Advice for the CIO at Budget Time

The shorter days, falling leaves and crisp chill in the air can only mean one thing—it’s time to create the annual budget.  Even in the most enlightened companies, the process is filled with pain and frustration and often seems at odds with the rapidly evolving business environment. In spite of these limitations, it does not seem to change. Let’s face it, it is a juggernaut of pain that only the most hardy can bear. In every company, the process goes something like this:  CFOs asks the CIO what they think they will spend in the upcoming year.  The CIO asks the business leads for their prioritized investment needs and get a list 1000 items long.  However, the CIO still has to submit something for the first round and inevitably the first roll up of the budget doesn’t work. - expense growth is too high and revenue growth too low.  Usually at this stage, the finance department drops the ‘Depreciation Bomb’ – that unpleasant phenomenon that results when the depreciation result of all the prior years’ investments comes through as a never-ending and growing mountain of expense.   It is rarely apparent until the numbers are crunched in August but it hits likes snowball rolling downhill and in some cases means that you are able to spend less ‘real money’ than the year before.  Also, the CEO starts to ask you why the IT budget is like college tuition and heath care costs – it only seems to go up.

It is at this point that the all day prioritization meetings, list sorting, internal lobbying, sweating bullets and sleepless nights begin. The best companies or the ones with the most unrealistic budgets finish by the middle of November. For most, however, the process goes well into December.

Does this sound familiar?

Here are some thoughts for a CIO to think about going into this ‘fog of war’:

First, do things to smooth out the September surprise every year.

  • Managing expectations is key.  Figure out what your steady state investment level. What should this number be? Over time, investment should equal depreciation. If your investment needs are above depreciation, know when you hit equilibrium. If you are investing below that number, make sure people understand the trade off they are making so that surprises are minimal
  • Look for self-funding mechanisms. Even with the best expectations management in the world, no one will want to make all the sacrifices needed for optimal IT investment.  Have your hand in as many different budgets as possible. The business divisions in a large corporation have more options than IT departments, and partnering with them can make a big difference.
  • Plan in rolling 18 month increments. As a result, the first 6 months of the next year are already known at budget time.

Finance is an important year-round partner, ally, and friend.

  1. Your CFO or senior financial support should be a communicator and broker. They are vital in facilitating the discussions and providing transparency.  It’s not just about rolling up the numbers and walking away. They should highlight the key points that need to be agreed upon and facilitate the conversation.
  2. Dialogue is key on large-scale investments. Frequently, business leaders are not willing to ‘sign up’ for the costs of technology (in spite of the benefits) because they don’t have full control of the program. If finance can frame up the tracking and reporting, both the CIO and business lead can own the number.
  3. The list that you use for prioritization should not be a random collection of projects grouped by senior executive. As much as possible, avoid having single projects hang out by themselves.  Rather, anchor them to a multi-year program.  Stand-alone projects are always at risk in the prioritization battle. Get things prioritized as programs and then extend or shorten the length or breadth of the program depending on need and available funding. Ideally, seek to anchor a program to the core vision. Then highlight the consumer need being met and describe its cross-functionality across all channels.

Relentlessly simplify

  1. Be especially diligent about decommissioning systems to reduce ongoing run costs and costs of development.  Frequently, systems are not decommissioned because of one or two business areas that won’t take the difficult decision. Frame up the choices people are making when they refuse to let go of an application.
  2. IT costs are frequently charged back to business divisions. When is the last time you looked at the bill the business division receives and how it would be understood and interpreted by a non-IT person? Make sure that bill is transparent and something your non-techie friends could understand.
  3. In large investment efforts, people tend to focus on the process and expense of launching the technology, rather than on how it is going to be integrated and used within existing processes. There should always be a business project manager working alongside the IT project manager in order to make sure the business processes are amended and simplified as part of the investment.
  4. Celebrate successes and make note of what has worked and why. Frequently, the simplest projects are the most successful in terms of return, reducing cycle time, and improving customer experience.