Behind Closed Doors: What the Dickens does your budget look like?

Are you an Oliver Twist or a Fagin? Neither approach is effective for getting your company to stump up the cash, and worse, it...

Are you an Oliver Twist or a Fagin? Neither approach is effective for getting your company to stump up the cash, and worse, it doesn't single you out as a professional. Colin Beveridge insists there is no need for this behaviour, because accounting is as easy as ABC - honest.

There are always at least two sides to each story and managing the IT budget is no exception.

Perhaps when you get involved in the budget preparation process you feel like Oliver Twist, a pathetic creature holding out an empty bowl and plaintively whispering: "Please, Sir, I'd like some more."

Meanwhile, your colleagues in the other business units may see you as being more like a Fagin - out to rob them blind, aided and abetted by a faithful band of scruffy young pickpockets.

Ah well, I suppose that's quite a natural reaction to the way that many IT budgets have been prepared in the past, distorted by smoke and mirrors, without any apparent direct relationship to the rest of the business.

In my experience, far too many IT departments have based their financial planning on a totally unsustainable basis, such as, "what it cost last year - plus or minus a bit"

I am not saying that these budgets were little better than a finger in the air approach, but they hardly added to our credibility as professional managers, especially when we built in that essential "fudge" factor - contingency.

Sure, nobody definitely knows what will happen tomorrow, next week, or next month, so we have to put a bit extra into the kitty for unexpected events. But sometimes the contingency in an IT budget can reach substantial proportions, particularly during the first planning round.

Budgets are often more a game than a discipline
Like compound interest, contingency rapidly accumulates as the budget bubbles up through the hierarchy - each manager adds their own fudge factor to those of their direct reports' estimates.

Pretty soon, if not managed properly, it becomes impossible to drill down to genuine figures and the whole exercise becomes more of a game than a discipline.

At this point, perhaps I ought to play devil's advocate for a moment by observing that if I had really wanted to spend most of my working life looking at budget numbers, I would have become an accountant and not a technology professional.

Fair comment? Well, yes and no.

Yes, serious financial planning is a specialised discipline and best left to those qualified to deal with it properly. But no, we cannot completely abrogate our responsibility and expect the beancounters to make sense out of our uncertainty, without some help from us.

Of course, nowadays it is absolutely impossible to run an IT function of any real size without backup from a very good management accountant, someone who fully understands what's driving the business and how things are going.

This is an area where far too many IT managers are exposed because they do not always have the necessary background or understand the benefits of a commercial approach to running their departments.

While the technical development of our staff famously suffers from a scattergun, hit-and-miss approach, when it comes to basic accounting principles it is absolutely non-existent.

No wonder, then, that many of our IT budgets could all be regarded as works of fiction that do not sustain an effective challenge from a hard-nosed finance function.

The need for financial training
The answer, I believe, is to improve the quality of basic financial training given to our technology resource managers. This is such a no-brainer that I fail to understand why it doesn't happen already. But, from my own travels, I know that it doesn't.

The fact is that many IT functions are flying blind - they do not understand what is really driving their budget, what the scaling factors are and, sometimes, what the outcome will be at the end of the year.

And yet we are supposed to be responsible for husbanding the precious resources of our organisation, both in terms of personnel and expenditure?

I must admit that I was very lucky, despite the fact that, like most upcoming IT managers, nobody actually took the trouble to invest in financial training for me.

My good fortune came about quite accidentally by getting involved ten years ago with a client's project to apply activity-based costing (ABC) methods to their business. The more I became exposed to this different approach to what some now call TCA (traditional cost accounting), the more I recognised a vital tool for IT management.

ABC is, quite simply, the best way I know to manage IT budgets, even in companies that don't practise this generally. Some of you may have already come across this jewel but, for those of you that are new to this subject,

I can't recommend too strongly that you do some research and see for yourself how this technique can help your own budget forecasting to become truly resilient.

Believe me, by converting your cost modelling to ABC, you will have taken the first essential step towards real control of your IT budget. Of course, this is not a trivial exercise; it will take quite an effort on your part to analyse your own circumstances and to create an effective cost model.

The power of an accurate cost model
Even with the best will in the world, it will probably take you somewhere between three and six months to make a serious inroad, but the benefits will quickly justify the sweat as you identify more and more unexpected facets of what is actually driving your department's costs.

Once you have an accurate cost model that reflects your day-to-day operations, you will find yourself with an extremely powerful medium for cost control - and for seriously discussing IT costs with your customers, be they internal or external.

Possibly, for the first time, you will be able to communicate directly and confidently exactly where their IT budget goes and to discuss honestly with them opportunities for further investment, or the potential for cost savings.
You will have eliminated the need for fudge factors because your costings will be based on real, hard facts, not finger in the air guestimates.

Your managerial professionalism and reputation will be enhanced as you show everybody that you are in full control, with your finger firmly on the pulse of the business.

You will no longer be seen as the Oliver Twist, or Fagin of the data centre and, what's more, nobody will be able to point the finger at you and accuse you of imitating that other great Dickensian character, Mr Micawber - always waiting for something to turn up - because you will have got on and done something about it!
Thanks for your time.

Time to own up
Were you ever trained how to make a budget presentation? Let us know with an e-mail >>. reserves the right to edit and publish answers on the Web site. Please state if your answer is not for publication.

Colin Beveridge is an interim executive who has held top-level roles in IT strategy, development services and support. His travels along the blue-chip highway have taken him to a clutch of leading corporations, including Shell, BP, ICI, DHL and Powergen.

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