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At Space Age Technologies I learned how important the IT budgeting period is for SMEs. Together with the client IT leader we would often scramble like mad to prepare a list of projects and other initiatives, only for many of these items to be shot down due to "cost savings" and general misunderstanding of their benefits.
We were not happy. Business leaders just didn't get IT!
Or so we thought.
We have since learned how short-sighted we were and have developed a rigorous process for continuously improving the outcomes of the IT budgeting process.
And the surprising insight is that we need to spend much more time on preparing for the budgeting process than actually creating the IT budget itself.
This blog article will show you how to do this.
It expands on the Business Technology Management competencies we have previously defined in 15 essential Business Technology Management Competencies every IT leader has to master and I suggest you quickly refresh your mind. Don't worry if you haven't yet fully read this rather long post as it was meant to be used as a resource that you bookmark and constantly go back to.
Before spending any further time on this topic, let's first take a step back and ensure that the IT budgeting process is indeed as important as I make it out to be.
Why Is a Good IT Budget so Critical?
For many business leaders the answer to this question is straight forward:
IT is expensive and its costs need to be carefully controlled.
According to a comprehensive benchmarking exercise by Computer Economics, however, the total IT spend as a percentage of revenue 2015 was only 2.3%.
What this low percentage masks to tell us is how important information technology has become in almost every company.
In a Forbes article about the Most Admired Companies making IT a Competitive Advantage, Louis Columbus even goes as far as saying:
All enterprises, regardless of what they produce or the services they deliver, are really information businesses.
If you agree with this statement and now add the fact that many IT choices have a really long-term impact on the company, it is quite easy to see why it has become so critically important to make good business IT decisions.
And the time when strategic alternatives are discussed and most of the IT spend decisions are made is during the (mostly annual) planning and budgeting process, of which the IT budget is the most visible outcome.
Preparation Is Key to a Better It Budget
Ok, so if the IT budget is such an important tool for making good, business-aligned IT decisions, let's just read up and apply the comprehensive advice shared in how to run an effective IT budget.
Wait a moment, not so fast!
While this certainly will improve results, there is a much, much better way.
Before we dive in, however, we need to review the most important insights shared in 15 essential Business Technology Management Competencies every IT leader has to master:
- For more business value from IT, IT leaders have to progress from technology management to business technology management (BTM)
- There are, in total, 15 BTM competencies to master
- Acquiring and/or improving BTM competencies is a sequential, step by step process
- Each step improves the capacity to get more business value from IT
Now, since the IT budget is an outcome of Operational Planning (BTM Competency 12), we know that there are 11 prior competencies that all have an effect on our capacity to produce a good IT budget.
To understand how big an effect these competencies could have, ask yourself the following. How well will the IT budget support the business
- if the leaders of the business don't agree on the expectations of information technology,
- if information technology is not considered a critical business capability,
- if the IT leadership team is not empowered and trusted by the business or
- if IT and business leaders do not know how to "get on the same page" to make decisions that have a long-term impact?
I could ask 8 more questions, but I believe it is abundantly clear that we have to prepare for the IT budget long before the actual budgeting process starts!
A big question that remains is when to get started.
When Should We Start Preparing for the Next It Budget?
Let us revisit our BTM improvement project and this time depict the competencies in the form of a cycle.
In this visualisation we emphasise the point that every BTM competency adds BTM maturity and that, after a full cycle, we have substantially improved our capacity to create business value from IT.
Stringing 2 BTM improvement cycles together (for a total period of 2 years) we can now see how all competency upgrades improve our overall BTM maturity.
Once we understand this cyclical nature of the BTM improvement journey it becomes clear that there is no definitive starting point and that it should be possible to synchronise the journey with our internal business clock which usually runs from one financial year to the next.
Taking this new realisation into account our BTM project now goes from IT budget to IT budget and includes a total of 14 BTM competencies to work on.
The 3 Stages of IT Budget Preparation
Depending on how far along we are in our financial year, we can be in one of three distinct IT budget preparation stages.
The Results Stage
This stage includes BTM competencies 13 (Projects), 14 (Processes) and 15 (Results Focus) and lasts between 3 and 9 months from the start of the new financial year.
Its purpose is to ensure we deliver as best as possible on expectations created during the previous budget cycle.
Keeping all business IT stakeholders happy and confident in our ability to deliver will be very important for creating the necessary good-will to implement some of the critical changes recommended during the next stage.
The Foundation Stage
In BTM competencies 1-9 we set the foundation and create favourable conditions for an effective planning stage. The foundation stage can last anywhere between a few weeks and many months, with the expectation of it requiring less time every year one is on the journey.
IT leaders, who are usually quite action-orientated, incidentally also experience this stage as the most difficult one as the results of their efforts are not immediately apparent and require some perseverance to push through.
A common mistake made by many IT leaders is to skip this stage entirely and immediately proceed to the last stage of budget preparation.
The Planning Stage
Most businesses kick off their annual business planning process at a fairly fixed time. This is also the time when IT enters the final stage of their budget preparation and now focuses on BTM competencies 10, 11 and 12 (which includes the actual preparation of the IT Budget).
Even if one starts preparing for the IT budget only after the start of the annual business planning process, it is still very important to remember that BTM competencies are to be developed sequentially and that even a quick focus on some of the BTM competencies in the Foundation stage could still have a material effect on the effectiveness of the entire business IT planning process and the quality of the IT budget that is produced.
Ok, let's now make all of this theory a lot more practical and apply it to your business.
Plan your IT Budget Preparation
To ensure you spend your limited time in the most effective way you need to prepare your approach.
To help you do this we have developed a completely free and simple to use Excel-based BTM Planner companion tool that should go a long way towards getting you started.
In a nutshell, it facilitates the following three planning steps:
Step 1: Assess the Business Technology Maturity of your Organisation
Your first step is to use your own judgement and understand where the particular gaps are in the current BTM maturity of your organisation. For each of the 15 BTM competencies, you are asked one question which you have to rate, to the best of your knowledge, on a 5-point scale.
Step 2: Identify what IT Budget Preparation Stage you are in
Depending on how far you are in the financial year it should be quite simple to select the appropriate budget preparation stage.
Step 3: Decide what BTM Competencies to Focus on
With an understanding of the BTM competency gaps and the budget preparation stage you are currently in, the last step is to determine how much time you should spend, and on what BTM competencies.
The BTM Planner presents the outcomes of this step in a Gantt chart which has the added benefit of driving home the reality of just how much work still needs to be done.
Execute your Plan, Step by Step
The best plan will not amount to anything if you don't commit your time and energy to convert it into results.
Fortunately, I can tell you that any and all work you do on improving BTM competencies will create the capacity for more business value from IT.
But you should also realise that you will only get the maximum value if you are disciplined enough and keep yourself to the improvement schedule.
You might also want to check out our Mastermind Groups to help keep you accountable and get inspiration from other people like you.
Producing a better IT budget is the most important, annual outcome any IT leader can strive for.
Instead of just focusing on improving the IT budgeting process itself, however, it is absolutely critical to realise that true preparation starts immediately after the previous IT budget has been finalised.
It is probably less than you think.
Please leave a short comment to share your insights. You are also welcome to tell us what else we can do to support you on your journey of getting more business value from IT.