justifying the it budget for non-it management

CCAP IT DIRECTORS CCAP IT DIRECTORS MEETINGMEETING

Justifying IT Budgets To Non-IT Justifying IT Budgets To Non-IT ManagementManagement

March 13, 2007March 13, 2007

• About “Budget”About “Budget”

• IT Budget BenchmarksIT Budget Benchmarks

• IT Budget TrendsIT Budget Trends

• IT Budget JustificationIT Budget Justification

• Supporting the IT BudgetSupporting the IT Budget

• Controlling the IT BudgetControlling the IT Budget

• Summary Summary

IT Budget Topics

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IT Building Blocks

IT Strategic PlanningIT Strategic Planning

– Best PracticesBest Practices

– Policies & ProceduresPolicies & Procedures

– BudgetBudget

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Communication Infrastructure

StaffingDept. Decision Makers

Tools

Line Staff Monitoring

Security

Application

CIO

Strategic Planning

Operating

IT Best Practices

Policies Procedure

Budget

R&D

Capital

Consultants

Hardware

Network

Software

Hardware

Network

Software

GIS

Telecom

IT Department Building Blocks

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budg·et (bŭj'ĭt)budg·et (bŭj'ĭt) n.n.

– An itemized summary of estimated or An itemized summary of estimated or intended expenditures for a given period intended expenditures for a given period along with proposals for financing themalong with proposals for financing them..

– A systematic plan for the expenditure of a A systematic plan for the expenditure of a usually fixed resource, such as money or usually fixed resource, such as money or time, during a given period. time, during a given period.

– The total sum of money allocated for a The total sum of money allocated for a particular purpose or period of time.particular purpose or period of time.

Definition of “Budget”

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Types of BudgetsTypes of Budgets

– capital budget, cash budget, operating capital budget, cash budget, operating budget, fixed budget, flexible budget, budget, fixed budget, flexible budget, money management, zero-base money management, zero-base budgetingbudgeting

– Budget Rent-A-CarBudget Rent-A-Car

Definition of “Budget”

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Operating BudgetOperating Budget

– A description of a financial plan. It is a list of A description of a financial plan. It is a list of estimates of revenues to and expenditures estimates of revenues to and expenditures by an agent for a stated period of time. by an agent for a stated period of time. Normally this budget describes a period in Normally this budget describes a period in the future not the past.the future not the past.

– Staff, Hardware, Software, Services Staff, Hardware, Software, Services Training/Education, Supplies, Etc. Training/Education, Supplies, Etc.

Common Budget Categories

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Capital Budget Capital Budget – A plan to finance long-term outlays, such as A plan to finance long-term outlays, such as

for fixed assets like facilities and equipment. for fixed assets like facilities and equipment. – Hardware assets costing over $500 that have Hardware assets costing over $500 that have

a long life expectancy and can be a long life expectancy and can be depreciated over a long period of time depreciated over a long period of time

– Hardware, Software, certain professional Hardware, Software, certain professional services, special equipment, etc.services, special equipment, etc.

Common Budget Categories Cont.

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• Budgets are a Budgets are a concreteconcrete statement of strategies and plans statement of strategies and plans

in dollar terms. Yet, budgets and budgeting continue to be in dollar terms. Yet, budgets and budgeting continue to be

a source of confusion and frustration to most non-financial a source of confusion and frustration to most non-financial

professionals.professionals.

• Need to translate the IT Budget into plain EnglishNeed to translate the IT Budget into plain English

• No one will speak for the IT organization if IT professionals No one will speak for the IT organization if IT professionals

don’t participate in the budget process effectivelydon’t participate in the budget process effectively

• Presenting the story behind the numbersPresenting the story behind the numbers

• Demystify the BudgetDemystify the Budget

Budget Facts of Life

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Managing IT Costs

= Operations-related= Project-related= Purchasing-related

Payback Time

Lon

g T

erm

Ben

efit

Convert contractors

to employees

Lease instead of buy

Renegotiate vendor

contracts

Defer purchases

Reduce maintenance

contracts

Eliminate “nice-to-have”

software

Buy capacity on

demand

Source strategically

Consolidate Computing

Infrastructure

Consolidate Help Desks Manage

servicelevels

Consolidate enterprise e-

mail and applications

Raise ROIhurdles

Centralize Portal Management

Create an Enterprise

Architecture

Create utility Computing

Centralize Project

Management

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IT Cost Saving Opportunities

