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Subject: Information Technology Budgeting

Tutorial: What Every Manager Needs To Know About Budgeting


Five Facts Every Manager Should Know About Budgeting

Fact 5:  What IT Managers Don’t Know About Budgeting Can Hurt The IT Organization

Earlier, we discussed the notion that IT managers and staff often don’t consider budgeting as part of their job and mistakenly believe that it’s just a numbers game. CIOs and senior IT managers often don’t know how damaging these notions can be if not corrected; many times, the consequence is that the IT organization absorbs significant costs that should be borne by users (remember, budgets are limited and budgeting is competitive - if the CIO "eats" costs that should be borne by others, there is less money for the CIO to spend to meet priority needs).

Here are three examples to illustrate the point that ignorance of budget realities can be costly for the IT organization:

  1. It’s Free!
  2. They wouldn’t want it if they had to pay for it!
  3. What balloon payment?

In each illustration, the IT managers and staff acted with good intention; yet, the consequences of their ignorance of budget realities cost the IT organization dearly in terms of budget resources and credibility with senior and end-user management.

1. It’s Free!

An IT manager developed a prototype in-house application for internal redistribution of financial market data (i.e., financial information services that can cost thousands of dollars per month per user) as a substitute for individual accounts with data vendors. Early in the process, the IT manager sold the idea to business users by telling them to use the redistributed data because "it’s free". Understandably, the users quickly embraced free services in lieu of expensive paid services.

Although the services were being delivered to users without charge, they were hardly free. Vendors began to bill the IT organization for each redistributed service user; the CIOs budget absorbed much of the initial cost before she was compelled to approach users with the bad news that it wasn’t "free" after all.

What Every Manager Needs To Know About Budgeting, Lesson 13 of 14

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