How do you manage a CIO Budget?

Perhaps even more so than in other departments, the IT department’s budget must be closely managed. Because no company or public organization can function without IT, it is essential to “keep a tight rein on spending” over the long term, throughout the fiscal year, to stay on course and meet objectives—especially since the IT budget represents a significant portion of the company’s overall finances.

So how do you manage and control your CIO’s Budgets? Here are some answers to five key questions.

1- WHY manage the CIO’s Budgets?

The question may seem obvious. However, if it weren’t so complex, we could imagine that the IT Budgets – once validated annually – would simply be monitored “from afar” at a few key stages to ensure that they remain broadly in line with the initial plan, and would be subject to a final landing at the end of the year.

Given the specific nature of the CIO’s budget, such an approach would be risky. An IT budget involves a significant amount of IT spending, IT vendors, and resources to allocate, as well as various projects to fund… Only through close tracking can you stay on track and maintain control of the entire process.

So, as we saw in a previous article, even if it represents an important step, the validation of the IT department’s Budgets is by no means the end of the process: on the contrary, it’s where it all begins.

For the Information Systems Director and his Teams, the challenge will be to ensure that budget management becomes predictive, so that the final landing is in line with the forecast. What will be at stake throughout the budget year is the CIO’s ability to act and arbitrate his or her budget as the year progresses, in order to obtain the most reliable forecasts and limit discrepancies between resources and expenditure. In this way, they can successfully align their forecasts with their final Budgets.

2- CIO Budgets: WHAT are we talking about?

There are several reasons for this.

First of all, when we talk about “THE” CIO budget, we’re talking about the department’s budget. But it’s important to bear in mind that this budget breaks down into multiple “sub-budgets”: the operating budget (which covers all “run” activities), plus project budgets (often managed on a unitary basis), as well as cross-functional budgets.

Another angle of analysis: the nature of the financial steering practiced in the organization into which the IT department is integrated, which will set the tone for the type of Budgets managed by the CIO. This choice is highly structuring:

• Traditionally, budgets are analyzed from a cash-out perspective, which may be sufficient for many IT departments. All cash flows, whether they are operational expenses (known as Opex) or capital expenditures (CAPEX), are then steered as “cash outflows.”
• Some finance departments steer their budgets using a P&L (Profit & Loss) approach. In this case, depreciation is included to spread the cost of investments over time. To engage with CFOs on an equal footing and make use of comparable data, some IT departments will therefore choose to steer their budgets using a P&L format, specifically including budget allocations and prepaid expenses.
• As for public structures and administrations, their budget management is subject to a certain number of specificities that can be usefully integrated into a dedicated management tool to comply with public accounting rules.

It is therefore important for IT managers to define their budget management objectives and the type of Budgets they intend to manage, at a very early stage, so that they can steer them with the appropriate tools and methods.

3- HOW can you manage your CIO’s Budgets?

Budget management represents a significant part of CIO management, and is often time-consuming in the absence of a truly dedicated tool. Implementing this four-point action plan can help you optimize your IT department’s Budgets management:

1- Regular, close monitoring of consumption: this is the 1st essential. Let’s not forget that the challenge of managing the CIO’s budget is to ensure that the forecast is in line with the actual expenditure at the end of the year. This means keeping a close eye on the reality of actual expenditure – what’s been spent versus what’s been committed. This regular tracking is key to :

• Detect any over-consumption at a given moment (which will have to be rebalanced, either by reallocating budgets, negotiating additional budgets if necessary, or – if possible – by “slowing down” on these items over the following months);
• Conversely, identify pockets of unused Budgets that can be reallocated to a new Project, returned or provisioned for the following year;
• Be able to make quick decisions when the situation calls for it. Let’s consider a real-world scenario (which, of course, we wouldn’t wish on anyone): you’ve been the victim of a cyberattack and must immediately incur expenses for external services to stop the attack and restore the IT system. This involves costs, so you need to be able to free up budgetary flexibility very quickly and demonstrate the resulting impacts (for example, on IT projects planned for other departments within the company that will have to be postponed). It is therefore essential to have a precise, real-time understanding of where we stand in terms of budgets across the entire CIO department.

Bonus tip: monitoring consumption can be a tedious administrative task, due to the sheer volume of lines processed. It requires rigor and finesse in order to make the right allocations (reconciling invoices with purchase orders, identifying budget items, etc.). This is often done in simple Excel spreadsheets, but there is much to be gained by switching to dedicated budget management software(see this article on the limitations of Excel).

