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Cutter Benchmark Review

Analyzing IT Metrics for Informed Management Decisions

Vol. 6, No. 8August 2006

The Intricacy of IT Budgeting:How to Make the Most of a Complex Process

Introductionby Gabriele Piccoli . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

IT Alignment and Post-Traumatic Economic Downturn Budgetingby Dennis A. Adams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

IT Budgeting: A Management Perspectiveby Robert J. Benson, with Thomas L. Bugnitz and William B. Walton . . . . . . . . . . 10

IT Budgeting in 2006: Making the Best of the Recoveryby Gabriele Piccoli . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

IT Budgeting Survey DataCollected by Cutter Consortium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

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INTRODUCTION

3Get The Cutter Edge free: www.cutter.com Vol. 6, No. 8 CUTTER BENCHMARK REVIEW

The budgeting process is of critical importance to ITand business professionals in our subscriber base; it isperhaps even more important nowadays as we begin tosee a recovery in IT spending and, increasingly, a shift-ing of priorities away from a narrow focus on cost cut-ting and efficiency. It is within this context that we atCutter Benchmark Review decided to take stock of currentbudget trends and priorities. We wanted to do so at atime of year when we could get good data (i.e., yourorganization has begun to think about its next budgetand the priorities it wants to pursue), provide usefulresults (i.e., this issue comes out before you have closedyour cycle), and offer practical guidance.

The survey is rather on the long side — perhapsexplaining why we received a smaller number ofresponses than we typically do — but it was ourintention to be exhaustive on this subject. The surveyis articulated in seven parts:

1. General patterns of IT spending

2. Expense and capital budgets for the central ITorganization

3. Cost recovery of corporate/centralized IT

4. Relationship between central IT and business-unit IT

5. Staff budgeting

6. Project budgeting

7. Outsourcing

If you are a faithful CBR reader, you will recall that inFebruary we debuted our annual IT trends issue — weintend to publish an issue on IT trends at the beginningof each year. This month’s issue on IT budgeting is oursecond annual topic. For both of these areas, we intendto do some year-over-year trending and to draw morelong-range conclusions as we collect more data in thecoming years. Keeping with the tradition of CBR, ourobjective is not only to benchmark what is happening,

but also to provide practical guidance and food forthought as you define the optimal budget and prioritiesfor your own organization.

Our academic contributor this month is Dennis Adams,Associate Dean of Graduate and Professional Programs,C.T. Bauer College of Business, University of Houston(USA). Those of you who follow CBR already knowDennis, as he was the academic contributor for ourissue on IT trends. Providing our view from the field isanother cast of characters well known to Cutter clients:Bob Benson, Tom Bugnitz, and Bill Walton, all BetaGroup members and Senior Consultants with the CutterConsortium Business-IT Strategies practice. Leading theeffort for The Beta Group is Bob.

Dennis’s contribution begins by painting a picture ofthe historical context that has shaped today’s budgetpressures and budgeting priorities. Within this context,Dennis provides a detailed analysis of the surveyresults. I particularly draw to your attention his insightabout potential problems with the accounting of energycosts, his predictions about IT staffing shortage, and hisobservations about the need to better scrutinize IT bud-gets to ensure that costs are fairly allocated to the busi-ness units. Dennis concludes his article with a set ofpractical guidelines that will help you structure thebudgeting process in your own organization.

The Beta Group brings years of consulting, writing,and educational experience to bear in their trulyexhaustive article. Bob systematically analyzes thesurvey results and draws practical implications formanagement by marrying the survey evidence andthe firsthand experience of The Beta Group. Their con-tribution is articulated in five sections: an analysis ofrespondents, variability of IT costs, management of ITcosts, management of IT cost recovery, and conclusions.I specifically draw to your attention Bob’s analysis ofthe variability of IT expenses amongst respondents andthe implication for the use of such common benchmarks

From the Editor, Gabriele Piccoli

The Intricacy of IT Budgeting:How to Make the Most of a Complex Process

3


INTRODUCTION

©2006 Cutter Information LLCCUTTER BENCHMARK REVIEW August 20064

as percentage of revenue. One message emerges loudand clear from this contribution: you must understandthe drivers of IT cost in your organization, as they arethe basis for all budgeting decisions. Bob concludes TheBeta Group’s piece with a set of immediately actionableguidelines for optimizing the budgeting process.