Opportunity Time Tech. Risk Org. Risk Benefit Investment

Consolidate IT procurement Low Moderate High High LowCreate Project Management Office Low Low Low High ModerateCentralize portal management Low Moderate Moderate High ModerateCentralize desktop application management Low Moderate Low High HighCreate an Enterprise Architecture Low High High High HighRenegotiate Network Rates Low Low Low Moderate LowRenegotiate Contractor Labor Rates Low Low Low Moderate LowConsolidate vendor contracts Low Moderate High Moderate LowTelecommunications line Audits Low Low Low Moderate LowCreate web templates Low Low Low Moderate LowDiscontinue buying proprietary hardware Low Moderate Low Moderate ModerateDefer purchases of desktop products Low Low Low Low LowCell phone usage Low Low Low Low LowBreak-up large projects and defer pieces Low Moderate Moderate Low LowServer Consolidation (Physical) Moderate Moderate High High HighCreate a shared-services environment Moderate Low Low High HighConvert networks to VPN Moderate Moderate Low High HighHelp Desk Consolidation Moderate Low Moderate High ModerateCentralize e-mail Moderate Moderate Moderate High ModerateCentralize application development Moderate Moderate High High ModerateEnable Shared Risk/Reward contracts Moderate Moderate Moderate High LowCentralize security/virus access software Moderate Low Low Moderate ModerateServer Consolidation (Capacity) Moderate Moderate Low Low LowPay for IT investments with bonds Moderate Low Low Low LowConsolidate Mainframes High Moderate High High HighCentralize financial management High High Moderate High HighMove applications to the web High Low Moderate Moderate Moderate

Time: Low= 0-6 months Moderate= 6-18 months High= >18 month

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Managing IT Operational Costs

Budget Options

Total Operations Budget

IT Budget (<5%)

Current Cut ITLeverage

IT

IT can drive operational productivity

IT can improve customer service

IT investments do not have to be as painful as in the past

If not well managed, IT can be a money pit

Not all IT organizations have the credibility to sell IT leveraging

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Impact/Focal Points for IT Budgets

Internet presence hosting Intranet presence hosting Application hosting Database Management Enterprise Applications

Management Project Management Training Security Operations Server Consolidation

IT Facilities Management Identity Management and

Credential Services Desktop Computing

Management Infrastructure Management Help Desk Support Operational Recovery

Planning

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Your Budget is Significant

Your budget is a significant aspect of managing for success, and it's one of the most important facets of your career. You need to: – Develop a budget philosophy

– Approach budgeting for success

– Be able to break down the elements of a solid budget

– Understand the role of relationships in budgeting

– Define useful budgeting metrics

– Make it an exercise in common sense14

Skepticism in IT Budgets

Spring 2004 issue of the well-respected MIT Sloan Management Review had an article by Andrew McAfee on “Do You Have Too Much IT?” McAfee quotes a Morgan Stanley study that estimates that between 2000 and 2002, companies threw away $130 billion of the IT they’d purchased.

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Budget Principals

The IT budget should always aim to meet the strategic demands of the business

IT management must work with Commissioners and align the IT budget with the overall business strategy for the coming year.

IT budgets should focus on spending that helps employees serve customers more effectively and that makes the County more successful in some demonstrable way.

Imperative that IT managers recognize and treat IT budgeting as a process, and realize that enhancements to the IT budget process can produce significant rewards.

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What Undermines the Budgeting Process

Insufficient Time Ad-Hoc Perception Undefined Expectations Lengthy Expenditure Processes Past Over Budget/Under Budget History Lack of “Champions”

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Preparing for the Budget Process

Allow for sufficient time to plan the budget

Gather historical information that pertains to the budget and create a baseline from which to build

Identify IT goals for the budget period Develop a consolidated projects list Identify key costs and resource data Get buy-in from “Champions”

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IT Spending Levels

The results of recent Gartner surveys show that an enterprise in 2004 should assume that its IT budget will continue to grow, even with improved efficiencies in the back office. In addition to dramatic changes and improvement in business processes and e-business, IT investments will demand continuous upgrades to the technological infrastructure.

