by Stewart Deck

Memo from the CFO: Strategies to Survive Budget Meetings

Jan 01, 200112 mins

Reader ROI

Learn what works in budget presentationsn Understand what CFOs are looking for in project proposals

See what can hurt a project’s chances for approval

Scene I: The boardroom of GiantGeopolis, where a budget-finalizing meeting has just begun. n Dan, the CIO, stands to give his proposed budget presentation. He’s wearing khakis, a white shirt, a striped tie and comfortable brown shoes. His confidence is almost palpable as he sets up his flip charts and passes schematic diagrams around the table. He launches into a wonderfully detailed explanation that ties increased network bandwidth requirements with telecommunications infrastructure. Half an hour later the budget for his proposed infrastructure and new projects has been unceremoniously slashed. He sits down quietly. n Scene II: The boardroom of HugeWorld Corp., where a similar budget meeting has started. n Matthew, the CIO, stands. He’s wearing khakis, a blue shirt, a flowered tie and brown loafers. Instead of setting up flip charts, he passes around a one-sheet summary of his budget figures to those around the table. Fifteen minutes later, Matthew’s proposed budget, almost identical to Dan’s, has been approved down to the penny. n Where did Dan go wrong? And what’s Matthew’s secret to success? The flowered tie? It has to be the shoes, right? n What Matthew really has going for him is an insight as to what his CFO and CEO want in this kind of meeting.

He learned how to talk about how the company’s IT strategy fits into its business strategy, how to clarify what the return is on infrastructure investments, how to prepare the other business leaders for his pitch and how not to overwhelm his audience with details. And Matthew sounds like a CFO’s dream because he actually is just that—he’s the model CIO whom CFOs would build if they could pour their wishes into his creation. To find out everything Matthew knows, comb through the prescriptions used to build him—and learn how to prepare budgets and project plans that will win the CFO’s stamp of approval.

Say It Out Loud and Say

It in Writing

Start with a plan. It sounds simple, but CFOs really want to know that their technology compatriots have a guiding vision when they’re asking for project and budget funding. A recent survey taken by Financial Executives International (FEI)—a Morristown, N.J.-based professional association for senior financial executives—shows that CFOs are often left in the dark when it comes to IT plans. “Less than half of the companies we polled have no written strategic plans for IT and that includes a significant number of companies with sales of $5 billion or more. That’s a major hurdle in managing IT effectively, particularly in large enterprises,” says Dewey Norton, a member of FEI’s Committee on Finance and Information Technology and the vice president of finance at Ricon Corp., a Panorama City, Calif.-based maker of accessibility products for the disabled. If the CIO doesn’t have a written plan and can’t clearly explain what that plan is, then the finance folks will wonder whether they’re being asked to throw money willy-nilly at one new idea after another.

What CFOs want to hear are budget figures related to an IT strategy that shows ongoing, predictable IT costs and new investments that will push the strategy forward while meshing with the overall business goals. “I want to hear what basic hardware, software and contractor expenses we’re facing and how those expenditures will either improve our efficiency, lower our overhead or enhance our product offerings,” says David Dahm, the nine-year CFO and interim president and CEO at LeasePlan USA, an Atlanta-based provider of fleet management services.

Clearly explaining what you want and why you want it isn’t quite enough; the other executives want to know how IT budgets and strategies tie into corporate plans and goals. They want to hear specifically how IT plans will help achieve sales growth, strengthen cash flow, improve product quality or enable e-commerce. “CIOs need to develop project plans that have a clear tie-in to the corporate strategy and show how those plans together will move the company forward,” says Norton. And moving the company forward will require thoughtful attention to what technology pieces are needed to do that. “I’d want to see a tight budget for those fixed infrastructure costs, but I’d also want to see sufficient resources being applied to drive the overall strategy,” says Laurie Tugman, CFO at Marsulex, a Toronto-based provider of outsourced environmental compliance services. “I like to see [the CIO give] an assessment as to where our company is relative to new technology and new systems on the market and tying that into the needed resources to drive our business strategy,” adds Tugman, who is also a member of the FEI committee.

Strategic planning extends beyond a single fiscal year too. Few IT projects have a single year duration, so CFOs will be looking for an explanation of how the current budget requests and plans reflect the overall scope of a project.

Return to Spender

Everyone wants to know the returns they’ll get for what they spend. “CIOs must have a good understanding and be able to clearly explain the ROI on their projects,” advises Steve Kupres, an 11-year CFO with RDA Corp., a Baltimore-based custom software application developer. “We provide processes and ROI for our clients, so we expect the same from our CIO.”

Dahm puts it more bluntly. “I don’t want to throw money out the door if there isn’t a solid payback.”

One key about these budgeting fundamentals is that they remain constant across the business world, even as a particular industry undergoes important changes. Dave Blake, the CIO at Conectiv—a Wilmington, Del.-based utility resulting from the 1998 merger of Atlantic Energy and Delmarva Power & Light Co.—has seen plenty of changes in the power industry (including deregulation). But in his three-year tenure as CIO, the need to demonstrate ROI in the project and budget-approval process has remained fairly constant. “We do our homework to demonstrate return,” he says. “It’s pretty straightforward; I ask for money on the basis of either saving money or increasing business. If we can’t demonstrate productivity improvements even with infrastructure investments, then it’s pretty hard to justify our request.”

