Best practices to reduce your IT financial forecast variance
First Citizens used a centralized, end-to-end IT planning system to reduce its budget variance by 80%
I occasionally encourage my teenage son to help with DIY projects. When I watch him wrangle a jigsaw blade through a 2x8, noting the increasing veer from the guideline drawn on the wood, I am reminded of the perils of trying to fix a problem while it’s still happening. He can see the problem, he’s trying to fix it, but the blade keeps on with its momentum and the veer gets worse. What works in a domestic shop class rings true in IT financial planning. You can’t get a blade back on a guideline without a pause and re-alignment: you can’t effectively manage mid-year IT budget variance without a forecast (‘pause’) to identify issues and re-plan (‘re-alignment’).
Despite agreement on the benefit, organizations struggle to roll out a regular forecasting cadence.
Annual budgets take weeks to complete. The flow of spreadsheets between budget owners and approval cycles suck the life out of even the most diligent finance analyst. Duplicating this work by adding forecasts to the workload is a big ask. It only works when the planning process is streamlined, automated, and made comprehensible for non-spreadsheet jockeys.
First Citizens Bank faced this issue. Their annual budget process took 45 days to complete. This was challenging enough for the annual planning cycle, but there was no way they could complete quarterly forecasts using the same process.
»Related video: See how First Citizens increased IT planning accuracy and agility.
An inefficient IT planning process
First Citizens wanted to reduce the effort of building their IT budget—to free up time for analysis. With hundreds of spreadsheets from 50 cost centers, IT finance spent most of their time on authentication and verification of numbers rather than analysis on actual spend to make better decisions for the business. “All of the spreadsheets coming from our cost centers had to be identical to be accurate, and any change had to be applied to all workbooks and current year actuals had to be manually keyed into each spreadsheet,” said Robert Winchester, First Citizens’ IT Financial Consultant.
Automating IT planning
Today, First Citizens uses Apptio IT Planning to build budgets cost center managers can review immediately. Much of each cost center’s budget is built around non-controllable expenses. Using resource planning capabilities, First Citizens quickly creates base plans with non-discretionary spend to allow senior leaders in IT to focus on the discretionary parts of the budget (e.g. labor forecasting and maintenance). Automation frees up time from building a plan to analyzing a plan. The versioning headache of disparate spreadsheets is replaced with one database—allowing real-time changes to plans, version management, and approval flows. With resource planning, cost center owners plan around things they know—labor headcount, assets, and contracts—and Apptio IT Planning automatically populates attendant financial line items in the IT budget. Said Winchester, “Within 30 days of implementing the IT planning tool, we had it populated with all our GL information, two years of budgets, and two years of actuals. We rolled it out and had a tool in front of our end users.”
»Related content: 7 pitfalls of IT budgeting and forecasting
Improving IT financial forecast variance
The first draft of the 2017 budget with Apptio IT Planning was generated in a few hours and they moved from two quarterly forecasts to four. This increased forecast cadence helped First Citizens reduce its budget variance by 80% for 2016.
With automation comes opportunity. The resource planning capability in Apptio IT Planning allows a cost center owner to plan around things they understand (people, assets, and contracts) and let the application generate the attendant financial line items. A cost center owner then conducts forecast analysis from either a financial or a resource view. First Citizens leverages automated line item generation to run a monthly forecast of depreciation and labor.
Organizations want to run a forecast process but struggle to balance the benefit against the additional work. First Citizens struggled with that dilemma. Most IT finance groups struggle with this dilemma. The solution is not to talk yourself out of the benefits of a forecast, but to acknowledge you can’t replicate an annual budget cycle four times a year with a solution that is already slow and inefficient. Automation, resource planning, one unified solution for version control and auditing: that’s how you allow yourself to adopt a forecast cadence. Without it, IT finance is powerless to course-correct spend when the variance jigsaw blade veers away from the budgetary guideline.
Ready to make your case for better tools? Check out Apptio's IT budgeting and forecasting e-kit.