IT Manager’s 2009 Budget Toolkit

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Welcome to the IT Manager’s 2009 Budget Toolkit.    This toolkit is designed to provide you with the basic tools you will need to plan and manage your organization’s IT Budget for the upcoming year. You’ll want to begin by browsing the Financial Terms Primer document.   Even if you’ve never had any formal training in Finance or Accounting, this easy-to-read guide should quickly bring you up to speed on important financial concepts and terms you’ll need to know before starting the budgeting process. Next, you’ll want to take a moment to read our 10 Tips for Your 2009 IT Budget. This document will briefly discuss trends and economic factors that will shape the upcoming year and provide you with a perspective that will help you shape your budget and ultimately impress your company’s senior management team. Finally, you’ll be ready to jump right in and use the templates in this kit to prepare your budget.   You can pick and choose the templates and tools that best suit your needs, including the Budget Template, the Salary Planning tool, and the Hardware Amortization Schedule.   Each document provides user-friendly instructions, the blank template, and an example template filled out with sample data. The Financial Framework for IT Manager’s Toolkit This toolkit is designed to provide you with the basic tools you will need to plan and manage key IT initiatives for your organization. This document provides you with the basic background info you’ll want to collect about your organization.   This critical background info will allow you 1)     to provide your team with appropriate financial information, and 2)     to help maximize the return of your company’s IT investments Remember that in order to be fully effective in managing your IT department, you must be able to understand and communicate in financial terms.   As the IT leader, your job is to translate the technical initiatives you deem necessary into financial models that enable everyone to understand their impact. Finding out the nature of your organization You can define companies into two basic styles: 1)     Capital-intensive or 2)     Expense-driven Capital is a financial term that refers to large investments required either to produce or to provide an organization’s goods and/or services.   A capital-intensive company is one that makes several large investments over the course of a year to run its business.      Typically, in a capital-intensive business, financial managers are receptive and encouraging of capital purchases and tend to be aggressive in capitalizing assets and effort.   Some typical capital-intensive industries are manufacturing and airlines.    Companies in theses industries routinely make large capital investments. Expense-driven organizations tend to avoid capital expenditures whenever possible.     Their approach is to limit spending and to delay or to avoid capital expenditures.   Most small- to medium-size businesses in the U. S. are expense-driven in nature. Now, think about whether your organization is capital-intensive or expense-driven.   Once you understand how your organization views capital, you will be better able to present relevant financial information for your project.   You’ll soon find discover that an organization can fund projects using different methods.   Understanding how your company views capital will undoubtedly help you select the most appropriate source of funding and how to present your project to management. Cash flow Another important financial term is cash flow—the inflow and outflow of cash required to operate your organization.   It’s critical that you understand the cash flow nature of your organization and your finance department’s view of borrowing money from a bank or other lender. For instance, a company that has a positive cash flow may want to self fund many items and not rely on loans to finance projects and initiatives.    Others who struggle with positive cash flow may prefer to use financing or leasing whenever possible to fund projects.    The easiest way to understand which type company you are is by talking to the people in your accounting or finance department.    Ask them what they prefer and why.   Also, ask them to help you understand what they look at when evaluating different initiatives.   (You might be surprised how much they will enjoy telling you!)  Most importantly, you’ll be much better prepared to work with your finance department on mutual solutions to your organization’s IT challenges when the time comes. Financial Metrics Like all departments, your finance department likely has key financial metrics it monitors and reports on each week or month.    The better you understand the key metrics your finance department monitors, the better you will  know how projects you’re proposing will impact those metrics.    (Some companies don’t track quantifiable metrics, but most do—especially if they want to remain in business!) Opportunity Costs Finally, you should understand how your company views opportunity costs.   Opportunity cost looks at what you are giving up to accomplish a specific initiative.   For example, you may have two developers writing software for a particular initiative.    A company that does not view opportunity costs would view their efforts as costing zero because the developers are already on staff and therefore do not garner any incremental costs for working on the project. However, other companies would consider the full cost of the developers and apply those costs to the initiative since they could be work on something else but for the project at hand.   You might be surprised to learn that many companies do not think in terms of opportunity cost—at least not consistently from month-to-month and year-to-year.   You might need to have several discussions with your finance manager in order to understand their approach to opportunity cost and to prepare your justification documents for IT projects

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