Mark McDonald

Note:  My apologies for the prior version of this post.  I wrote it too quickly and did not give it a good proof reading.

I read an article the other day by Arthur Langer about how IT can survive the current economic recession.  I was struck by the following piece of advice:

“Move more IT expenses into business units.  This keeps all the dollars from being in one large IT budget.  It also allows business units to defend their requests for extra spending.”

I read this recommendation a few times.  Langer’s other advice, shown below, makes sense.  The points below are sound.

• Show why investments need to precede—not lag—the recovery.  Give historical proof that this method works and timelines that will better position the business to compete.
• Ask for smaller amounts of investments, allowing the business to be somewhat cautious should economic trends not improve.
• Don’t expect the budget you might ultimately need, but rather the dollars that will allow you to deliver some portion of the overall product strategy.
• Commit to product reviews, perhaps every 90 days.  This way, executives can feel that they can change priorities if and when necessary.

The idea of moving (hiding) IT expenses in the business unit to make them small enough not to be noticed seems out of place in this list.

It seems like a silly IT budget trick.

I understand the desire to disperse the IT budget across the enterprise.  A single unified IT budget represents a high value target for hungry CFO’s.  But doing so will rollback the hard work CIOs have done getting their hands around the IT budget.  That focus goes out the window by “scattering the budget” for the following reasons.

• It’s a short-term remedy to a long-term issue.  You may want to scatter the budget now, but it will take twice as long to pull the budget back together once the crisis has passed.  You centralized the budget for a reason – to manage and guide IT resources.

• Its unnecessary as many CIOs have demonstrated strong financial management capabilities since the dot.com bust 2000 – 2002.  Why would you give up that discipline?

• It is counterproductive to other established cost management techniques.  Disbursing the budget fractures centralized governance, clear priorities and common solutions that are all part of effectively managing IT and enterprise costs.  The business units will take the expense into their budgets in return for deciding where that money will be spent.

• Dispersing the expenses will come with dispersing the authority and choice the business units have for what they will pay for.  This can compromise enterprise services like security, back-up, architecture, testing, operations as each BU would gain the right to cut the dispersed IT spend to their liking.

• Recognize that CFO’s will see through this in a second, so you will be standing there saying “my IT budget is not so big.”  That will last until someone from accounting shows a consolidated view of enterprise IT spend.

Arthur Langer’s other points are good and solid.  I would resist rolling back the gains you have made by scattering the IT budget.

Rather I would show how bringing that spending together under one management structure drives scale.  One way to do that would be to show the duplications that either existed before IT was consolidated or would exist if you were to decentralize the resources.

Once you set those expenses free, it will be tough to get them home to roost again.

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Category: CFO CIO Signs of weak management     Tags: 2010, 2010 planning, CFO, cost cutting, Economy, Finance, Signs of weak management

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