Budgets serve an a priori planning and communicationrole as well as a control and monitory a posteriori role.I hope that you will find this issue of CBR packed withuseful data that helps you prepare your own IT budget(planning role) and survey-based ammunition thathelps you back up your decisions with evidence (com-munication role). As always, the insight and guidelines

brought to bear by our contributors should help yourefine your own thinking about the appropriate courseof action in your own organization.

— Gabriele Piccoli, Editor,Cutter Benchmark Review

THIS MONTH’S CONTRIBUTORS COMING NEXT MONTH

Best Practices as Embedded in Software Programs

AN AC ADEMIC PERSPECTIVE

Erica Wagner, Assistant Professor, School of HotelAdministration, Cornell University; Sue Newell, TrusteeProfessor, Department of Management, Bentley College

A VIEW FROM THE FIELD

William Ulrich, President and Founder of Tactical StrategyGroup, Inc.; Senior Consultant, Cutter ConsortiumRobert J. Benson

Principal, The Beta Group; Senior Consultant, Cutter Consortium

Dennis A. Adams,

Associate Dean of Graduate andProfessional Programs, C.T. BauerCollege of Business, University ofHouston

William B. Walton

Principal, The Beta Group; Senior Consultant, Cutter Consortium

Thomas L. Bugnitz,

President, The Beta Group; Senior Consultant, Cutter Consortium

THE BUDGET SETTING

Economic Climate

The National Bureau of Economic Research concludedthat the recession at the beginning of this decade begansometime around the first quarter of 2001 [2]. While theBureau also concluded that the recession lasted onlyapproximately eight months, the effects on payroll andthe resulting economy have been felt for quite some time.As the economy retracted, businesses responded byincreasing sales incentives and cutting costs. In cuttingcosts, companies focused on shedding non-core assetsand processes, dropping unprofitable products and cus-tomers, reducing supply chain partners, and ultimatelylaying off employees. Business scandals (e.g., Enron,WorldCom, Adelphia, Tyco, Global Crossing), theattacks on 9/11, and the dot-com bust further weakenedconsumer and investor trust and slowed the recovery.Rising energy costs added to the economic mix.

In 2005, hurricanes battered the US Gulf Coast, damag-ing oil and natural gas refineries and distribution units.Combined with the conflict in the Middle East andunrest in Western Africa, energy prices in the USbegan to climb. Between December 2004 and December2005, the price of electricity generated by natural gasincreased 65%.

Reducing the costs associated with information systemswas just one of a variety of responses that companiesused to meet the financial challenges they faced. In2004, however, various research groups began reportinga rise in IT budgets. These increased budgets initiallywere aimed at security and compliance systems and atcritical infrastructure replacement.

IT Labor Supply

During the period 2001-2004, IT hiring dropped, alongwith IT budgets. After the dot-com boom and bust,the popularity of computing majors declined substan-tially. The recession of 2001 caused many graduates to

experience substantial delays in finding work and haveto take jobs that were not what they expected. Withhighly publicized offshoring hitting IT jobs, studentsbegan selecting other majors. In short, a computingcareer seemed like a risky bet.

Now that companies have begun hiring students again,they are finding out that there aren’t very many to hire.The competition for students is predicted to be verykeen. Companies will not be able to satisfy their staffingneeds with domestic talent and will supplement thetalent pool with consultants or foreign labor eitherthrough H-1B programs or offshoring. This may havethe effect of continuing to dampen enrollment for com-puting majors. The press has termed this the “IT hiringdeath spiral.”

One effect of this trend that will quickly become evi-dent will be in diversity. Women have left the comput-ing field in droves. Early estimates indicate that whileabout half of the MIS majors in 2001 were female, fewerthan 10% are today. The numbers in computer scienceare even worse. These problems are systemic. There isa reason that companies like Microsoft are putting forthsubstantial efforts in trying to attract students to com-puting careers.

BUDGETING

The budgeting process is a mechanism for planning andcommunication. As a planning mechanism, it is a state-ment about what the planner believes the future willbe and how he or she plans to meet that future state.



by Dennis A. Adams, Associate Dean of Graduate and Professional Programs,C.T. Bauer College of Business, University of Houston

IT Alignment and Post-Traumatic Economic DownturnBudgeting

Budgeting is both reactive and proactive:it reacts to the past and present, and it isproactive with regard to the future state.


Budgeting is both reactive and proactive: it reacts to thepast and present, and it is proactive with regard to thefuture state. As a communication vehicle, it is a toolthat facilitates a dialogue between the budgeting orga-nization and outside constituents.

