Big-Picture Budget Balance

By Matt Quinn

After years of declining IT budgets, CIOs can expect to start receiving increases in funding. According to a forecast from technology research firm IDC released this fall, IT spending will grow by 7 percent over the next 12 months. While this may be perceived by some as a modest increase, smart CIOs know that it isn't the size of the budget that creates value for any enterprise; it is how that budget is allocated to meet IT and enterprise needs. Still, successful allocation remains a challenge for IT executives. According to a study by the Standish Group International, only one-third of new corporate IT projects delivered the results sought and came within budget in 2003.

To keep IT on equal footing with other functional areas, CIOs need to prove that IT spending is worthwhile by showing the return on investment as well as the investment's specific benefits on an ongoing basis. Increasingly, CIOs are expected to participate in corporate strategy. Allocating IT budgets with other C-level executives' goals in mind helps to achieve greater parity for IT.

Important to the process of judicious budgeting is a thorough review of the efficiency and effectiveness of the existing enterprise infrastructure. It is critical to analyze available resources and allocate funds to best meet corporate objectives. Input from other department managers and top-level executives will lead to a comprehensive understanding of how IT budgets compare with other areas' needs.

CIOs need to identify what drives productivity in their enterprises and plan accordingly. Is a more efficient distribution system required? Are improvements to warehouse management necessary? Aligning IT strategy to corporate aims will elevate the CIO's role from an operations manager to a strategic leader. According to a 2003 Deloitte Consulting survey, 96 percent of IT executives surveyed said that an IT strategy developed specifically to serve the corporate strategy would have "significant" or "moderate" impact on the bottom line of the business.

IT budgets are subject to the same line-item scrutiny that is imposed on other company departments. With that in mind, oversight of IT spending by a board is on the rise, with FedEx and Procter & Gamble among those companies now setting up subcommittees to monitor tech budgets.

If faced with reduced budgets, CIOs will have to look at two areas: development spending and the ongoing operations costs. Simply cutting back on development spending can cause a company to lose its competitive edge. Rather than eliminating initiatives, a compromise can be accomplished by breaking down development projects into smaller pieces. By consistently achieving smaller goals and staying on budget, CIOs can maintain their company's interest in and dedication to an initiative.

Budgeting for ongoing operations requires a different tack. CIOs may find themselves faced with the need to postpone less urgent spending, such as system upgrades and staff training. It may also be prudent to renegotiate contracts that were established when department budgets were bigger. Open-source software may also offer a low-cost alternative, assuming it also provides an equal or better solution to ongoing infrastructure problems. Ultimately, maintaining a strong infrastructure is the primary goal.

CIOs will look like heroes in the boardroom if they deploy effective infrastructure investment strategies that keep the company resilient, prepared, and able to grow. A more intensive budget process supports this objective, and raises IT to the corporate level where it belongs. Communicating and prioritizing with other executives will raise the value of IT by generating a strategic focus that may have been lacking. In the end, smart IT investment strategies enable savvy CIOs to keep their companies resilient, while allowing them to say yes to growth initiatives.

Matt Quinn writes about business. His work has appeared in Inc. magazine.