We made it!
We are at the end of another business quarter, and we are heading into the final quarter of the year. Many of you are in the process of deciding the big "B" word, budgets. The last big task of the year for you to get through at work before you can enjoy the holidays with your family and friends.
A lot of organizations struggle with budgeting and planning in general, or simply don’t do it at all. One area of particular difficulty is often budgeting for Information Technology or IT. A big reason for this is that the IT people don’t understand the budgeting process, and the Finance people don’t understand IT.
Alas, the gap of misunderstanding is shrinking!
The encouraging part is that I see the gap in understanding between IT and Finance is shrinking. The introduction of cloud and subscription-based services for software, infrastructure, platform, and everything you can think of "as a Service" (aaS) has helped advance IT people’s understanding of alternative purchasing models. The wide availability of consumption-based IT solutions has put IT decision-makers right in the middle of Finance and their vendors, to force them to take at least some part in the decision to either purchase IT hardware or software outright as a capital expenditure (CapEx) or pay over time as an operational expenditure (OpEx.)
Conversely, the emergence of cloud services like Dropbox, Microsoft Office 365, Google suite, as well as smartphone applications have helped the entire workforce, including the financial team, to get a better grasp on how the technology works and can better comprehend where investments in technology may improve their business operations.
Nonetheless, there still seems to be a divide between Finance and IT during the budgeting process. A third party, strategic IT partner can remedy the disconnect by moderating changing your approach to IT budgeting into a meaningful planning and ongoing management process by bringing together the leaders of your organization and defining IT’s role in achieving your organizational objectives, and strategizing how to transform IT from a cost center into an investment.
Be a tech company first!
A great way to make this a more useful exercise is to stop thinking as a company within your specific vertical. For example, instead of identifying as "we’re a manufacturing company" or "we’re a travel agency" or "a law firm" shift to identifying as a technology company. You are a "technology company" that makes widgets you are a "technology company" that plans people’s dream vacations or "a tech company" that handles complex litigation for your clients.
This philosophical shift will help reframe IT budgets into IT investments.Also by doing so, you’ll notice a modernization of your corporate culture which quite frankly is a necessary way to think in today’s business world. If you’re not in the process of taking your organization through a digital transformation, there’s a good chance you’re on your way to obsolescence in your industry.
The six questions of IT budgeting
So now you are "a technology company." You are in the right frame of mind to budget and plan your organization’s digital transformation. Let’s start by reviewing, or defining, your organizational strategy. Define the short term and long term goals, then you define your IT initiatives, and then you step back from the details and look at the big picture to answer the following questions.
Do the selected IT initiatives align with and support the organization’s strategic objectives?Should you reconsider any initiatives that omitted from the budget?Would any of the organization’s strategic initiatives make one of the selected IT initiatives obsolete?Conversely, would any of the organization’s IT initiatives change the strategic initiatives?How does risk play a factor? — You must incorporate risk into the budget planning. The most obvious example is cybercrime. A massive threat to organizations of all sizes and can present a high and unpredictable cost. You will want to spend some extra time here to assess the cybersecurity resources that are available in the marketplace and understand the values, then compare that to your risk exposure. Use this to define your risk tolerance and then budget accordingly.Lastly, what is your strategy around CapEx versus OpEx purchases related to you the IT initiatives?
CapEx vs. OpEx?
Traditionally for IT investments, Chief Financial Officers (CFO’s) most often preferred CapEx over OpEx to take advantage of amortization and depreciation of those investments over an extended period. There are times where CapEx investments still make sense; Certainly where demand for IT is fixed and predictable. But generally speaking, the days of CapEx IT investments are disappearing due to the following reasons:
With CapEx, it takes a significant amount of cash required upfront.
It’s impossible to estimate the future capacity for static hardware and software needs.Technology obsolescence. Once the technology is purchased the company’s stuck with it, despite technology advancements or changes in the company’s growth.
Now conversely, the shift to OpEx IT spending is growing for the following reasons: You only pay for capacity is needed: You can scale up and scale down as your requirements change.
You can use existing capital to invest in revenue-generating investments like new office locations or new equipment.It smooths out your cash flows over time, instead of requiring lumpy cash outlays.
If you are in your budget planning for the upcoming fiscal year, please reach out to NocserV to help. Our budget planning services are a complementing part of what we do as your trusted IT provider.
Source: New feed