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IT Budget as a % of Revenue

Actual

1999

Actual

2001

Actual

2003

Actual

2005

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Budget Benchmarking Fact

As of today, 60 percent of IS organizations use external benchmarking - not IT spending statistics - as vehicles for spending-level justification. Ultimately, IT spending should be justified based on whether an IT organization's goals are aligned with those of the enterprise and whether those objectives are met.

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IT Budget Trends

Decline in hardware prices is having a direct relationship to the increased purchase of hardware. Processors and DASD will decline 30 percent a year, and maintenance costs will be relatively flat

Software continues to be an expensive part of an acquisition, and many enterprises are spending as much per year on software licenses as on the hardware configuration for its entire life span. Software prices will continue to increase 10 percent to 15 percent per year

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IT Budget Trends Cont.

In recent years, a significant trend in IT budgets has occurred. End-user support and help desk, as function line items, have moved from just 4 percent of the IS budget to 18 percent. This signifies that IT organizations now officially support their distributed computing environments instead of leaving end users to their own devices

IT organizations are outsourcing application maintenance and retraining the remaining staff around packages and add-on tools that will be implemented in the future. Increasingly, IT organizations will use selective outsourcing, not only to save money today, but to position the IT organization against future price increases

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Budget Distribution

Actual

1998

Actual

2000

Estimate

2002

Forecast

2005

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Budget by Activity

1998 2002 2004

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IT Activity Trends

For every $1 of discretionary spending (i.e., new projects and major enhancements), up to $5 is spent on support, maintenance and infrastructure during the life of an application

IT investment, which is often approved with "soft" justification business cases, is a permanent part of the enterprise planning process. Viewed alternatively, the 2002 Gartner survey showed that 32 percent of IT spending is for capital spending.

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IT Capital Budget

2002

1990 1996 2000 2010 1992 1998 2002

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Capital Budget Effects

Because IT has become a critical component of competitive performance, IT managers must build consensus with business managers to ensure that a steady stream of future capital funds are earmarked for infrastructure upgrade and maintenance

IT managers must ensure that County management understand multiyear funding commitments. As with other major new business process initiatives, a general guideline is that for every dollar of new investment, expect the life cycle costs to be four to five times as much as the investment. Example, for every $1 of e-business investment, expect to pay $.60 (60 cents) every year thereafter for the life of the system

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Justification

Justification is important because it provides a way to secure the commitment and cooperation of others. Cost justification persuades resource allocators that the cost of an item is justified by its benefits.

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Justification Cont.

The audience for cost justification consists of the individuals at whom the persuasive effort is directed -- some may be instrumental, others may be decision-makers. Sometimes the audience is one person; other times it is a number of people with different ideas and values.

Effective cost justification in this case may involve a number of different arguments based on quite different bits of evidence. It is important to select arguments that are consistent with the beliefs and values of the audience.

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Justification Cont.

The systematic assessment of costs and benefits and their comparison provides the basis for the persuasive power of cost justification. In considering these costs and benefits, one has to determine:

What costs and benefits are relevant? How these costs and benefits are defined,

compared, and demonstrated? Who incurs the expected costs? Who realizes the anticipated benefits?

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Persuasive Techniques

Analysis and reasoning - persuading through explanation with appeals to logic and rationality

Building coalitions - obtaining support of superiors, coworkers and subordinations

Appealing to higher authority - seeking support from those higher in the organization

Bargaining - proposing an exchange of something valued for support of others

Appealing to friendship - seeking support on the basis of existing friendship

Intimidation - seeking support through threats, coercion, and confrontations

Assertiveness - securing support through repeated assertions and reminders.

