Perhaps we’re looking at this the wrong way. Perhaps management is only making sweeping cuts because: a) They don’t understand the implications of what they’re doing, and b) We haven’t given them any alternatives.

 

There is an answer. And it’s not nearly as difficult as you’d imagine. It involves presenting your budget in such a way that informed business decisions can be made.

 

So here’s what you do: I have divided IT spending into three categories: IT related spend, and two types of business related spend – improving business operations and strategic business:

 

 

 

Let me talk about the big blocks for a moment. The largest block on the left is called the “Maintain momentum” block. That’s the spend needed to keep the business running, and to improve the way that IT does its job. The block in the middle is called the “Improve business” block, which denotes the budget that the organisation will set aside to effect business changes and improvements – the ERP system being mooted in the MSP, will be accommodated in this block. And finally the block at the top on the right is the “Information Leadership” block, where IT makes its contribution to the organisation using technology to create new products, open new channels to customers, or reach new markets. This block is seldom filled, because most organisations I have worked with just don’t see IT as playing in that space, and IT is not pushing their leadership possibilities in a businesslike way.

 

You can see that I have also divided each block into sub-categories. The important thing here is to get business to understand that there are things that IT needs to do which are related to how IT operates. (And importantly that there are implications for making sweeping cuts in this area). The “Ops engine” is the hardware, software and anything currently in production that needs to work for the business to work properly. Don’t be tempted to put anything in this category that is not currently in production. If you need a network upgrade, this fits into the “Strengthen the Ops engine” category. Many other technology spend types fit here as well: That security system, or the refresh of desktops, all fit here. The final sub-category here is about making IT work better for the company, so your CMDB, or Project Office, or Architecture office, or in fact anything that makes IT better as a service. Say you want to do a benchmarking exercise, or use us to help you categories your budget into the model  – where would you put it? In the “Strengthen IT” sub-category.

 

Look at the three horizontal lines which help business understand how to evaluate technical spend against business related spend. The “Mandatory spend” line is very significant. The implication is that if money is not spent on items below the line, then the business will be at risk – either from a risky Ops engine, or because they have legal or high-risk issues that must be addressed. So cutting in this area means affecting business operations. Yes I know you can cut costs here – but we’re talking incremental cuts, not slash and burn cuts.

 

Into the “Must do” category, you’d put Sarbaines-Oxley or National Credit Act compliance spend needed to comply with the law. It’s not for debate – rather it is about deciding how efficiently you can get the job done and soon!

 

All mandatory spend is justified on the risk that the company will face if it does not get spent. And frankly you should avoid putting anything into this category that is not absolutely necessary, otherwise you’ll be setting a blackmail trap, which often backfires.

 

The “Conditional spend” line is fun. I normally explain it to business people like this: “You can choose not to service your car, because you haven’t got the money, but you’ll have to do it some time”. So conditional spend depends on the prevailing business conditions. This is money that must be spent some-time but it can be delayed if absolutely necessary. An example of this would be a company that does a lot of business via the web, which really should put in a whole lot of new functionality that their competition has, but hasn’t got the funds at the moment. Of course conditional spend has a nasty habit of becoming mandatory spend if left too long. But in these tough times,  you need to disclose what spend can be delayed – if you are open and honest about this you will gain respect.

 

Then there’s “Optional spend”. This is where IT is up against all other business projects. This is where hurdle rates and return on investment rules. If the benefits of doing something are sufficiently good, then your business case should pass muster. However, you should be raising the bar for this category. The business case must be totally compelling. Also, look at those projects that have been authorised, but use the new stricter criteria. Those that don’t pass the test must be stopped. Good luck here, this is not easily done as there are egos and politics involved. You have to be strictly business about this category.

 

Finally there is the “May do / Feasibility” category of spend which depends on how strategically your company is thinking. There are a number of possible postures that your organisation may have taken to the downturn – if they have cash, then you should be thinking about expanding into spaces where others are contracting. Or you could be planning what to do to accelerate your organisation out of the recession once it lifts.

 

I have found business people to be very quick to see how the above model works, and to make appropriate and wise decisions based on the category of IT spend they are dealing with. So if you find yourself walking away from your budget presentation to Exco, muttering under your breath that: “These idiots have just killed all value-add, and are putting the organisation at risk!”, think again. The fault probably lies with you and the way you present your budget. And your budget can help you keep the lights on, while adding value to your business. It’s all in the way you look at it – and present it.

 

Are you spending too much on IT?