Calculating the return on investment for new projects can be a fairly straightforward task because the estimated cost of the project can be sorted out along with the estimated payback. But figuring the ROI on basic infrastructure expenditures can be a lot trickier. Since the financial returns aren’t quickly identifiable for certain projects, CFOs say CIOs should focus their efforts on explaining how investments in infrastructure—network bandwidth, e-mail servers, telecommunications systems or even workstations, for example—will benefit the company.

Effective CIOs explain how upgrades will pay off in improved employee productivity, better transaction capabilities or faster communication with customers. When quantifiable results aren’t apparent, a CIO can show how something like network and e-mail reliability is vital for the company to function smoothly. CFOs were once focused on cutting costs wherever they could, says Norton, but now “they’re moving away from saying, ’How will this reduce our out-of-pocket costs?’ to ’How will this impact our customers’ experiences on our website?’ which may mean a whole lot more to the future of the company than reducing three clerks in accounting.”

A dose of competitive intelligence can also prove valuable in explaining the benefits of IT investments. Dave Bush is an old hand at presenting budgets, having done so for 14 years as CIO at LeasePlan USA. When his IT project plans don’t have clear investment returns, he offers a competitive benefit analysis to his financial overseers. “Recently we had an e-business-to-business system that we couldn’t ’dollar and cents’ the investment return on,” Bush recalls, “so we tried to show how it would affect our business if we didn’t do it. This approach worked, and the project was accepted.”

One way to justify infrastructure spending is to provide a study of how your company’s costs per fiscal quarter compare to similar spending across your industry. Another way to handle upgrade and infrastructure costs is to show the increased costs of maintaining equipment more than 3 years old or how much productivity is lost because of the technology’s age. “Most systems people will want to follow standards that are well-established in the systems community, and the CIO needs to use these types of explanations to help us understand why this is accepted,” says Tugman.

CFOs will also be listening for costs beyond the upgrade. They will want to hear about training costs associated with upgrades and what impact the infrastructure investments will have on current hardware and network structure. If you can show how the upgrade is the foundation for a future project (an on-the-drawing-board e-commerce plan, for example) then its necessity will be more easily accepted.

Prepared, not Over-Prepared

“In budget meetings I’m praying I don’t have to look at diagrams or have endless discussions about redundancy,” says Kupres. “If there’s a discussion about a new project or new technology, I want to hear what we’ll get out of it, not diagrams and esoteric discussions. Those are killers.”

In the excitement of formal budget and project presentations, it can be tempting to provide each detail and explain every technical nuance. Don’t do it. The bottom line is in the hands of people who want to know the significance of what you’re asking for, but they don’t want a lesson in how it works.

LeasePlan’s Dahm says, “The CIO has to show he understands the day-to-day activities of the business and how systems will be used rather than how they work.” In talking to the finance chief, a CEO doesn’t want a recitation of national accounting standards. “He wants a clear explanation of what I’m talking about. That’s what I’m looking for from the CIO,” Norton adds. “If the CIO is describing a new long-term project, I want to hear about the project manager who will ensure it comes in on time and on budget. I also want to hear about training expenses and commitment to staff training. In my experience when training is part of the plan, new technology has a far better chance of being accepted by users and working the way it was intended to.”

This isn’t to say that a CIO shouldn’t be ready with details or that technical discussions should never take place. Months before final budget sessions, the CIO should be meeting, both formally and informally, with the CFO, the CEO and the COO to go over technology specs, plans and explanations. The more of this type of early groundwork the CIO does, the easier time he’ll have in final project and budget proposal presentations. “If you don’t spend the time to lay the groundwork, you’ll be in big-time trouble,” says Norton.

Provide Perspective

Sometimes executives do want more details, particularly when they’re presented with a proposal with several technology components. Again, such a plan shouldn’t come out of the blue and should be well-discussed beforehand, but, even given all that, when it comes down to final presentation many CFOs want some perspective about the components. Are they buying Rolls-Royce parts or Honda parts? Is the system or upgrade more than they need? “The nontech person wonders what’s under the hood,” says Kupres, “so it’s smart for the CIO to provide alternatives and recommendations.”

It’s also smart to provide the risk factors associated with proposals. Since CFOs are well-known for their almost-obsessive desire to provide contingency plans, they’ll welcome a discussion about risk factors and won’t feel like something is being hidden from them. So let them know if you have concerns about a complicated implementation or a key vendor. “I’d much rather hear up front about how expensive data preparation and cleansing [for a data warehousing project] might be than be surprised later on,” says Norton.

A CIO can come into a budget session with a good name and leave with a sullied reputation if he loses the trust of the finance group. “We’re all in this pulling and working together, so if a CIO tried to put something over on us it would be very unfortunate,” says Norton. Not explaining the potential pitfalls of a project, overselling the benefits of a plan mostly to gain the experience from a new installation or underestimating peripheral system costs to get a project approved will all come back to haunt an injudicious CIO. “We count on each other’s credibility,” agrees Kupres.

A CIO wants to ensure a smooth budget process by anticipating the potholes, preparing his colleagues with enough background data to keep them well-informed. LeasePlan’s Bush has the guidelines down pat. “Be straightforward. Don’t talk technical details. Don’t try to kid anyone. And if the project isn’t approved, don’t blame anyone else.”