I agree that the annual budget may be the least technology skill an IT manager needs to develop. But finance is the language of senior management in most organizations, even in the non-profit sector. If you cannot make a financial case for the IT investments you need to make, it’s not likely you will get what you need. The same rules apply in an economic downturn, where you need to cut costs and make the case where you can do this and where you can’t.
I faced a situation like this soon after the dot-com bubble burst in the early 2000’s and non-profit donations declined with the market. The exercise in making cuts in my department was hard and painful, especially when it impacted people. Developing a budget model was a key part of my approach.
A footnote to begin: most IT budgets have an annual operating budget, a capital budget, a projects budget, and a depreciation schedule related to capital purchases, which may include some of the projects. The largest items in many IT budgets are staff, maintenance, depreciation and equipment/service rental (e.g. cloud services). To manage an IT budget, you must understand these four and what drives them
To create my model, I first gathered three years of IT budget, including the current year. I then identified the key driver for each line item. Here are some questions to ask:
- Is this a staff driven cost; if staff growth is flat, why increase this line item? For example, with no new staff, the laptops you buy may be limited to ones you need to replace due to aging past their useful life.
- What new projects are needed for the year? There may be equipment and consulting costs involved. Each project’s budget needs to feed into your annual operating budget.
- What new capital expenditures are driving depreciation costs? What capital items are rolling off the depreciation schedule? Note that depreciation is an annual operating cost.
- Do IT staff costs drive the budget item? For example, annual merit increases and changes in beneifts impact staff costs.
- What maintenance costs are needed for each project and piece of equipment? We used a 20% rule of thumb on new projects. Are there any annual escalators in your contracts?
- What is the spending trend over the last few quarters? Are some items increases based on inflation?
If you set up your spreadsheet model with all your budget line items, supporting schedules and a table of inputs and assumptions, then adjusting the inputs should automatically change your budget. And it will help you explain it to the CEO and CFO in their language. |