CIO
7 tips for coping with a limited IT budget
By: John Edwards
Nothing in this world is certain except death and taxes — and limited IT budgets. Few IT leaders lose sleep over overfunding. Rather, sleepless nights wondering how to meet organizational aspirations when saddled with woefully underfunded budgets are more the norm. That anxiety can only escalate when a recession looms.
Even IT leaders managing relatively generous allotments are feeling the strain. Pat Phelan, a former Gartner analyst and current vice president of market research at enterprise software support firm Rimini Street, notes that IT departments are now under significant pressure to invest in digital transformation, leaving little room to maintain and update already established technologies and operations. "It's important for CIOs to evaluate their innovation and software spends carefully, weighing the specific needs of their companies," she advises.
Do you feel squeezed in the grip of growing demands and limited funds? Then check out these seven ways budget-strapped IT leaders can meet current goals while positioning their organizations for inevitable changes.
1. Accept reality and start planning
The biggest mistake IT leaders make is a lack of planning, which increases the risk of draining IT resources and budgets, says Oussama El-Hilali, CTO at data protection provider Arcserve. "Proper planning, by understanding the organization’s mission and who is responsible for ensuring that mission is carried out, can help reduce these mistakes."
Virtually every IT organization faces more demand than available financial resources. This reality forces CIOs to choose between initiatives that are worth funding and those that should be rejected. "An effective governance framework is essential ... to determine the IT investments that have the greatest value to the business, and those decisions must be driven by the business, not by IT," advises Sidney Hodgson, senior executive advisor at IT advisory firm Info-Tech Research Group.
Effective budget management includes developing an IT strategy that's directly aligned with the enterprise's strategic goals. "This enables IT to plan, support and budget for priorities," Hodgson notes. "IT should be able to identify expected growth plans from the business units and plan priorities and capacity accordingly."
CIOs also need clear visibility into business needs and goals to accurately prioritize ongoing projects. "A limited budget translates into limited wiggle room when projects cost more than forecast, often resulting in mid-year budget reductions or the need for project terminations," observes Ralph Labarta, CTO of business management consulting firm Engage PEO. "When this occurs, and a CIO is only able to deliver seven projects on a list of ten, those seven projects better be the most impactful projects to the business."
2. Don't cave into pressure
Falling victim to pressure from colleagues and vendors to invest deeply in emerging technologies without first evaluating their cost and potential business value can overwhelm an already limited IT budget, Phelan notes. Vendor-driven initiatives that deliver little or no direct business value, such as ERP upgrades and continuous updates, usually come at a high cost without improving competitiveness and are notorious budget burners, she observes.
Even when an important new technology, such as a novel cloud-based service, shows actual potential, don't rush to adoption. The transition should be carefully thought out. "Don't move to the cloud for the sake of cloud," Phelan warns. "Let the business drive the move."
It's always smart to focus on initiatives that drive competitive advantage and growth. "For example, most enterprises are choosing to preserve their investments in ERP systems while they innovate with cloud technologies around the edges," Phelan explains.
When considering a new project, don't fall victim to vendors' sales pitches promising smooth and easy deployment. "While there's no disputing the fact that they might have done it in the past, and successfully, they often don’t talk about the extra costs and time that weren't originally planned or budgeted for," cautions Mehdi Aftahi, CTO at Technology Evaluation Centers, a neutral third-party organization that helps CIOs evaluate and select enterprise software.
3. Build internal support
Relationships are critical to IT success. Whenever considering a major IT initiative, lobby fellow C-level power players. Explain the project's benefits and gain their endorsement. "When the formal proposal goes before the entire executive team or board, the CIO then has allies who will vocalize their support for the initiative," Hodgson notes.
IT should always have a seat at the table whenever the enterprise meets to set strategic goals. "Otherwise, you'll always be allocated a budget that's insufficient to meet the [new] business initiatives," warns Mike Puglia, chief strategy officer at Kaseya, an IT business management software firm.
Puglia also recommends reviewing existing IT activities and expenditures and, whenever appropriate, associating them with specific business units. "This inherently ties the IT budget to lines of business, thereby providing visibility into the impact strategic goals have to the business," he notes.
The entire IT management team needs to share ownership of the budget's goals. "This will ensure that resources and money are not spent on low priority projects," says Chris Fielding, CIO of data recovery services provider Sungard Availability Services.
4. Develop accurate financial models
When struggling to meet budget objectives, CIOs have no greater allies than their colleagues in finance. "IT leaders should work hand-in-hand with finance to develop models based on historical data, particularly when budgeting IT operational costs," Labarta advises. An accurate model benefits IT's finance partners by allowing them to forecast and create financial performance scenarios independently. The models also protect IT’s interests, since they are validated and defended by its finance allies. "Win-win!" Labarta quips.
Having weekly KPIs and reporting prepared by finance is the most effective way of managing a budget, Puglia notes. "If you don’t have the data and a benchmark to determine your achievements, you open the door for inefficiencies, waste and big surprises," he says. "Waiting until the end of month or quarter is too late to be actively managing budgets."
5. Root-out waste
To maximize budget resources, closely review existing processes for inefficiencies and redundancies. "By reducing inefficient processes or optimizing them, a tech organization can quickly become a profit center as opposed to a loss center, and save the entire organization from high operational and tech costs," recommends Nick H. Kamboj, a business advisor and CEO of Aston & James, an MBA admissions consulting firm.
IT leaders should always be on the lookout for promising new technologies that can trim or eliminate expensive operations while lowering manual workloads and decreasing unplanned interruptions. "Having the right applications and a trained staff with an integrated process in place is critical," El-Hilali says.
Test several tools to determine which technology works best, and to ensure that you're investing your money in the most effective way possible, suggests Mike Rulf, CTO of Americas for IT services provider Syntax. "This way, it’s less about the cost of a specific tool or service and more about making a long-term investment in the company," he notes.
Many successful IT leaders conserve resources by pushing selected simple tasks directly to end users. "In some organizations, the IT staff will allow end users to do their own restores from backups and archives, and to manage their data using applications like One Drive or SharePoint," El-Hilali observes. "These types of initiatives help reduce the workload of IT teams, and free-up their time for higher priority items."
6. Consider outsourcing
It's frequently less expensive to acquire software and services than to develop them in-house. "Too often, IT staff wants to develop applications internally when there's an option available through a COTS, SaaS or a cloud offering," Hodgson explains.
Adding headcount to internal IT staff to handle an increased development workload can be a tough ROI case for an IT leader to sell to his or her management colleagues. "Outsourcing is more budget-friendly than headcount," says Keith Marchiano, vice president of information and communications technology for IT services and support provider Kyocera Intelligence Mid-Atlantic.
7. Seek external advice
Obtaining a realistic assessment from a peer or an industry analyst can help a CIO set reasonable parameters for a proposed IT budget. "Combined with reporting through dashboards and working with finance departments, these steps will help IT leaders achieve the flexibility to effectively manage their IT budget," El-Hilali suggests.
