Next year looms as a tough budget cycle for most CIOs. In the private sector, corporate revenues are showing little growth with a weak economic recovery and corporate profits remaining under pressure despite some recoveries this year. In the public sector, tax revenues are down and state and local governments are struggling to balance budgets after several years of surplus. In this environment, most CIOs will be expected to show flat or lower IT budgets for 2003. CIOs will be under even more pressure than usual to justify and defend their IT budgets. Giga has been receiving calls from CIOs about benchmarks they can use to show that IT budgets are in line with or lower than industry peers. Generally, IT budget benchmarking is a misleading and potentially dangerous practice. Still, CIOs do need to have effective arguments to justify and defend their proposed budgets - and in this article we will provide advice on how to do so.
Justifying the Budget: Three Components
The first step in justifying an IT budget is to recognize that it typically has three components (see Figure 1):
Breaking the IT budget into these three components is a critical first step in any justification effort. Why? Because each component will have different kinds of justifications - and there should be different constituencies within the enterprise that should make the arguments for why this IT spending is important.
In the first category, the CIO will be the one making the justification. Moreover, the size of this component should almost always be flat or lower than the previous year unless there have been major one-time events (like an acquisition or merger, or the final implementation of a new enterprise resource planning (ERPERP) system) that have shifted the cost base for current IT operations higher. This is one part of the IT budget where benchmarking may make sense - though more to identify potential areas where costs may be too high than to set arbitrary targets for where the IT budget should be. There can be many reasons why comparable companies may have different relative costs of operating the IT infrastructure, such as differences in number of employees (which impacts the cost of supporting and maintaining employee PCs or the number of user seat licenses for a human resources management system), differences in geographic scope or the age of the IT infrastructure. Alles zu ERP auf CIO.de