In the early part of this decade, we saw informationsystems managers become more focused on cost cuttingthan on business expansion for the simple reason thatthere was very little business to expand. IS managersreduced their operational and capital costs and tried tomaintain service levels. The results of the cost cuttingmade national news and threatened to affect foreignpolicy. Global sourcing, offshoring, outsourcing, H-1B,and so on were familiar phrases heard during politicaldebates and the evening news.

In summary, IT budgeting will be more challenging incoming years than it has been recently. Energy costs,security/compliance issues, and IT labor shortages willaffect the direction of investment. As the recession ofthe early 2000s came to an end, companies that hadfocused for nearly four years on cutting costs beganspending more money on information systems forinnovation and competitiveness.

ANALYSIS

On One Hand ...

Cutter’s recent IT budget survey shows that for a major-ity of respondents (57%), IT budgets are increasing (seeGraph 1 in the Survey Data section beginning on page28). This would be expected, given the very tight ITspending cycles that have just ended. A majority ofrespondents (61%) indicate that business requirementshave driven the increases (see Graph 2). For the lastthree or four years, IT budgets have been directed tocutting costs, so for many organizations, the economicrecovery is good news if for no other reason than thereis less and less to cut. Not surprisingly, security (46%)and compliance (38%) are also cited as reasons for theincrease. The one-two punch of Sarbanes-Oxley andmuch publicized stories of data theft and loss havecaused significant increases in those budget componentsaimed at keeping the company safe from itself and

others. While IT budgets have been stagnant, userdemand has kept on pace. Users still want more fromtheir information systems this year than they did in pre-vious years. IT budget increases are also being spent ontechnology renewals (45%), such as server and networkupgrades that have been neglected in previous years.Not to be overlooked, 36% of respondents indicate thatrising IT salaries are exerting pressure on the budget.

As Bob Benson points out in the following article, ITbudgets are often set not to deliver a specific service,but to deliver a generic one. In other words, budgets areset on a cost-plus basis where IT is expected to delivera service level relative to the level delivered in the pre-vious budget cycle. Central management is conveyingto IT that it is the IT department’s job to allocate theresources as it sees fit, but that the organization willdictate the overall level of resources and how thoseinvestments will be evaluated.

As Graph 2 shows, almost a quarter of respondentsindicate that disaster recovery/business continuityplanning accounts for some change in their IT budget.A similar increase was seen after 9/11, but the wide-spread damage seen as a result of hurricane losses lastyear caused organizations to take a closer look at theirprocesses. While IT budgets were being squeezed, busi-ness continuity planning was looked at as a necessary,but unfunded, item. As budgets increased, however,companies have begun spending money on it.

In what must be an artifact of poor cost accountingsystems, only 3% of respondents indicate that their ITbudgets have increased due to increased energy costs. In2005, US residential electricity prices rose an estimated5.1%. In 2006, these prices are expected to increase by8.9% and, in 2007, by another 3.6% [1]. Yet, nearly halfof respondents (46%) indicate that they do not believeenergy to be an important factor in their budget (seeGraph 3). As Bob mentions in his article, IT expenses arenot “fully loaded” in that respondents did not routinelyinclude energy or insurance costs in their budgets.

As previously stated, 36% of respondents indicate thatIT salaries are also included in increasing IT budgets.The US Department of Labor’s Occupational OutlookHandbook suggests that demand for computer-relatedjobs will continue to remain high into the next decade.With substantial declines in the IT labor supply loom-ing, pressure on IT salaries and budgets will grow.Almost 20% of respondents indicate that they expectsignificant growth in IT salaries in the future, while 65%expect at least a slight growth. Clearly, increased laborcosts will occupy a majority of IT budget increases inthe future.



The one-two punch of Sarbanes-Oxley andmuch publicized stories of data theft and losshave caused significant increases in thosebudget components aimed at keeping thecompany safe from itself and others.


Historically, organizations with large budgets attractmore and better qualified IS employees. Because mostorganizations fund IT services through overhead assess-ments, those organizations with a larger basis for thisassessment will be able to compete more aggressivelyin the labor market. Smaller companies will respond byhiring consulting companies to address their IT needs.These consulting companies, in turn, will likewise facecompetition in the labor market, and only the moreprofitable consultancies will be able to attract labor.

On the Other Hand ...

Some portions of IT budgets are declining. Just as busi-ness demands caused an increase in spending, thesesame demands for cost cutting have caused IT man-agers to focus on parts of their budgets that can still becut (see Graph 4). Many of these cost reductions can beattributed specifically to improved technology, mostnotably hardware consolidation (41%) and retirementof applications and productivity increases (30% each).

