"Plans are nothing, planning is everything." – Dwight Eishenhower
Information technology is increasingly important given the current mantra of doing more with less. Critical to effective technology plans is how the required investments will be prioritized and funded.
A well designed information Technology (IT) budget and budget process can help local governments run more efficiently, provide responsive services to their citizens, and better manage their assets. The IT budget can and should be used as a planning document that will help the whole organization prepare for future technology needs and communicate to internal and external stakeholders the priorities that those needs will support. In short, it ensures that scarce resources are appropriately aligned with the strategic vision of the agency.
An effective IT budget process also promotes accountability and establishes spending guidelines for IT purchases. Alternatively, a poor IT budgeting process can cause governments to invest in technology that adds layers of complexity or results in a lack of investment in technology that might be critical to operations. Unintentionally, it may create an infrastructure that is siloed and contributes to an overall inefficient process.
Also, a poor IT budget can create a disconnect between the IT department and all other agency departments leading to failed technology implementations and to technology purchases that might not be a best fit for the agency. Elements of an ineffective IT budgeting process include: lack of communication between the budgeting office and the IT Department, incomplete integration of the budgeting process with the government’s strategic plan and goals, and a nonexistent or ineffective IT governance structure.
However, government bodies can implement many steps and processes that improve IT budgeting. Most of these have less to do with the actual budget development and more to do with how decisions are made in the organization regarding IT investments.
Developing the IT governance structure
The first step in developing a sound IT budgeting process is to develop a governance structure for IT. IT governance specifies the decisions, rights, and accountability framework to encourage desirable behavior in the use of IT. Also, incorporating the governing structure into the IT budgeting process can ensure that future IT investments are based on performance of past projects, help manage risks, optimize resources, and foster the exploration of possible benefits of technology investments.
The IT governance structure should include a governance committee to help steer the decision-making process. The IT governance committee should include stakeholders from various departments in the agency who have been given appropriate authority to hold the IT department accountable and may include the IT Director/CIO, Finance Director, Human Resources Director, and any other stakeholders the government feels are appropriate.
In addition, a successful governance structure should provide answers to the following questions. The diagram following provides a visual of the value decisions that must continue to support any successful governance process:
- What decisions must be made?
- Who should make the decisions?
- How will the decisions be made?
- What is the process for monitoring results?
- Are we doing the right things?
- Are we getting the needed benefits?
- Are we getting them done well?
- Are we doing them the right way?
In support of this, an IT governance structure should include processes for prioritizing IT investments and developing business cases for technology needs. IT governance also provides a means by which the IT department and other departments can collaborate and better align IT spending with government-wide objectives. A sound governance structure should naturally help improve the IT budget process.
Best practices in the IT budget process
The following actions can help governments develop a higher functioning IT budget process:
Centralize IT budgeting. Centralizing budgeting for IT products and services will ensure that budgeting for technology is done from an enterprise perspective instead of being siloed in individual departments. This approach can also help prevent duplicative purchases.
Develop goals and objectives. The IT Department should develop annual goals and objectives that help inform the budget. This will help the department take a long-range view of operations instead of operating on a day-to-day or crisis-to-crisis level.
Set standards. The IT Department should have a published set of standards for the purchase of any IT equipment or software. This helps to simplify the equipment that the organization supports both from a hardware and knowledge perspective.
Avoid simple line items. Too often, IT budgets are vague and oversimplified. A simple line item budget takes away an aspect of accountability if it is too vague. Instead, the IT Department should use the budget as a planning document and include descriptions of project costs and purchases. This will allow the document to be meaningfully reviewed throughout the budget year and during the development of the next year’s budget.
Develop business cases. IT purchases often go to "behind-the-scenes" items that may not typically get as much support as expenditures whose benefits are tangible and easily visible to the public. Therefore, it is important that part of the IT budgeting process should include developing business cases for new purchases or system upgrades in order to bolster the chance of such purchases remaining in the budget. The business case should cost out the purchase and also include the expected return on investment. This will help others see the value of the technology purchase and also increase the IT Department’s accountability for the successful implementation of the purchase.
Include cost recovery. As mentioned earlier, IT Departments can have difficulty getting steady funding since the value in some of their purchases and operations is not always easily visible. One way to implement a funding stream for IT is to institute charge-backs to other departments for services and equipment. This can ensure that IT is able to maintain a consistent level of service to other departments and that equipment replacement costs can be covered. Further, such a costing model reflects the ideology that IT is a service-oriented function.
Compare budget to actual costs. At the end of the fiscal year, actual money spent should be compared to what was originally budgeted. Again, a more robust budget that goes beyond the single line item is useful for this exercise. Taking the time and effort to compare actual spending to budgeted spending can unearth problem areas of overspending and help inform the following year’s budget.
Align budget with mission. The IT budget should be aligned with the strategic goals of the city or town. This will help in the creation of a business case for the expenditures as well as decrease the probability of spending on unnecessary technology or technology that may not be aligned with the needs of all departments.
These best practices should assist any government agency looking to strengthen or establish value in the budget process. Our state and local government consultants can answer any questions you may have regarding barriers to your process and how to implement a program without substantial organizational change.