A Practical Guide to Reducing IT Costs by Anita Cassidy and Dan Cassidy, J. Ross
Publising 2010 ;
Extracted from DePaul 24x7 ebooks for classroom use.
Chapter 2: The Budgeting Process
Budgets are a key management tool for all areas of a business. Understanding the budget and the
budgeting process is critical before tackling cost reductions. Successfully managing IT requires more than
an average level of sophistication and knowledge of budgeting. Often, IT has one of the largest budgets in
an organization, particularly one of the highest overhead budgets. In times of economic pressure, the IT
budget comes under significant scrutiny. Budgeting for IT is more challenging because IT is a service
organization that pays for tools and items used not only by IT itself but by the entire enterprise.
This chapter assumes that IT management understands budgets, how they work, and knows basic
financial terminology. However, it is equally important to understand the nuances of the budgeting
process, your company's culture relative to budgets, and the politics surrounding the budgeting approval
process. Whether you are unfamiliar with the budgeting process or you have been through IT budgeting in
the past, the following tips and practical advice will help to get your budget approved. The following areas
This section provides an overall understanding of the operating budget, operating costs
versus capital costs, and managing to the budget.
This section reviews popular options, such as zero based budgeting,
purchasing versus capital or operating leases, and charging back IT costs.
The budgeting process provides an excellent educational tool for the
organization because you will be able to communicate the IT environment and direction. This
section discusses the importance of your relationship with Finance and the CFO, and outlines
how you can minimize surprises or assumptions that hurt your credibility. It is important to
communicate the IT budget in business terms. The budgeting process is much easier if it is
supported by effective communication of strategic planning
, business alignment, the impact of
budget cuts, and governance.
Keep the budgeting process in perspective.
Understand the Operating Budget
Operating budgets are a concrete statement of plans relative to costs. As IT does not generally produce
income or revenue, IT budgets forecast the purpose, amount and timing of projects, and operational
spending. If you are new to the budgeting process, study the previous year's budget several months
before your company's budgeting process begins. The single most important thing for you to do is to
understand the details of your budget and know your costs. Each company has slightly different budget
categories or line items, but Figure 2-1 outlines some of the categories you might find in your operating