IT managers are often maligned for not being morebusinesslike or for not aligning IT strategy with that ofthe business. Much of this criticism is proper. However,there are indications from the budgeting process thatshow that IT is not viewed as an equal player. A major-ity of respondents indicate that budget items for desk-top application software (80%), end-user PCs (76%),and mobile devices (67%) are included in the central ITbudget (see Graph 5). Having the operational costs ofone business unit budgeted for in another would notbe acceptable in most parts of a company and in somecases could significantly cause a misstating of the costof goods sold. As Graph 6 shows, 27% of respondentsindicate that 100% of business-unit-specific IT costs areincluded in their central IT budget.

Along these same lines, 50% indicate that very largeor unusual one-time expenditures are included in theoverall IT budget. This common practice can causeproblems associated with tracking of expenses anddelivery of returns on an investment that may spanmultiple cost centers and reporting periods. Deliveredcost savings, particularly those associated with head-count reductions, are extremely difficult to calculate forlarge system implementation.

IT managers should scrutinize their budgets to deter-mine what controllable costs can be directly assigned toparticular business units. While some managers mightbe tempted to bill their customers for these costs, theintention is not cost recovery, but cost allocation. Forexample, if a company’s sales department uses a cus-tomer relationship management (CRM) system, some

portion of the operational cost (and perhaps the capitalcosts) of the CRM should be assigned to the salesdepartment to better reflect the costs and returns thatfunction is providing the company. Without this alloca-tion, the sales expenses to net income ratio would beunderstated, making the sales function seem more effi-cient than it actually is.

The incentive structure for using IT to cut costs in manyorganizations is also a problem. Half of the respondentsindicate that savings from IT cost savings projects endup in the corporate budget (see Graph 7). Often thisoccurs when the use of the savings is not determinedbefore the project is undertaken. For example, if an ITdepartment realizes a net savings from a server consoli-dation project, a plan should be put forward to usethose savings elsewhere within the IT department.Without that plan, good corporate governance woulddictate that the savings revert back to the organization’sbudget and ultimately to the shareholder. Of course,some savings will naturally end up there, but without aplan, much of the savings will not be used within IT.Successful managers use the savings as the basis forpursuing further cost reductions or innovations. Inthis manner, it would appear that IT is “self-funding”improvements.

For IT projects, 53% of respondents indicate that theproject manager is responsible for calculating return oninvestment (see Graph 8). This is problematic for severalreasons. First, for most IT projects, the project manager’srole in the project ends when the project is implemented.Because many projects do not anticipate a return on theinvestment for some time, the ROI is never calculated. Arelatively simple addition to a project process would beto include a post-implementation review. The projectmanager’s job performance should include this function.In the event the project manager is unavailable to con-duct the review, the task should fall to the IT director.

Second, the project manager is often not the best personto determine the actual returns delivered on the project.A project sponsor (or owner) should be at least partlyresponsible for this calculation. A recent CIO Magazinesurvey indicates that for companies where IT is playingthe role of innovator, 42% say the CIO or other seniorlevel IT executive and the appropriate business-unitpartner evaluate innovation payoffs; 59% of CIOs inthese companies indicate that innovation is a significantpart of their job [3].

When project return is calculated, a slight majorityof respondents (37%) indicate that a traditional ROIcalculation is used (see Graph 9); however, 36% indicatethat strategic alignment is used as a measure. This



presents another problem in that most project (andother) managers are not able to assess the strategicalignment of the products, services, or projects that theymanage. Strategic alignment, using methods such asbalanced scorecard or strategic information systemsplanning (SISP), is labor-intensive and requires a levelof expertise often not found in IT project managers.

While consolidation (76%), outsourcing (38%), andCOTS (17%) are common ways of controlling costs (seeGraph 10), the strategic management of the IS functioncan result in cost savings as well as competitive advan-tage gained. Several tools have been identified as wayscompanies have attempted to align their IT strategicplans with corporate plans. Chief among these toolsare demand management and ITIL (the InformationTechnology Infrastructure Library). Demand manage-ment is the process of regulating the demand for ascarce resource, in this case information services, byaligning consumption with strategic need. By focusingon the demand side of a supply-demand relationship,organizations are able to answer the question “Why dowe need to do this?” ITIL is a rapidly growing tool usedin the management of the IS function. The ITIL initia-tive began in the UK approximately 20 years ago as away to collect and publish a set of best practices for themanagement of IS technologies and services. Whenused as part of an SISP process, demand managementand ITIL can be an important tool to help address thequestion “What should we be doing?”

