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Feb 20, 2010

IT Budgetting (2)

These issues should be addressed on the highest levels to update the budget structure in a way that serves the purpose of properly setting and monitoring IT Budget.
There are some key success factors that facilitate the budgeting process and help the department in allocating sufficient budget for the fulfillment of its goals and objectives:

- Having a long-term IT strategy: an IT strategy reflects thoughtful decisions that are made based on experience and long term commitment rather than reactive and random decisions
- Alignment to the business requirements: this does not happen without making the effort from the IT department to properly align with the business, not just by fulfilling its requirements but even to become a success factor and an enabler for the business

- Defining success measures and performance indicators: When success measures and performance indicators are set and reporting on them becomes a habit then budgeting for the future becomes easier and more appreciated since it is built on tangible facts that reflect the true state of the organization

- Succeeding in previous budgets: there is nothing more helpful in negotiating the budget than showing that the previously obtained budgets were utilized successfully

- Continuous and stable growth: reflecting continuous and stable growth in each budget period will reflect stability and maturity in the IT department and show that expansions are made based on determined and well-studied plans

IT Budgeting (3)

To arrange the IT Budgeting, the organization must have the document to provides guidelines / recommendations on how to go about developing and monitoring the IT budget. It will help with an overall organizational budget as well as with a budget for a specific project. It includes methods for estimating costs as well as tips for ensuring that the budgets are successful.

(1) Purpose
The purpose of this document is to provide guidance for IT managers / Directors in preparing the budgets of their departments. The document targets the IT managers / Directors as the main audience, because they make the decisions regarding the budgeting. This document is based on best practices; it is greatly inspired by the Financial Management component of the IT Infrastructure Library (ITIL) which represents a widely accepted best practice of IT Service Management (and soon to become ISO standard – ISO 20000).

(2) Document Structure
This guide aims to help effectively meet the challenge of constructing and monitoring budgets in IT departments, it has been written as clearly as possible to help the reader gain the most comprehensive understanding possible.

The document can be navigated from one related subject to another,
simply by clicking on the hyperlinks on the main dashboard. The main
sections of this document are:

- Financial Management for IT Departments: a general description of the concept of Financial Management for IT from best practices perspective

- What is a Budget: basic definition of what a budget is, and what is the meaning of budgeting process - Why to Budget: the benefits gained from budgeting, an the disadvantages of not-budgeting

- Elements of a Successful Budget: describes the anatomy of a budget in terms of how is the budget organized, what are the items that appear in an IT budget, and what are the properties of these items

- The Budgeting Process: describes the budgeting process in details

- Practical Approach – Budget in the Government of Saudi Arabia

- Methods of Budget Estimation: describes two famous methods of budget and cost estimation that are deployed and used widely by IT organizations

- Success Factors: provides some guidelines and advices for successful budgeting

IT Budgetting (1)

IT budgeting is an important subject for IT managers and CIOs around the world. This importance comes from its’ being a decisive factor in the success of the IT department by ensuring that sufficient financial resources are available for the sustainability and the growth of the IT department and its services.

A Budget is defined as an itemized forecast of an organization’s income and expenses for a futuristic period. The budget can be structured in many ways based on the organization’s (or the country’s) standards.. One of the widely adopted approaches for structuring the budget is to build the budget on the basis of two main categories:

- Capital cost: concern the purchase of assets intended for long-term use within the organization
- Operational cost: day-to-day costs that are not associated with tangible production resources

The Budgeting Process is the process of ensuring that the correct finance is available for the provision of IT Services and that during the budget period they are not over-spent. The budgeting process is a cornerstone of the IT Financial Management process which is responsible for the identification, calculation, monitoring and onward allocation of costs for the IT Services.

The budgeting process is split into two separate but related processes; setting the budget and monitoring the budget.

The process of setting the budget is mainly concerned with preparing the budget for the coming fiscal year or period. The process of monitoring the budget is concerned with ensuring that the budget of the current fiscal year is spent properly.
Monitoring the budget is also concerned with foreseeing and reporting any deviations from the allocated budget. It is important to establish the governance of the IT department over all IT-related budgeting in the organization; this is the only way to establish full accountability on the IT assets and resources. In more practical terms,
no department should be allowed to allocate IT-related cost in their budgets. Departments must request any IT spending from the IT department. Without achieving this, IT departments will not be able to control IT assets in the organization.

In the companies that have IT Support, each organization is requested to follow the standard budget structure and its guidelines for reporting their yearly budget. The standard budget structure is meant to be generic in order to cater for the different needs of the company regardless of their nature.
However, it is noted that currently there are no clear IT-related categories or elements in the budget structure of organization.
This fact creates difficulties for company in allocating the IT budget properly and tracking the IT spending.

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