Darin Stahl, Lead Analyst with Info-Tech (www.infotech.com), says:

Many IT budgets focus on the near-term CapEx and the twelve month OpEx. This often creates a budget where new business initiatives are vetted but past business strategies are not revisited through a needs analysis, so they become a part of the ongoing OpEx. But then IT leaders are held accountable for the long-term costs associated with past business strategies.

Here is a simple example to illustrate the challenge introduced by the process:

The Data Center is asked to provision a new physical server to support a Microsoft SQL/Server environment for business reporting. The new server and software (OS, RDMBS, etc.) vetted through the CapEx process is $32,213. Typically that is the budget amount discussed upfront by IT and the business. The total 5-year cost to support that business initiative (CapEx + OpEX) is approximately $35,668. At first glance the $3,455 not described in the budget process doesn’t look like a big deal. But, if a lack of costing for the 5-year totals costs is the standard practice – multiplying that amount across 50 or so servers in a mid-size enterprise it becomes a significant OpEX pain point to the IT leader through the annual budgeting process.

A way out of this problem is for the IT leader to reshape the dialog with their business to align costs with business services.

  • Begin with the premise that the yearly budget process decides if IT will have the staff and dollar resources necessary to deliver expected services.
  • Fully understand the organization’s accounting approach before preparing the budget.
  • Example the various budgeting methodologies and choose the right approach for their situation (e.g., Incremental, Zero-based, Top-down, Bottom-up). Info-Tech customers report success with a hybrid approach that integrates CFO guidance, departmental input, historical data, and expense projects. No one single approach is successful on its own.
  • Follow six simple steps to ensure your data center budget includes resources needed to meet organizational goals:
o   Calculate Current Costs

§  Expenses to date

§  Year-end forecasts

§  Pricing changes

o   Determine Required Changes to Expected Services

§  Volume changes

§  Dropped activities

§  New initiatives

§  Contingencies

§  Cost increases

o   Develop Estimates

§  Budgeting scope

§  Cost-saving opportunities

§  Changes to current costs

§  Cost of projected changes

o   Create and Submit Budget Proposal

§  Identify constraints

§  Detail Capital vs. Operating

§  Highlight discretionary vs.  non-discretionary

§  Include effective rationale in business terms

o   Negotiate

§  Prioritize projects with business units

§  Negotiate with executives to close the gap between the requested amount and the approve amount.

o   Deal with the Final Approved Budget

§  Adjust your scope and priorities

§  Find further cost-reduction opportunities

§  Reduce the proposed contingencies as the situation becomes clearer.