The popularity of demand management is a result ofthe fact the most organizations include user-related ITcosts in the centralized IT budget. In short, users don’tpay their full share of the costs of computing. Thisresults in a “tragedy of the commons” situation wherea common resource suffers from overdemand andultimately provides poor or no service to the whole.The more customer-friendly ITIL is often used to defineand deliver service levels that meet both organizationaland user needs.

Measuring IT project return is a matter of governance.If IT is expected to be a deliverer of bottom-line

business value, then it would make sense that IT man-agers participate in this exercise. However, the resultsshow that IT does not play the role of a bottom-linecontributor in these companies. Just over half of therespondents indicate that IT is operated as a cost centerwhere those costs are a part of general corporate over-head. More than half (57%) indicate that IT is managedas an aggregate spend, rather than a bottom-linecontributor.

If IT is not a bottom-line contributor and is simply autility, it should be managed as one. A utility is oftena monopoly, providing a commoditized product withprice controls and external regulation. The IT utilitywould be the function that provides connectivity, datastorage, security, and processing at the direction of theorganization. It would not be tasked with innovationor even with cost cutting except in response to externalregulation (budgets).

A conflict occurs when organizations treat IT as a littleof both: responsible for innovation but resourced andgoverned as a utility. Company culture, finances, infra-structure, and industry structure dictate how IT can beused. Because of this, there is no “right” answer aboutthe organizational role of IT. Managers should seek tounderstand this role in their organizations.

GUIDELINES

When approaching their budgets, what can managersdo? The following guidelines can be used to meet thechallenges ahead:

IT management should meet with senior companyofficials to develop a clear IT governance model andto clearly define the role of IT in the organization.

IT’s role should be reflected in budgeting and projectmanagement and should be communicated to the restof the IT staff:

— For budgeting, and to the extent possible, costsshould be assigned to those organizational unitsthat derive the greatest benefit. For those itemsthat are genuinely transorganizational in nature,the senior management team should be deemedthe owner.

— For project management, each project shouldhave a non-IT owner, and that owner should beresponsible for measuring the return on the ITinvestment. In any case, the IT project manage-ment team should be trained in the project eval-uation methodology commonly used within theorganization. Every project should have a solid



Company culture, finances, infrastructure, andindustry structure dictate how IT can be used.Because of this, there is no “right” answerabout the organizational role of IT. Managersshould seek to understand this role in theirorganizations.


date by which its success should be measured,and it should be clear who is responsible forperforming that evaluation.

IT budgets should be constructed, taking into accountfuture changes in IT and changes in the industry. TheIT labor supply should be an increasingly importantcomponent of future budgets.

If IT is considered a bottom-line contributor, thebudget should be constructed so that a portion of thesavings made by IT can be reallocated within IT forfuture savings and innovations. If IT is treated as autility, the costs of providing that utility functionshould be clearly understood and savings shouldbe directed to making IT more cost-effective. In anycase, when savings are expected, management shouldmake a case for their use before those savings arerealized.

CONCLUSION

If a budget is a planning and communication mecha-nism, then IT managers have the opportunity to use thistool not only to resource their area but also to betteralign IT with the business. The results of this surveyindicate that while efforts are still underway to stream-line the IT budget, expansion is happening. Businessrequirements are driving most of the change. IT has theopportunity to move out of the business of just savingmoney, toward helping the business make moneythrough innovation of products, services, and internalprocesses.

REFERENCES

1. Energy Information Administration. “Short-Term EnergyOutlook,” 8 August 2006 (www.eia.doe.gov/emeu/steo/pub/aug06.pdf).

2. National Bureau of Economic Research. “The Business-CyclePeak of March 2001.” 26 November 2001 (www.nber.org/cycles/november2001).

3. Varon, Elana. “Reality Check.” CIO Magazine, 1 April 2005,pp. 42-48.



BACKGROUND

We have long been interested in the financial andbudget relationships between IT organizations and thebusiness units they serve. A considerable amount of ourbooks1 focus on these relationships, and a major portionof our IT portfolio management practice deals with theeconomic decisions about IT spend. Our interest islargely practical: we have been consulting with businessorganizations for 40 years in Europe, North America,and the Pacific Rim. We also have been teaching ITmanagers and executives for 30 years, both in the USand in Holland, mostly about information economics,budgeting, and the strategic planning that leads up toeconomic decisions about IT. Consequently, this oppor-tunity to study in some detail how organizations bud-get and plan for the economics of IT is timely andvaluable.

