- 3 July, 2020
- Article - Innovation in Business
The evolving role of IT budgets within large organisations
While technology has been a focal point for businesses for some time now, technology budgeting and investment practices have been lagging. With the growing need for digital transformation within large organisations, IT budgets need to shift from a project-to-project execution model to one that is capacity-based and more flexible. IT and software are becoming the products themselves and will be permanently evolving. They cannot be seen as start/stop expenses. In many cases, they are the fuel for the organisations continued growth, or even relevance, and so need to be invested in proportionally.
Traditionally, budgets have been defined and predetermined according to specific projects planned for the upcoming year, and the business sees IT as a cost centre based on these individual projects. However, as projects and technology requirements evolve from year to year, organisations should focus on building a capacitated IT competency instead, and use them as an engine room.
Technology projects are never truly done, and there are constantly new demands from customers, 3rd party partnerships and internal users. As the market and business grow, new products and features are required on a constant basis. This happens weekly or even daily – not yearly. Expanding and improving software is now part and parcel of expanding and improving business.
The diagram below highlights the differences between agile and traditional budgeting. In evolutionary budgeting approaches, the business and IT collectively decide on a budget that is proportional to role technology plays within the organisation – currently and into the future. A sensible IT budget should indicate the emphasis the organisation places on it as an investment (and sometimes an expense) relative to other capex areas. This step is specifically distinct from the concept of what that budget will be spent on. This is a ‘working forwards’ approach.
Agile budgeting allows for flexibility within teams to prioritise components instead of projects in its entirety. Because there is a readily available IT competency within the business, projects can be broken down further into a smaller granularity. These smaller components can then be executed on a purely priority-first basis, extracting maximum value from the budget. This also allows build and run investments to be mixed, making much more effective use of skills, capacity and talent. When there are budget or capacity cuts, IT can simply cut certain lower-priority components and focus on the next task at hand.
With traditional budgeting, IT estimates costs for a list of predetermined projects for the year, and then asks the business for budget to deliver these set projects. This is a ‘working backwards’ approach, which might should more diligent but also risks being too brittle. Should budgets be changed during the year, entire projects must be cut because there is little or no granularity in each project. They are each “all or nothing” in nature.
Traditional budgeting is still useful in instances where there are detailed, unchanging needs and a strict environment, whereas evolutionary budgeting relies on trust and talent from the agile teams.
Modern and flexible delivery styles are not compatible with fixed budgets. Technology is an investment regardless of how it was budgeted for – the question is the efficiency and reach of that investment. There are gaps in our budgets, and there is time and money wasted on planning which is doomed to become redundant long before the cycle ends. This is important because it means there are opportunities to ultimately fit more work into the same total budget by working smartly.
There is real value in the ability of the organisation to reprioritise, in this year and this budget. Better practical outcomes, less time spent re-planning and more time doing what matters on a shorter cycle. This can happen when IT and Business jointly determine a sensible budget which speaks directly to strategy, and then establish how to go about maximising that investment.