IT is a cost center. While this may not necessarily be true for all companies, it is how the IT department is perceived in many companies.
In the current economic environment, this perception about IT can dictate what your department budget will look like in 2010. Almost every company is undergoing some rigorous analysis of where to cut costs or eliminate bleeding. In most cases, cost centers are first on the chopping block.
Companies typically do not want to cut revenue-generating operations, but even these previously sacred-cow operations are coming under scrutiny. Companies are restructuring to the point of trying to determine what businesses to be in and how to position their organization in those businesses.
Here's a simplified example: A maker of high-quality dishwashers that sells direct to consumer or to industrial and restaurant businesses via wholesalers may change direction and become more niche oriented with a focus on direct to industrial customers with a goal of being No. 1 or No. 2 in this sector. Moves such as these allow companies to better focus resources and talent on the most profitable opportunities.
Understanding these new directions and having personal exposure to possible outcomes allow IT executives to better understand and prepare for budgeting. Simply carrying over operating expense items and plugging in typical capital projects is not the answer.
Even though the CEO agreed to a three-year hardware refresh cycle in 2007, it does not mean that, in 2009, it is still a priority. You must do your part as a company executive first and as an IT leader second. Infrastructure refreshes typically have an economic impact vs. an actual financial impact--productivity gains, licensing opportunities etc., but nothing that impacts the bottom line in a positive direction.
This year, you will also find that typical funding strategies such as capital leasing are no longer an option. Many banks that provide capital lines of credit focused on expansion (i.e., to help build out new retail locations); these banks are now prohibiting companies from seeking capital leases for other projects.
Other industries may see different types of restrictions on funding internal projects. Another example would be new project financing terms put on a company as part of refinancing existing debt. Understanding any new restrictions will help you avoid going down rabbit holes or dead ends as well.
You can create helpful IT budgets by employing proven marketing strategies. As any marketer will tell you, packaging is extremely important, and it is no different when you are trying to "sell" your IT project.
Packaging alone will not sell an IT project, however; the project still needs substance and applicability, and the project or the portfolio of projects must be aligned with the company's new direction. The packaging comes in when you can articulate how the project will facilitate achieving a goal faster and more cheaply.
Another part of the packaging is preparing ahead of time to make sure you know how this project will be funded (i.e., what is being cut in order to fund the project) and when the payback period begins. Ideally, you already have your IT architecture all figured out. With the new budget situation, all that has changed is the timetable for achieving the architectural goals. If marketed correctly, you can package IT architectural elements into projects focused on revenue generation or strategic direction change.
For example, if you wanted to refresh a third of your company's PCs because the machines are more than three years old, you would put this project on hold for a year and find tools that will make it easier to maintain the older equipment. But there may be scheduling software that, if deployed, could allow for better payroll management and an immediate savings. Using the money earmarked for PC replacement to fund this cost-cutting project is the first step.
Part of that project's business case would include replacing the older computers that users responsible for human resource scheduling work on so their machines can run the new software. Even though it is not one-third of the company's PCs, you are continuing to move the ball forward on your IT architecture goals.
IT budgeting for 2010 is going to be a balancing act. Understanding the macroeconomic influences and the financial impact these influences have on your company will aid you in preparing a helpful IT budget.
A successful IT executive with 15 years of technology leadership, team building and value creation, Jay Rollins has served as VP of IT/CIO of several midsize companies and technology startups. He has varied industry experience including games, media and entertainment, healthcare and e-commerce. Jay received an MBA from Bentley College in Waltham, MA and founded PicoMatrix in 2008.