2- Continuously update the Budgets to reflect both past and future trends. This is what happens at each budget closing. The rhythm of the budget review can be modelled in part on the company’s financial calendar. It is usually at least quarterly, but ideally monthly, to keep as close to reality as possible. Each close is an opportunity to update and validate a snapshot of your Budgets, and to redefine the objective with a new forecast that should, in the end, coincide with the landing.

3- Keeping track of your Budgets: traceability is essential from one year to the next, because you can capitalize on the past to “predict” the future, but also during the year: you need to be able to maintain control of the information, explain variations from one year-end to the next, challenge options by going back over previously imagined plans A, B or C, etc.

4- Careful reporting: like all corporate departments, the IT department’s Budgets are no exception to the rule: they are regularly presented, dissected, analyzed and debated, notably with the Finance Department and General Management. For value-added exchanges, it is therefore important for the CIO to be in full control of his Budgets, with a reliable viewpoint based on the solidity of each piece of data, which he will be able to put into perspective, and bring out the key, hard-hitting or expected information, in particular through visual Dashboards and graphic presentation aids.

4- WHO manages the CIO’s Budgets?

The CIO or IT manager is obviously primarily responsible for his department’s Budgets. But successful budget management requires the right involvement of all other stakeholders:

CIO players :

• Managers: whether they are in charge of a portfolio of activities or projects, it is essential to delegate budget steering to CIO managers, for the scope for which they are responsible. For the CIO, it‘s a way of maintaining the right level of supervisory control.
• Project Managers or PMOs: they are responsible for tracking the budgets of the Projects entrusted to them. As these budgets are often managed independently for each project and over different timeframes (straddling several financial years, for example), it is essential to reconcile them with the management budget, and therefore to set up a fluid, efficient and constantly updated collaborative framework (see the article How to draw up your CIO’s budget for more details).
• The department’s administrative assistant: given the number of budget lines, associated contractors and the volume of invoices, close tracking of budget reality (invoice tallying, reconciliation of consumed and committed amounts) is sometimes part of the tasks entrusted to the department’s assistant when he or she exists within the department. This staff member is a valuable resource who should be equipped with tools, particularly easy-to-use tracking software that saves time on tasks that can be repetitive (as is the case with Abraxio).

The players in the Finance Department

• The CFO (Chief Financial Officer): He serves as the liaison to senior management, ensures the implementation of the financial strategy, updates its key priorities annually, and oversees its execution in accordance with current policies and procedures. The quality of communication and collaboration between the CFO and CIO is essential.
• The management controller: what are his objectives? To analyze and evaluate the performance of the company’s various departments, to ensure that the resources deployed are optimized in relation to the results obtained. In some large CIOs, a management controller may report directly to the IT department, for closer tracking.

5- WHEN manage the CIO’s Budgets?

As we have seen, this is a “red wire” subject that requires continuous management, if only to track consumption and avoid being swamped by invoices.

Of course, budget management is also punctuated by special events:

• Budget reviews, ideally monthly, with Teams
• “Reforecasts”, usually quarterly: during these more critical points of review or renegotiation, the IT department may be asked to identify optimization levers (even if, given the challenges of Digital transformation and collateral phenomena impacting the information system, they are rarely revised downwards).
• Projects can have an episodic impact on the CIO’s Build budget, and the challenge is to keep it in line with the department’s overall budget, so as to maintain control over the whole.

Bonus: how to optimize your CIO Budgets?

When it comes to management, it’s hard not to think about optimization. Optimizing the CIO’s Budgets is a key process for avoiding cost overruns and creating the room for maneuver needed to absorb any unforeseen events. To achieve this, it is essential to have a 360° view of IT steering, so as to be able to identify areas for optimization more easily. Analysis keys include :

• Which budget items seem redundant?
• Which applications or software are the most costly in terms of licenses, TMA or major upgrades?
• Which are the biggest suppliers, and are their costs in line with the market benchmark?
• When do you renew a contract that could be challenged or renegotiated?
• Is it possible to lock in certain expenses and switch certain services to the cloud without upsetting the Opex and Capex management balance?

These are all questions that need to be asked almost continuously throughout the year, in order to gather the relevant data. For the CIO to be in a position to provide high value-added answers to these questions, it is essential that he or she masters all the ins and outs of his or her Budgets, with up-to-date, reliable information that is sufficiently “deep” to enable him or her to cross-reference the relevant axes of analysis. This is often difficult with simple Excel spreadsheets, whose PivotTables, despite their relevance, can show their limits, and that’s when it becomes interesting to switch to a budget management tool that works “for you” or at least “alongside you”.