Ease the Pain of Your Budget Presentation

It’s the CIO’s green mile—that long walk to the annual budget meeting, where you try to justify the ever-escalating cost of ongoing IT operations to a jaded senior executive team. In preparation for the meeting, you toiled over the numbers, pared them to the bone and tried to make them understandable in a bunch of three-color charts. But during your presentation, no matter what you say, the CFO and other executives act like you are holding them hostage. The meeting ends (finally), and you get an amount you can live with (barely). Thank God it’s over—for now.

The cost of “lights on” IT—including computer operations, networking, customer support and mandatory maintenance—is a huge part of the IT spend, often 60 percent to 80 percent of the total. Truth be told, you don’t quite feel on top of these expenditures and you experience more than just a little guilt as you walk the annual green mile. But you have your hands busy managing projects and keeping operations stable and customers happy—where would you find the time to dig into that great morass?

It’s difficult, but I think you can do it. At some point (which could come sooner rather than later in this economy), you will be asked to cut your expenses or hold them flat while delivering new technical capabilities. To avoid finding an electric chair at the end of the green mile (as in the Stephen King novel and the film of the same name), try some of these tactics.

Mandate productivity improvements. Tell your direct reports that they will have to deliver productivity improvements of 5 percent to 10 percent year-in and year-out. Make sure they know their “lights on” costs and productivity targets—in dollars—and build the targets into their performance objectives.

Institute monthly forecasting. You can avoid unpleasant surprises by getting a firm grip on spending that you’re committed to. Require regular forecasts from your IT staff and explanations for the differences between expected numbers and actuals.

Track your costs. Your IT managers should understand and measure the primary cost drivers within their areas of responsibility. They should pinpoint where Pareto’s Law is located in their numbers—for example, which 20 percent of the applications, help desk calls or technologies suck up 80 percent of IT costs? Once that is understood, your staff should identify the drivers of those costs (for instance, the number of help desk calls resolved during the first call) and track improvement over time.

Reject bad money. Don’t accept funding for new IT projects unless the powers-that-be understand the total cost of ownership and have committed to see the projects through. Sticker shock on software maintenance combined with lingering questions about the business value of IT projects have placed many a CIO in the doghouse. Get your CFO to cap funding for enhancements and divvy up the money by business unit or function. This token mechanism will help ensure that business units prioritize enhancements (which usually have marginal returns), and in turn, it will limit your overhead of managing a multitude of smaller initiatives.

Convert fixed costs to variable. There are few things more aggravating than paying for capacity when you don’t need it. If you are running multiple help desks, data centers, network operations centers, software maintenance groups, servers, storage devices and so on, consolidate them and outsource to gain critical mass and leverage your spending. Rather than automatically filling open positions, try to fill only strategic jobs. Establish flexible staffing arrangements so that your capacity and costs can vary with demand.

Push standards. Technology standards reduce costs and make your job easier. If your organization loves standards and has lots of them, you can build a nice business case on the use of standards to lower support costs and improve pricing. When it comes to refreshing your software, don’t be victimized by vendors’ release plans—hold on to old versions until your technical people break a sweat.

Charge for variable services. Remember that if the price is zero, demand is infinite. Charge for the services where you can truly influence demand (as opposed to the classic mainframe allocation), such as PCs, telecommunications and moves/ adds/changes.

Apart from serving cocktails, you can do nothing to make the annual budgeting process a pleasant experience. But as an ex-CFO, I can guarantee that a bunch of three-color graphs showing a steady decrease in the cost per unit of IT operations will make the walk to the budget meeting more like a walk in the park.