A majority of CIOs find it challenging to reach their goals with tight budget allocation for IT.
It is essential to do a proper allocation of IT budgets as the department is under significant pressure to invest in digital transformation. Today, CIOs need to evaluate their innovation and software spends while weighing the specific needs of their organizations
Firstly, CIOs need to accept the reality of their budget and start planning accordingly. Lack of planning increases the risk of draining IT resources and budgets, says. Most companies face higher demand than available financial resources, thereby forcing CIOs to choose between initiatives that are worth funding and those that should be rejected.
Effective budget management includes developing an IT strategy that is in line with the enterprise’s goals. IT needs to identify expected growth plans from the business units and plan priorities accordingly. Visibility about requirements of the business should be a priority for CIOs as it will help them prioritize ongoing projects. When projects cost more than the forecast, it results in mid-year budget reductions or project terminations.
Secondly, it is important to develop accurate financial models. CIOs can take help of their colleagues from the finance department while struggling to meet budget objectives. CIO and financial heads should work together to develop models based on historical data at the time of budgeting IT operational costs. IT leaders need to come up with an accurate model that will help them to forecast and create financial performance scenarios. One of the most effective ways to manage a budget is to prepare weekly KPIs and reporting prepared by finance. When CIOs don’t have the data and a benchmark to determine achievements, it can result in inefficiencies and unwanted big surprises. They should not wait until the end of the month or quarter to manage budgets actively.
There is no harm for CIOs in seeking external advice and realistic assessment from a peer or an industry analyst to set reasonable parameters for a proposed IT budget. CIOs also need to gain confidence and support of fellow C-suite executives while considering a major IT initiative, lobby power players. This will help IT leaders in getting additional support for the budgets.
IT leaders can achieve the flexibility to manage their IT budgets effectively by working hand-in-hand with finance departments.