Wednesday 27 January 2010

5 tips for more strategic budgeting

With the end of the financial year looming as the next major fiscal date in many UK company's diaries, IT people everywhere will soon be embarking on the wishlist-to-business plan journey that is the budgeting process.

There is already a lot of good advice out there on how to estimate numbers and prioritise what makes the cut, and that can be a brutal process, so here's a few things I keep in mind to make sure I'm not being too short sighted:

1 - Know the cost of a customer. The rest of this list isn't in any particular order, but this is definitely number 1. Most good CIOs and CTOs I meet know what this disk array costs vs. that disk array and what these licenses cost vs. those licenses, but not that many know what a customer costs to acquire and convert or to reactivate if they drift away. The relevance? Knowing that means you can work out exactly how many frustrated customers you can lose because of that bug before its worth fixing, or that slow server before its worth upgrading. In this light, things that might otherwise not have made the cut become the no-brainers that they should be.

2 - Don't be influenced by trendy buzzwords. There is always a meme that vendors will be able to exploit because of our inability to apply common sense and logic to a pitch on whatever the currently fashionable thing is. SOA, virtualisation, and cloud computing come to mind whenever I recall ill thought through spending sprees. That's not the same as saying that these - or any of the other candidates in the same category - aren't good technologies with valid applications, just that any investment in them should be handled with the same pessimism and judgement of real business value as money spent anywhere else. Just adding 'cloud' onto the name of a product doesn't change it's fundamental ROI, so don't let these slip by you unchecked.

3 - Know the cost of scale. When sizing up a new project, give growth plans some weighting rather than just initial costs. Depending on the degree of speculation involved in your plan, taking cheaper entry options can sometimes bite you when you reach scalability limits.

4 - Wider consultation. A year is a long time and a budgeting exercise inevitably involves dusting off your crystal ball and trying to foresee everything that everyone is going to want in the coming 12 months. Good luck with that and, although it seems a little obvious, spending a bit more time with each area of the business trying to coax their plans and ideas out of them will at least expose the bigger ones up front.

5 - Increase priority on core things. Another one that sounds obvious but - through its limited practice - clearly isn't. In tougher economic times it is particularly important to give the most crucial things the most attention, and it can be mistake to favor too many might-lead-somewhere-might-not initiatives over those core basics upon which the business depends today. I think it is critical to set aside time and money for innovation and to take a punt on those less-certain ventures that our instincts tell us have that commercial je ne sais quoi but it needs to be proportionate to the main line. This is important when deciding what to drop in order to bring your wishlist and the available cash resources closer together - big but critical projects can be easy targets because they pull back more cost in a single swipe than a number of smaller but less meaningful items will.

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