We use cookies and other similar technologies (Cookies) to enhance your experience and to provide you with relevant content and ads. By using our website, you are agreeing to the use of Cookies. You can change your settings at any time. Cookie Policy.

In these volatile economic times, many companies are limiting the ways in which their IT budgets are used. The concept of a standard IT budget has become less relevant as many CFO's and other business executives are doling out money on an "as needed" basis as opposed to a static spend schedule. Some companies have adapted to this new reality by finding ways to continue to improve aspects of their business operations via "self-funding" IT projects. By doing so, there are organizations we work with that have improved service to their business without using a single budget dollar.

This has been possible because the customer's staff:

  • Were very smart about how they structured the project
  • Maintained deep knowledge about their IT operations
  • Were willing to make and execute on some difficult decisions
  • Chose a vendor whose product and services could deliver concrete business results - and that was willing to sign up to help achieve operational milestones.



So, how did they "create budget" where none exists? It can all be done with a four-part formula:

1. Understand the Budgets

The first thing that a customer needs to understand is that there isn't one budget, but rather, multiple budgets. In most organizations there is an Expense Budget which outlines the areas in which the IT organization can spend during the year. Often called the IT Operations Budget, this is typically what people view as "The Budget," and it sets financial executives' expectations on what expenses from IT will be reflected in the organization's Income Statement.

Companies also have a Capital Appropriations Budget, which identifies investment in assets which could benefit the organization beyond just one fiscal year. Items on the Capital Appropriations Budget are reflected in the IT Operations Budget, but the costs are "capitalized." That is, the value is amortized (spread out) across the useful life of the asset. So what might appear as $120,000 in the Capital Appropriations Budget would be represented by $60,000 in the IT Operations Budget for an asset with a two year useful life.

And finally, companies usually have a Capital Expenditure Budget, which details the expected outflow of cash throughout the course of the year.
Organizational goals and timeframes of relevance are often different across these budgets. When an executive management team says "we have no budget," what they really mean is "there is no placeholder in the Capital Appropriations Budget for a new project."

The effort cannot stop there. The company may be focused on the overall Income Statement, and not on the Cash Balance or Capital Budget. It is important to understand that cash is different than expenditure (agreement to pay) which is different than expense. For example, if a company licenses $600,000 of software that is delivered immediately and has a useful life of 3 years, with an agreement to pay 50% on signing and 50% 18 months after signing (for this example, we will assume no maintenance or services costs), the resultant impact would be:

-1-

1  2  3  

   Next Page

Explore Our Topics

  • EDITOR'S BRIEFING
  • Virtual Conferences
  • Webinars
  • Roundtables

BPM in Action

March 10, 2011

The sixth annual BPM in Action 2011 Virtual Conference will explore cutting-edge market developments in BPM and describe how to leverage them for improved business operation and performance. More

View All Virtual Conferences

Smart Case Management: Why It's So Smart.

Date:Nov 05, 2009
Time:12:00 PM ET- (17:00 GMT)

REGISTER TODAY!

Date:Oct 29, 2009
Time:15:00 PM ET- (19:00 GMT)

REGISTER TODAY!
View All Roundtables
  • Research Library
  • Podcasts
  • News

Joe McKendrick: Part II of II: Designing Evolve-ability into SOA and IT Systems

In part two of Joe McKendrick's recent podcast with Miko Matsumura, chief strategist for Software AG, they talk about how SOA and IT systems need to change and grow and adapt with the organization around it.

Listen Now

Phil Wainewright: Helping Brands Engage with Social Media

Phil Wainewright interviews David Vap, VP of products at RightNow Technologies, and finds out how sharing best practices can help businesses understand how best to engage with online communities.

Listen Now

Peter Schooff: Making Every IT Dollar Result in a Desired Business Outcome: Scott Hebner of IBM Rati

Scott Hebner, Vice President of Marketing and Strategy for IBM Rational, discusses a topic on the top of every company's mind today: getting the most from IT investments.

Listen Now

Jessica Ann Mola: Where Will BI Fit In? Lyndsay Wise Explains

In BI, this tough economy and the increasing role of Web 2.0 and MDM are certainly topics on people's minds today. WiseAnalytics' Lyndsay Wise addresses each of them in this informative podcast.

Listen Now

Dennis Byron: Talking with...Deepak Singh of BPM Provider Adeptia

Deepak Singh, President and CTO of Adeptia, joins ebizQ's Dennis Byron in a podcast that gets its hand around the trend of industry-specific BPM.

Listen Now
More Podcasts
  • Most Popular
  • Quick Guide
  • Most Discussed

Quick Guide: What is BPM?

Learn More

Quick Guide: What is Event Processing?

Smart event processing can help your company run smarter and faster. This comprehensive guide helps you research the basics of complex event processing (CEP) and learn how to get started on the right foot with your CEP project using EDA, RFID, SOA, SCADA and other relevant technologies. Learn More

Quick Guide: What is Enterprise 2.0?

A lot of people are talking about Enterprise 2.0 as being the business application of Web 2.0 technology. However, there's still some debate on exactly what this technology entails, how it applies to today's business models, and which components bring true value. Some use the term Enterprise 2.0 exclusively to describe the use of social networking technologies in the enterprise, while others use it to describe a web economy platform, or the technological framework behind such a platform. Still others say that Enterprise 2.0 is all of these things. Learn More