4 Tips for Modern IT Budget Planning

 

These days, companies face unprecedented challenges when it comes to sustainable, future-proof IT budget planning. Financial controllers and IT experts are meant to analyze the current demand and figure out where it is possible to cut costs. However, merely cutting costs for IT and other services might not be enough and can, in fact, cause long-term problems. After all, budget planning is more than a mere exercise in forcefully driving down costs and much rather an opportunity to make promising investments. Here are 4 tips to get your IT budget planning ready for any crisis and still take advantage of these opportunities.

 

1. User-centric IT budget planning software

One of the biggest hurdles of budget planning is the sheer hassle it can be. Many companies – even midsized and large ones – still manage their IT budgets with Excel and similar spreadsheets. Mistakes can very easily be made here, especially when more than one person works on the same data sets.

You need to rethink IT budgeting: There are numerous holistic, quite clever tools that facilitate calculations and automate workflows to deliver reliable, error-free results. However, when choosing a software for your IT financial management there are a few criteria you should keep in mind:

 

User acceptance

Make sure that you pick a user-friendly tool. After all, the tool must work for the user and not the other way around. High usability is a good indicator that you made the right choice with your ITFM solution. Another key factor: While the software should get rid of the weaknesses of Excel, it should still offer a similar interface, to make it easier for new users to adjust.

 

Automation and standardization

An ITFM tool only really shines in your IT budgeting if it can manage simple and recurring tasks in a standardized and automated manner. Especially in budget planning, these monotonous work steps cost a lot of time and avoidable effort and therefore are therefor the perfect venue for streamlining.

 

Quality-of-Life Features

If your ITFM solution offers special functionalities – e.g. easily pasting in complex side calculations or flexibly making comments – budget planning becomes a whole lot easier. However, it is important, that using these features does not put data integrity at risk.

 

Complete revision safety

Every ITFM tool should provide transparent and comprehensible protocols as well as audit-proof archival. All files should be saved in a central database, from which they can be accessed, analyzed, and restored independent of file version.

 

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2. Reverse IT budget planning

At the end of IT budget planning there often is one big problem left: The budget has been allocated to different cost centers and projects, but there are still demand items left that could not be funded. Decision makers in IT finance are often forced to make uncomfortable prioritizations with the IT budget, which often leads to promising growth projects being neglected.

This is where reverse planning can be of use. Instead of just allocating the budget from the top down, you start with the demand of the business units and departments, including operative services for running the business as well as business change and innovation projects. From here, you calculate backwards towards a realistic budget suggestion that would ideally cover all primary costs for all business units and other demands. Modern ITFM tools can do such reverse planning calculations automatically, thereby saving weeks or even months for IT controllers and cost center owners.

 

3. IT budget planning with scenarios

Scenario planning is a particularly helpful tool for the optimization of your IT budgeting. You start by taking an existing budget plan – this can either be a completely new calculation or a plan from a preceding budget cycle – and create numerous derivative planning scenarios from there. Within these derivative scenarios, you can adjust single or multiple factors that might impact your budget planning: e.g. changing unit costs, increasing demand, or shifting of services into the cloud. You can use the information gained from these planning scenarios to make smarter decisions for the coming budgeting cycle. Furthermore, this practice will significantly improve planned/actual comparisons. Especially in more uncertain times, this can be a powerful tool to prepare you for all coming challenges.

 

4. Target Costing – Get closer to your budget planning goals

Financial managers – especially the higher ups like CFOs – are always looking for new venues to keep costs lower. But this often brings about uncomfortable budget cuts, especially in IT. Adjusting your budget towards specific cost targets is generally easier said than done.

A target costing approach can remedy this issue. Based on market prices and benchmarks, you define certain cost expectations or target costs for your services. Afterwards, all the different factors that would impact these costs are analyzed and calculated: How would demand need to change? How would you need to adjust primary costs? How can we remain competitive compared to benchmarks? Thorough target costing (which works especially well paired with the abovementioned planning scenarios) will enable you to readjust the pricing of your services closer to your target costs.

 

Conclusion

In theory, all of these tips for improving your IT budget planning seem intuitively correct. However, whether implementation works is dependent on your processes. As mentioned earlier, budgeting is still often done with error-prone Excel sheets and a severe lack of data integrity, making necessary improvements and targeted streamlining difficult to realize.

 

A specialized tool for IT financial management can help you ease that burden. Serviceware Financial offers features covering all the aspects of IT budget planning mentioned here and can support you with the automation and digitization of all financial management processes for IT and shared services.

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