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11/12/2004
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SmartAdvice: Demonstrate IT's Business Value At Budget Time

Justify the budget by showing IT as an asset and highlighting the business value it creates, The Advisory Council says. Also, look for fit with company polices and ease in integration when evaluating message-management systems; and the key for CIO survival is IT asset management.

Editor's Note: Welcome to SmartAdvice, a weekly column by The Advisory Council (TAC), an advisory service firm. The feature answers three questions of core interest to you, ranging from leadership advice to enterprise strategies to how to deal with vendors. Submit questions directly to smartadvice@tacadvisory.com

Question A: How should we justify our IT budget in an "IT as cost center" enterprise culture?

Our advice: Let's face it. An IT organization that has to justify its budget as a "cost center" has lost the respect of the business (or never had it).

Since the business is viewing every dollar spent on IT as one it could save, the imperative for IT is to demonstrate the value lost if the IT budget is cut. By showing the business that the IT organization's goals and objectives are aligned with their own, the resulting goodwill will help mend some of the broken bridges.

To rebuild business confidence in IT, start by eliminating budget items on your own. You know where the expendable items are in your budget. By cutting these yourself, you help establish your credibility with senior management.

Now, you're ready to work on a budget that has a chance of being funded by the business.

Start by splitting the budget items, or initiatives, into areas enabling:

  • Business value creation: These are items that directly and demonstrably address an identified strategic business need. Pick incontrovertible items to set the stage for further discussion.
  • Cost reduction: These items are clearly a net cost to the organization that must be eliminated over time. Pick items and show that you're already taking action to reduce expense in these areas. Be careful not to pick too many items, because that is a tacit admission of guilt.
  • Organizational support: These items are ones that the organization cannot live without. Arguably, their costs can be reduced but never eliminated. Usually, infrastructure items fall under this category.
  • Day-to-day operations: These are "keep the lights on" items that form the core of the IT capability. They're already cost-optimized, and the adverse impact of shutting them down is clear.
  • Cost avoidance: These items do have an associated cost, although it's to reduce a bigger cost or risk. Pick items that clearly show the cost advantage or risk reduction that translates into a cost eventually.
  • Regulatory compliance: These are items that are required to comply with a legal or regulatory requirement. Most businesses will not argue with these costs. The discussion will focus on how to get it done cheaper.
  • Everything else: If there are items left over, then these are the ones that need to be discussed with the business. Be prepared to offer a business-value-driven justification for items in this category. If the business isn't convinced, then be open to eliminating them.
  • The presentation of a message is as important as its content. Start the meeting by showing progress on the cost front:

    • Have the budgets been reduced over the past three years? Showcase the wins.
    • What are the areas in which they have been reduced?
    • What are the areas in which they have increased? Why?

    Be ready to respond to the following questions, or better yet, introduce them head-on in your discussions

    • What's the trend in spending?
    • How does it relate to the company's results?
    • How does it compare with other companies?

    Be firm on items you must have funded, but support your point with business-value analysis, not a "trust me" statement of "fact." More important, be open to eliminate items that don't address a clear business need.

    Remember, this year's budget always sets the stage for the next one. The carryover isn't dollars, but confidence and trust--neither is a replenishable commodity.

    --Sourabh Hajela

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