For years, technology was considered no more important than the copy machine, a manufacturing tool, or a company vehicle. Computers were utilitarian pieces of equipment that were required to get work done. IT budgeting focused on maintaining existing tools and replacing them when they were on their last legs.
IT has now evolved from a utilitarian role to an enabler of critical business services, processes and capabilities. The right technology investments and strategies can create very real, measurable competitive advantages in terms of operational efficiency, productivity, innovation and the customer experience.
However, when it’s time to sit down and hash out the budget, most organizations revert to an outdated mindset that views IT as a cost center. Reducing the budget takes priority over the business value that can be created by making smart IT investments.
Although cost-cutting is sometimes necessary, budget decisions are often made without regard for the true cost of complex, legacy infrastructure. The fact is, older technology tends to be more expensive to maintain and less user-friendly. When it comes to evaluating new technology, however, the long-term business value often takes a backseat to upfront cost.
To make matters worse, IT teams and the people who use these tools on a daily basis often have a limited voice during the budget process or are left out of the conversation completely.
Organizations should focus the IT budgeting process on aligning technology investments with business goals. Basic maintenance and improvements in security that keep the lights on still must be funded, but organizations should also be open to innovative projects that drive business development and long-term success. Get beyond individual line items and look at the larger strategic plan.
Gartner has developed criteria for evaluating IT investments to help organizations make better decisions during the budgeting process. First, determine the business value of each investment. This is typically defined by metrics such as time to market and customer satisfaction. Value should also be measured in terms of ROI. How quickly will the financial benefit of the investment surpass the cost, and how will that benefit be calculated?
Second, consider both the strategic fit and the technical fit. How does each investment align with strategic business objectives? How does each investment align with existing technical architecture? Third, identify the risk involved. Could complications and/or delays add costs or even prevent the new technology from being implemented? What is the risk of the new technology not delivering the benefits you expect?
Ultimately, IT budgeting should be part of the overall enterprise plan, which involves business, financial and IT stakeholders. Business value should drive investment decisions, and business units should absorb a larger portion of IT spending. Instead of fixating on individual line items, the budget should be flexible and agile enough to keep up with evolving business priorities and market conditions.
Organizations still may find it difficult to determine how much they should be spending based on the size of the company, the industry, the competition and other factors. Our IT consultants can help. Let us assess your existing infrastructure, business processes and goals and show you how our IT Spend Optimization Model can be used to guide your budget decisions.