As an effective leader, you will know that asking the right questions is often the key to getting the right results. To aid identifying if your IT budget is fit for purpose we have detailed below 4 key questions to ask your IT leader.
Setting your IT budgets is an important part of what an IT Director does, but often budgets are focused only on line items such as hardware, software, security etc. However, there’s a bigger story here. We need to understand the rationale not only for how technology investments are supporting and driving the business now but also to understand the growth and transformation costs needed in the future.
Often, budgeting for growth is guessed or a percentage simply added as the IT Director may not know what projects are going to come in the future. Therefore, it is key to have a business plan to allow future technology investment to be estimated.
So when you’re presented with the IT budget ask these 4 questions:
- Are we balancing the RUN costs against the GROWTH costs against the TRANSFORMATION cost?
- How does our technology benchmark within the industry?
- Does the business growth plan align to IT spend?
- Are we managing technical debt?
Roughly, the business RGT (run, growth, transformation) cost should equal the total IT costs. Technology costs can be defined as expenses associated with the development, acquisition, implementation, deployment, maintenance of technology assets that includes depreciation and amortisation.
Balancing RGT
RUN COSTS
Operational technology running costs differ greatly between businesses but are typically broken down into the following areas.
- Staff and Talent
- IT Infrastructure & Hardware
- Security and Compliance
- Software and Application Maintenance
Note that the above list is very high level and can be broken down further to include recurring costs such as licencing and non-recurring costs such as training courses and so on.
GROWTH COSTS
Once we understand the Run Costs, there is also a Growth cost to take into account. As things grow, things often need to change. This may include things such as more infrastructure to support new buildings or more licences for more people.
To work out the budget we need to set appropriate expected “Growth Rates” based on what’s happening in the business.
TRANSFORMATION COSTS
Finally, there is a Transformation Cost. This would typically include the implementation of new systems or infrastructure such as a new CRM or ERP or remote working facilities etc.
RUN COSTS against GROWTH COSTS against TRANSFORMATION COSTS
- How does our technology benchmark within the industry?
To prevent falling behind your competition, each system, user and customer journey should be mapped against others in the industry. - Does the business growth plan align to IT spend?
- Are we managing technical debt?
When looking at your costs, you should also consider technical debt. As things get older they often cost more to support, so the management of technical debt costs are extremely important to account for.
There is likely to be an ever increasing run cost.
How does our technology compare within the industry?
To prevent being left behind your competitors, your IT leader should be aligning the technology you use, at the very least, with what is standard within your industry.
Does the business growth plan align with IT spend?
If not, ask why. It maybe that your technology has been historically implemented in a scalable way resulting in more manoeuvrability and less spend needed now to implement new things. It could also be that your growth plans do not need technology (but if they don’t you should also be asking why). In any event, it’s prudent to have a full understanding of how your technology is aligned with your business.
Are you managing your technical debt?
Not keeping your system up to date will cause your business to get into a downward spiral which can be very costly to recover from. By actively managing your technical debt you will properly understand the cost of ownership and operation and minimise any big surprises within your IT budgets. Many IT systems are not designed to be scalable and will not be fit for purpose when you grow or change how you do things. Ensure that your systems have a growth buffer to allow for business growth.
When changing, upgrading or altering your systems you will naturally be focused on functionality and features which are necessary for any system but there are a few things which are often not taken into account and by accounting for these at the beginning will lessen the future cost impact.
- Supportability – Are your systems supported? Using Microsoft Windows ’97, for example, will mean you are susceptible to many security flaws and be missing out on new functionality which would help your business perform better. In this case Microsoft do not support it any more and any problems you have will not be able to be patched by them resulting in you having to replace entire solutions.
- Scalability – Wherever possible, ensure your systems are scalable. It is common that systems are implemented for a particular demand without any thought for future growth. Scalability of technology is often assumed in businesses but sometimes just adding more of what you have is not possible and could result in having to replace entire systems.
- Security – Always think about security. It is commonly ignored.
