by Raghavan Rajaji

CXO PERSPECTIVES – How to Get Your Budget Approved

Apr 01, 20027 mins

The relationship between CIO and CFO can sometimes be a tenuous one. Not because of any generalized ill will on either part, and certainly not because of any great difference in overall objectives. Both roles, after all, are working for the success of the corporation. The trick is that CIOs and CFOs need something from each other, but they can’t always be certain they’ll get it. CIOs need the approval of their CFOs to get funding for IT investments, while CFOs need assurance that those investments will produce real business value for the company.

Naturally, the budget-approval process is where this all comes out. I’ve worked in the CFO role for almost 20 years, spanning three different corporations. Based on that experience, I can tell you that there are certain things I look for in a good budget, as well as red flags that make me think twice. Let me tell you how to get your budget approved.

Trouble Ahead?

In my opinion, IT budgets are no different from any other kind of budget. In today’s business environment, IT is no longer just overhead. It’s part and parcel of the business, so technology projects should be considered and analyzed the way all other business projects are, subject to the same rules and requirements.

That said, there are a few red flags that I look for in any budget, whether it comes from the CIO or the vice president of sales.

Half the story. There are few things more distressing to a CFO than being told up front about only part of the costs involved in a proposed project. The surprise ending comes later, when a bunch more money is suddenly needed to keep things going. For example, it’s not unusual to see a budget that includes the software and hardware costs of an IT project but not the additional costs for ongoing maintenance or consultants required to do the implementation. I saw this happen once in the context of a major ERP project. People underestimated the maintenance costs and did not mention them up front. Then, once we were in the thick of it, suddenly it came to light that we needed four additional people to maintain the system. That kind of thing does not make your average CFO happy. In addition, it means a loss of credibility for the CIO.

Far from average. Another thing I watch for is a request for a budget increase by some percentage that is dramatically different from the rate at which the overall business is growing. For example, if the company is growing at roughly 30 percent a year and someone requests a 200 percent budget increase, I do a double take. And it works the other way too?a request for just an inflation adjustment when the rest of the business is growing rapidly also makes me wonder. Not that either of those necessarily means there’s a problem, mind you?they just makes me want to look more closely.

Out of alignment. With all the emphasis on business alignment these days, you’d think there’d be nary an unaligned project proposed anymore. But it still happens. Someone may propose an investment that focuses on a low-priority part of the business, for example. The fact that he’s not aware of this priority suggests that he’s out of touch with the business.

Not all there. In addition to providing incomplete information about costs, budgets may fail to specify in enough detail considerations such as which organizational goals the proposed project will support and how, exactly, it will support them.

Vague plans. Every once in a while a CIO or other executive will submit a budget that uses some obscure statistic as a rationale for a budget increase. For example, he may have read somewhere that CIOs are expected to increase their spending by 18 percent in the next year, so he requests that same increase for his department without knowing what he’ll spend it on. That is not a good plan.

Hungry infrastructure. Finally, when it comes to funding infrastructure, I don’t want to see requests for much more than an inflation adjustment?unless, of course, there are major changes in the works.

Smooth Sailing

Now let me tell you about the budget proposal of my dreams. Not only is it free from the potential problems previously listed, but it also includes a couple additional touches that make my heart sing.

A fan club. First and foremost, I want to know that an IT budget has significant support from the business side. In fact, what I really love is to receive e-mails or other unsolicited expressions of support from key people on the business side telling me that the proposed IT project is critical. The strongest ones add that, if push comes to shove, they’d be willing to pitch in some of their own funds to make it happen. If I get a note like that, most of my hesitation disappears.

A CIO with credibility. I almost hate to say it, but I think I’d be remiss to leave it out: CFOs are human and, as such, we can’t help but take into account the credibility of the CIO when we look at an IT budget proposal. If the CIO has a history of submitting budgets plagued by the aforementioned problems, it makes us more likely to look closely at his next budget. (Same goes if he has picked unreliable technology vendors in the past; that is especially relevant now that so many dotcoms have failed.) If, on the other hand, he has consistent support from the business and his budgets are always detailed and well thought-out, chances are the next one will be too.

In short, if a CIO’s budget provides a complete, detailed picture and is aligned with business goals?as evidenced by support from line management?there’s usually little reason for concern. One of the best examples I’ve seen was a budget for a consolidated systems plan. It clearly supported one of the business’s objectives, which was to consolidate all functions; its priorities were well-defined; and it had the support of all the key organizational presidents. It simply left no room for doubt.

Make It Happen

Part of the CIO’s task in creating successful IT budget proposals is to make sure the I’s are dotted and the T’s are crossed. That aspect is simply a matter of taking the time to do it right.

What may not be so straightforward?though definitely no less critical?is making sure that you, your department and your proposed investments are aligned with the business. That depends to some extent on you and your understanding of business priorities, but there can also be factors at work that are beyond your control?namely, the culture of your organization and how much importance it places on IT. Are you treated as an equal by your business peers? Are you invited to play golf with them at the company outing? If not, either you’re out of touch with the business or the business doesn’t yet realize the strategic value of IT. It’s up to you to figure out which of these is the case and then do what needs to be done.