For most IT managers budgeting is an ordeal and one royal headache that fortunately only comes around once a year. Yes, it does take a certain amount of work, but when you have a simple process to follow and tools that truly help you in the effort it can be a breeze.
I go about my entire management process in a way that makes things easy for me. Call me lazy if you want to, but the bottom line is that I just don’t like to work hard to accomplish some of the things I know have to happen. Don’t get me wrong; I’m a very hard worker as anyone who has worked with me will attest. I just refuse to work hard on things that ought to be simple and easy to do. Budgeting an IT organization falls into that category.
The reason budgeting is hard for many IT managers is that they lack an understanding of how to go about it and don’t have the proper tools to help them. The first step of the process is to prepare, so let’s begin.
Start a Budget – 2011 file folder and begin collecting the following:
2009 and 2010 Profit and Loss (P&L) Trend Report – You want the report or reports that list the month by month trend of expenses your IT organization has incurred for the last 12 to 18 months. Trends will help you see your spending pattern for each expense category as well as major expense “spikes” incurred in the past that may relate to annual or semi-annual vendor payments. These “spikes” can be tangible.
Employee salary report – You should maintain an employee roster with annual salary, bonus terms (if any), and expected new positions for the coming year. A tool is included in my IT Budgeting book just for this purpose. In general, if you budget your salary and benefits part adequately, you have over 70% of your budget completed. Maintaining an organization salary list makes this part a simple and quick process.
Vendor contract log – When you have a vendor list that includes contract terms, you can budget this part quickly plus be certain that you have anticipated any possible contract price increases that are built into a contract.
Telecom circuit log – If you have several remote office connections, you will want to pull out your Telecom circuit list to quantify the ongoing monthly telecom costs. You can also list possible office openings which have estimated one-time implementation costs to get started and ongoing monthly telecom costs. Maintaining this list for a large set of remote offices makes budgeting this part easy and gives you the tool to reconcile your telecom vendor invoice each month as well.
2011 strategy & project initiatives list – You can’t develop a comprehensive budget if you don’t have a good idea about the large projects you will be working on for next year. Large project initiatives have cost implications that need to be budgeted. One of the last things I will do when building my operational budget is to walk back through next year’s anticipated projects to determine if I have the major cost issues covered in my operational plan (budget). Your project initiatives may change in the actual year, but if you have included the big projects you believe will be worked on you will usually have changes covered in your plan.
Start asking questions – Some of the “extra cost” efforts have to do with supporting your company’s operational units. For example, when a remote office moves to a new building because they have outgrown their existing building, there are IT expenses related to supporting such an effort. Now is the time to start getting inside your operational manager’s heads to get a feel for what they are planning to do in the coming year, , , many of their plans require IT support and you better know about them.
Employee training plan – If you have not started developing an Employee Education & Training Plan, now is the time to start. Your IT staff loves to learn new things and to improve their professional skills. Training is one of the best motivators you have for keeping IT people committed to your company and motivating them to do more. It is an investment you can’t afford to miss out on and will reward your employees as well as your company.
New hire expectations – You want to have a good assessment of all new hire positions planned in the company as it will affect supporting new hire startups and the purchase of equipment, license agreements, etc.
Major expense items analysis – In an IT organization budget, you may have 40 to 50 expense categories, , , but for most organizations there will 6 to 8, maybe 10 expense categories that make up 85-90% of your budget. Identify from past Profit and Loss Reports these major expense categories and be sure you understand the full implications of each of them, , , and anything that can impact the amount you spend in them the next year.
Budgeting is about anticipating future activities and estimating the costs related to those activities.
Learn more in IT Budgeting: operational and capital budgeting made easy.