Budget reallocation core to conquering IT cost crunch

This is a guest post by Pete Wilson, general manager for Asia-Pacific at Apptio, based in Sydney.

We’ve started a new financial year with uncertainty among the only certainties in business. Although this might seem like cause for despair, there is opportunity amid ongoing economic headwinds and rising costs.

While Australian companies and their management teams can’t control the market, there are ample ways to plan for the future to both tackle financial headaches and mitigate the impacts of inflation.

The first instinct for many executives, CIOs and CFOs will be to tighten purse strings; they’ll cut back on technology spend and sweat existing assets – some past their ‘used by’ date – as a way to conserve funds for the rainy days ahead.

But making substantial cuts to technology budgets is short-sighted, and hampers years of progress to transform business for the digital economy in which it operates.

Gartner’s Stewart Buchanan notes: “In response to the current economic turmoil, organisations are using digital technology to realise operational efficiency and cost savings and to transform their company’s value proposition, revenue and client interactions. This means a steady IT budget is necessary to push these digital business initiatives forward”.

Rather than stripping away budget in the current planning cycle, greater emphasis must go to budget reallocation and agile planning cycles. After years of unchecked spend in response to the pandemic, supply chain issues and inflation, business chiefs need to unwind overspend to move funds strategically, and regularly revisit investment plans.

This starts with prioritising investments across ‘run’, ‘grow’ and ‘transform’ categories to identify projects that can be suspended or restructures to reduce operating costs and reallocate resources. Common areas that can be acted on immediately include oversubscribed software licenses that haven’t been reconciled, and telecommunications bills which remain bloated due to an excess of unused data and roaming charges.

In one example, an ASX-listed financial institution operating in the Asia-Pacific region told me it was able to cancel 1,200 unused or excess service numbers in the first 30 days of taking proactive steps in managing its IT spend.

Budget reallocation doesn’t stop with the technology itself. With staff shortages prolific, organisations need to evaluate internal and external resources and reallocate as needed to minimise disruption and to align workers to revised business strategies.

Better budgeting triggers IT finance transformation

Budget reallocation is cornerstone to evolving from smarter spending to the transformation of how IT is financed.

A large retailer operating in Australia implemented a cost optimisation model to supplement a significant cloud migration. From day one, it started to established visibility and financial governance over cloud expenditure to justify spend, validate budgets allocated towards projects, and ensure those investments were generating the best possible returns and preventing waste.

The process gave the company a framework that paved the way to a full IT finance transformation. SaaS (software-as-a-service)-based financial governance was extended to broader IT investments after the success of its cloud cost optimisation initiative, and it now has a taxonomy that delivers outcomes through consistent mechanisms that connect business value to all technology spend. Its IT, finance and business functions are now also unified, allowing it to adapt to change faster and in the most cost effective way, and deliver on its business strategy efficiently.

Avoid the waterfall

These methods for better budgeting and IT finance must go hand in hand with an agile mentality for annual planning; waterfall methodologies rarely cut it in the current economic and digital climate.

Analysing which baskets to put your eggs into requires timeboxing – based on two- to four-week increments schedules around financial quarters – alongside iterative analysis of outcomes and next steps, and responsiveness to allow for re-planning as strategies evolve.

These three factors combine to enable the funding of value streams or products within specific time frames, and ensure costs are actualised by effort completed or work performed across teams.

It’s impossible to predict when the current cost crunch will ease and to what extent, or how much it will worsen before a light finally appears at the end of the tunnel. This financial year is likely to spur dramatic changes to the way IT budgets are planned, however it doesn’t need to be a doom and gloom scenario; digital progress doesn’t need to come to a standstill. Through budget reallocation and more efficient planning cycles, organisations can continue their transformation initiatives and simultaneously see their investments drive strategy and business outcomes while avoiding funds being flushed away.

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