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Budget Arguments

One might cost justify a budget by arguing for an increase in the budget (changing past responses), or argue that current funding levels should be maintained (reinforcing existing responses), or that the needs of the clients require an increase in the budget sometime in the future (shaping new responses)

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Staged Approach

Define the need for budget justification and set some objectives

Analyze the audience for budget justification Assess which cost/benefit arguments would be

most relevant Present these arguments to the audience Evaluate the results

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Other Justification Techniques

Keep an ammunition file. with testimonials from users, quotes on time savings, and examples of specific projects undertaken for your clientele. Examples are powerful and hard to dredge up at last minute. Get in habit of asking clients -- "How effective was X?" It will provide evidence and is a good feedback practice

Keep performance figures. Know what it costs to perform certain functions and produce these facts at appropriate times

Quantify what you do as much as possible - Metrics. For example, it is easy to document an increasing level of certain types of support. Show the information graphically. Histograms or simple graphs can be powerful. Keep them simple and clear.

Distinguish between Fixed and Variable Costs. Many costs in some areas of IT are fixed, for example, personnel. Use this to show that a 10% reduction in budget would have a major negative effect on user support services but in similar manner, a relatively small increase can have a major positive effect.

Compare proposed budget with budget required to continue present level of service when taking inflation into account.

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• Support 55+ County Departments/Agencies

• Support over 2,800 PCs, 1000+ Peripherals, 115 Servers

• Support over 350 different Software Applications

• Maintain 2,350+ computer access accounts

• 13,118 Help Desk Calls/Work Orders in 2006; 12,766 in

2004

• Maintain 3,200+ active ports on County network

• Provide, manage and maintain 13 TBs of disk storage

space (13,000,000,000,000)

Sample IT Metrics

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• Perform 16,500+ system backups per year

• Installed 887 PCs 2006; 813 in 2005

• Ensure 99+% “uptime” of systems (99.68%-2005)

• Completed 1,975 data requests in 2005 that generated

$240,000+ in Revenue

• County web-site “hits” in 2006 – 30+ million

• Pay info web Site – 800,050 Inquiries in 2006; $145,000

in Revenue

• Processed 271 Info Technology Requests in 2006; 215

in 2005

Sample IT Metrics

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• Completed 58 IT projects in 2006;

53 in 2005

• 57 projects currently in process

• There are 35+ future, approved projects waiting in the

queue

• Integrated Court Management System implementation

• Extensive County web site upgrade based on new County

web standards

• Extensive GIS Software Migration taking 2

years

• VoIP

• Enterprise Document Imaging

IT Projects List

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IT also provides -

• E-mail, Internet, Intranet, Firewall, Antivirus, Spam Filtering, etc.

• Web Traffic Monitoring, Telephone/ Telecommunications Services and Address maintenance for 911

• Operation of two data centers, 24x7 service to Prison, Nursing Home, COAST, DES and others

•Ensure compliance with State and Federal Regulations (HIPAA, CHRIA, Others)

IT Services

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Tips to Controlling Budget

Resources – Staffing vs. contractorsProsKnowledge AugmentationSolves Inability to find resourcesGet going quickly; In and outValidationConsExpensive; need to manageKeep bringing backBuild dependency

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Resources – Staffing vs. contractors

Questions to AskUnacceptable PerformanceMinimum hours billed; travelMeasuring progressDocumentation deliverablesKnowledge transferNegotiate terminations/extensions upfrontOwnership of work produced

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Outsourcing ProsVendor is responsible for all or part for a priceVendor provides all required resources,

expertise and managementCounty management can focus on other areasCost-effective if in a stable/maintenance modeConsContractual interpretation differencesAdd-ons and extras can be very costlyHow do I get out early if need beOnce outsourced, costly to bring back in 42


Outsourcing Questions to askExactly what am I paying forHow are extras pricedWho in the county will manage/overseeWhat are the SLAs and deliverable metricsHow is performance measuredHow are issues resolved/escalatedHow do I get out of and ensure transition I own the dataWho owns any product developed 43


Hardware Cost Containment StandardsPolicies on useUsage and JustificationConfigure to do the job; scalabilityVolume procurement; ongoing costs Inventory and ManageMultiple Use and SharingReplacement StrategySecurity/Protection

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IT Cost Factors/Chargeback

Hosting Hardware Hosting Software Application Development Requirements Development Integration Call Center Security Network Operation Staffing Training Maintenance Staffing Other Expenses

• Budget?• Free?• Combination?

