7 pitfalls of IT budgeting and forecasting
Budgeting and forecasting is painful for all lines of business—but IT Finance has it tougher than most.
Pick your planning poison path. Go with a set of home-grown spreadsheets and drown in “email governance” shortfalls. Or try your best at fitting a square peg into a round hole by retrofitting your IT specific budget details into your company’s corporate planning system.
Neither satisfies the specific needs of IT budgeting and forecasting, while both expose you to the pain of a manually-intensive, spreadsheet-based process.
With unlimited time, a homegrown solution could be crafted to deliver planning with an IT context, but the reality of resource constraints and competing priorities make that plan a pipedream.
Both IT and business stakeholders suffer the pain—and its consequences. A manual process compounds human errors which are (sigh) hidden by an inefficient workflow. The business is blind to the pain of the process, but its consequences are tangible (e.g., budget padding killing innovation, spend surprises causing emergency budgetary “haircuts”).
To avoid these pitfalls, build your IT budgeting and forecasting process around seven key principles.
Roll up cost center plans into one common, central plan of record.
The only way to gain complete confidence is to have everyone working from a centralized process. Adopt a single system that offers automated workflows, built-in governance, and instant access to variance analysis, plan adjustments, and forecasts.With a single plan of record, you can eliminate undocumented handshake agreements, expensive template management efforts, lengthy budget consolidation iterations, and low value, manual data preparation.
Cost centers work concurrently on the same plan version.
Giving budget owners greater control fosters ongoing collaboration between IT and finance teams. When budget owners actively build, understand, and buy into IT plans, the entire team is better aligned to hit financial targets and achieve strategic goals.
Budget owners collaborate when they trust the tools they are using. If there is little faith in the robustness of the budgeting and forecasting (both in the tool to implement it and the corporate governance to support it), cost center owners retreat into safety-first mode and plan in a silo—with downstream implications on any attempts to parlay spend into a coherent strategy.
Capture, share, and provide easy access to decision points.
To drive budget owner accountability, foster communication and engage all key stakeholders.
Start by making your IT plans accessible to everyone involved in the process. Ensure plan components are easy to identify, understand, and adjust, and that cost center owners can interact with the budget to enter changes and instantly see the impact on their plans.
Action is predicated on a foundation of accuracy.
Budgeting and forecasting processes may be tolerable when the number of participants is small, but it quickly becomes unwieldy as that number grows. It becomes even more challenging when the data for different areas of the budget (including capital, labor, vendors, and depreciation) come from different teams and/or source systems.
Through multiple iterations, justifications for budget adjustments are lost-in-translation, yielding a plan with little transparency and compounded errors from version roll-ups. These errors are often discovered only after the budget is approved, when it’s too late to do anything about them.
»Related content: Best practices to reduce your IT financial forecast variance by Barry Whittle
Process isn’t reinvented with every build, adjustment, or plan reconciliation.
Though an annual budget is a one-time event, it is one that you know is going to happen next year. And the year after that. Signing up for a budgeting process that isn’t repeatable is an invitation to be overwhelmed with low-value data wrangling.
Forecasts have a smaller data footprint than the annual plan (a forecast is only concerned with a sub-section of spend), but the quarterly or monthly cadence makes total data management over any 12-month period equivalent to what goes into the annual budget.IT Finance spends most of its time distributing, collecting, and consolidating spreadsheets; addressing version management issues and overlooked guidance; and finding and correcting formula errors and broken spreadsheets—all diverting attention from higher-value analysis
Plans become easier to manage as they evolve.
By working closely with budget owners to understand business objectives, you can better align IT investment decisions with enterprise strategic goals. The challenge is finding the time to do this.
When you eliminate manual, spreadsheet-driven processes, your team has more bandwidth to better analyze future spend against strategic objectives. It’s a virtuous cycle where the time saved today is baked into the process going forward and dedicates more time for analysis—both of strategic spend and the budgeting and forecasting process itself.
#7 Instant visibility
Support the rapid consumption of vital information.
IT costs are driven by inefficiency, demand, or expanded initiatives. Without information to justify these costs, IT Finance looks at increased spend as a problem without a solution. If Storage costs go up 30% year over year, but the unit rate of storage ($/TB) falls by 20%, IT Finance can engage in a funding debate with the business rather than a (possibly more prickly) operational efficiency debate with I&O. IT Finance can only have the right conversation if they have access to the right information.
Forecasts provide current data-points to inform action in the face of changing financial realities. Frequent forecasts enable stakeholders to make more informed decisions, improve plan accuracy, and adjust spend levels and allocations to effectively support strategic initiatives.Follow these 7 principles and avoid the predictable pitfalls of budgeting and forecasting. You then say goodbye to behaviors that, let’s be honest, you grew tired of a long time ago.