especially in tight times. You may even feel as if you have little control over your budget. But if you work for an organization that trusts you to manage to your bottom line, there are some things you can do to free up money to get things done.

At one of the nonprofits where I was CIO, I came up with five ways to free up funds for projects and operating needs:
  1. Hiring and project lag - delaying hiring a replacement for someone who has moved on, can free up a few months of foregone salary and benefits. The same is also true for projects. I'm not suggesting you purposely delay projects or not get the people you need to do the job. But budgets are often done assuming projects start on Jan. 1 and salaries are paid for 12 months. When they are not, you have money to reallocate.
  2. Lease don't buy - I've already written you about lease-buy decisions [1]. Leasing means spreading payments out over 3-5 years for hardware, and increasingly software, especially when it can be rented (SaaS model). So less up-front money is needed. That can free funds [2].
  3. Corporate gifts-in-kind (GIK) - for nonprofits, technology companies will often donate some hardware and software. They will also make seats in their training classes free for your team. The key thing is to ask. I had Legal approve a standard letter we used for vendors asking what the donation component was of their business. There are a host of pro bono and "low" bono services available to nonprofits. Use them. [3]
  4. The high water mark in depreciation - when you capitalize large project, software and hardware costs, the depreciation hits your operating budget over the next 3-5 years. As items role off the depreciation schedule in future years, you can have more buying power --if your CFO agrees to maintain the depreciation level at its high point. After all, your organization is used to paying this operating amount. Don't make the mistake of looking at this as an organization savings opportunity; that will make future projects and purchases an uphill battle for new investment.
  5. Use the Telecomm line item on all grants - many funding organizations, especially those in governments, have a line item for telecomm costs. This should be used for the IT costs allocated per person in the program. At a minimum, add the portion of your Internet ISP costs required by program workers in the field. I once had an NGO CEO tell me he added 10% to each grant proposal for IT costs. It was always accepted.

You have more power to make things happen that need to happen. I'm not suggesting you use this for the technology du jour, but for true business needs, that your IT Project Committee agrees are priorities, but can't afford yet.[4]

[1] See "Lease versus But, Story #43
[2] Usually you can't reallocate capital to operating budget, so this applies to noncapital items.
[3] See my Blog post "Ten Ways Small NGOs can Collaborate",
[4] You do have an IT Project Committee, yes?


You can stretch what you have

Discussion Questions:

1) Can you use these six methods in your organization? What other ways do you see for freeing up funds?
2) What happens when the CFO wants to take all savings? If managers don't have the incentive of reinvestment, what's the motivation work harder at savings?
3) Are these methods preferable to downsizing staff? (A rhetorical question, no doubt)

For Further Reading:

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