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Hardware Cost Containment Questions to ask Taking advantage of State, CCAP, PEPPM other

procurement vehicles Warranties and onsite repair/support Is it justified Is it overkill Can it be shared, swapped and/or serve multiple

needs Technology for technology sake Being properly managed

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Other/Innovative technologies Pros Reduce costs Enhance/streamline business processes;

efficiency Improve effectiveness, timeliness, accuracy,

accessibility Establishes a cultureCons Not proven in enough situations Growing pains and unknowns Learning curve Degree of risk 47


Other/Innovative technologies Questions to ask Ready to train resources in new technology Outside help needed Researched thoroughly; investigated successful

implementations – what will it really cost Aware of requirements to support Know what the issues are related to implementing

the new technology in your environment Will it reduce costs and/or achieve desired benefits

Afford to be on the bleeding edge; incur risk

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Leveraging Aggregate AgreementsPros Leverage Volume Pricing Additional Benefits; Support, education, etc. Fosters sharing of enhancements, knowledge, etc. Can significantly reduce up front, on-going, and

associated costs Cons Might be locked into something that may not be

desirable later Generally requires a long term commitment Might not deliver all the features you want 49


Leveraging Aggregate AgreementsQuestions to askHow will the agreement effect my overall costsCan/will we take advantage of the extra

benefitsDoes the agreement provide enough; can we

do betterYour direction vs. the direction of other

countiesCan we accept the terms Is it consistent with our IT plan

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• Involves IT department at the earliest point in the request process

• Provides the opportunity to partner with the requestor in determining the solution that meets the requestor’s requirements while conforming with County technology standards

• Provides for an Assessment Team comprised of a cross section of IT and departmental staff

• Ensures consideration of all development, implementation, and support factors

• Provides project justification as well as identification of total project and on-going maintenance/support cost information (ROI)

• Assists in IT budget planning

IT Request Process (ITR)

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• Ensures identification of funding source(s) and availability

• Allows IT department to share alternative solutions with requestors that may already exist

• Supports IT tactical planning

• Assists in project scheduling and just-in-time assignment of IT resources

• Provides for external approvals where required

• Solutions to ITR requests can be incorporated into County standards where appropriate

IT Request Process Cont.

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Why?

• Security and Integrity

• IT Asset Management

• Authority and Responsibility

• Service and Support

• Resource Utilization and Planning

• Best Practices Ensure Quality Results

IT Policies & Procedures

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SAMPLE POLICIES/PROCEDURES

• Security Form Policy

• Use of County Hardware/Disk Resources Policies

• Internet Usage Policy

• Administrative Rights Policy

• Network Attachment Policy

• Add/Delete Passwords, General Use Accounts

• Adding, Removing, Downloading Software

IT Policies & Procedures

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Why Standards?

• To enable the IT department to provide a consistent, high level of reliability and support to all users of the County’s computing resources and reduce costs

What Types?

• Hardware - Client PCs/Laptops; Printers and other Peripherals; Handheld and other digital devices

• Software - Enterprise and Departmental Software Applications

• Network/Telecommunications

IT Standards

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How Established and Maintained

• Hardware-Quarterly review by a team comprised of IT staff members, non-IT departmental users (when required). New items added as an end result of the ITR process

• Software-Review by the IT staff with input from selected non-IT users to create the initial standards list. New items added as an end result of the ITR process

• Network/Telecommunications-Updated as required by IT based on application, performance, security and other factors

IT Standards Cont.

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In Summary

Determining and justifying a budget depends on multiple factors. As part of the evaluation process, it is important to focus on the IT budget distribution by activity or function; reduce support, maintenance and infrastructure costs while allowing for infrastructure upgrades and maintenance as well as anticipate expenditures to achieve business competitiveness. Ultimately, IT spending should be the result of, and justified by, aligning an IT organization's goals with those of the enterprise

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In Closing

Departmental Goals/PlanOrganization’s Management PlanPrioritiesMetricsSupporting DocumentationWell Thought OutCommon Sense

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Questions?

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THANK YOU!

Have a great day!!!!Have a great day!!!!60