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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 (cont'd)

2. They Wouldn’t Want It If They Had To Pay For It!

An IT manager arranged to provide a research service to three business units; the IT organization’s budget funded the annual costs of approximately $75,000. Several years passed; improvements in the budget process enabled the CIO to isolate this charge and question its purpose.

The CIO wanted to know why the money was coming out of his budget instead of the users’ budgets. His manager’s response was "It’s our job to give user’s what they want; and, they want this service. They wouldn’t want it if they had to pay for it!"

The IT manager’s posture was "we all work for the same organization; what difference does it make whose budget the money comes out’s just a number". The CIO recognized that this expense (which had no monetary value to the people who used it) would have paid for one of the additional network engineers that the organization desperately needed but could not afford - there was not enough money in the budget.

3. What Balloon Payment?

During budget preparation, the CIO noted an $800,000 request to cover the cost of the last year of a multi-year software license agreement. The CIO recalled that the project manager had told him, and senior management, that this license arrangement was the most cost-effective option; it would cost only $200,000 a year, far less than the alternatives. That is what sold them on the option.

When asked why he was requesting $800,000, instead of $200,000, the manager replied "the license still only costs $200,000, the extra $600,000 is just the balloon payment...." "What balloon payment?" was the CIOs response.

Feeling that they had been mislead by IT management regarding the true cost of the license, end-user management refused to fund more than $200,000; the CIOs budget absorbed the remaining $600,000.

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

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