Three core principles form the foundation for Cutter’srecent IT budget survey:

1. Managing money is the basis for managing IT, fromthe business perspective. This means managing cor-porate and IT capital and operating budgets andoverseeing the way resources are acquired andfinanced throughout the entire financial lifecycle ofIT assets. The processes by which companies makeinvestment decisions — both ongoing “lights on”expenses and new development projects — are theheart of managing IT.

2. Understanding IT’s cost2 and applying cost to man-agement decisions about IT are critical elements ofeffectively managing IT. Too many companies don’tunderstand their IT costs — especially their lights-oncosts — and too many don’t understand exactly howmuch it costs to support each critical application andinfrastructure. We frequently say to managers, “If

you don’t know cost, you don’t know anything.”We find that the IT budget process is where man-agement decisions about cost are made and whereunderstanding cost is therefore critical.

3. The way in which business executives deal with ITis largely shaped by the manner in which businessunits are charged for services. Business executives’attitudes about IT are substantially affected by thedegree to which they believe they have control overthe economic decisions reflected in the IT costs thatappear in their budgets. Accordingly, the manner inwhich business organizations manage and use IT islargely bound up in the ways the business managesIT finances. Consequently, we believe examining howthe IT budget process works and how it relates togovernance structures and practices to be useful andimportant.

This survey is a critical step toward advancing ourunderstanding of these principles and our understand-ing of how IT and business organizations make finan-cial decisions in the real world. The survey focuses onthe IT budget process and the related ways in whichIT money is managed. By understanding the budgetprocess, we can better understand how the businessorganization manages IT.

THE SURVEY AND ITS RESPONDENTS

Along with Cutter Consortium and Dennis Adams, weestablished specific objectives for this survey and orga-nized its 37 questions into seven sections. We mentionthis here because our focus is not just on the surveyresponses but on how the survey responses illuminateour core interests in corporate budgets, business-IT rela-tionships, and governance. Our purpose is to reflect on



Robert J. Benson, with Thomas L. Bugnitz and William B. Walton, The Beta Group; Senior Consultants, Cutter Consortium

IT Budgeting: A Management Perspective

1For example, Robert J. Benson, Thomas L. Bugnitz, and William B. Walton, From Business Strategy to IT Action: Right Decisions for a BetterBottom-Line (John Wiley & Sons, 2004); and Marilyn M. Parker, Robert J. Benson, with Edward Trainor, Information Economics: LinkingBusiness Performance to Information Technology (Prentice Hall College Division, 1988).

2We use the term “cost” to represent the total budget cost of IT — the resource allocation and expected spending implicit in a budget.We do not mean “unit cost” or similar ideas.


the survey results from the perspective of budgetingand governance. In this context, we prepare this analy-sis as a report not only on the results but on what theresults teach us about the following seven subjects:

1. General patterns of IT spending — understandinghow IT spending is increasing or decreasing, for theentire IT spend and for specific components withinthe IT spend

2. Expense and capital budgets for the central IT orga-nization — focusing on the budget and governanceprocesses used for managing the centralized ITfunctions

3. Cost recovery of corporate/centralized IT —understanding how business units are affectedby IT charge-out methods

4. Relationship between central IT and business-unit IT — describing how business-unit IT operatesautonomously

5. Staff budgeting — understanding the pressures onpersonnel budgets

6. Project budgeting — understanding how projectbudgets are formed and managed

7. Outsourcing — understanding how budgeting andcosting influences outsourcing decisions

In this article, we explore findings from the survey.Given our specific interest and background in theorganizational relationships between IT and business,reflected in budgets and related cost management, wespecifically look at the first four categories under theumbrellas of variability of IT costs and managementof IT costs and recovery. First, let’s begin by breakingdown the respondents.

The Respondents

Seventy-six organizations worldwide are represented inthe totals. For the most part, complex organizations arerepresented (e.g., multiple business units, central ITorganizations); specifically:

Thirty-seven respondents represent their departmentor division within a larger company. They generallyprovided information about the company as a wholebut focused on the specifics of costs and budgetsfrom their department or division perspective.

Thirty-nine respondents represent their entirecompany.

Although a few small organizations are included, thevast majority are complex, multi-LOB (line of business),central IT organizations. Of the 76 companies, 54 consistof more than one major business unit. And althoughsome respondents gave answers for one part of theircorporation (i.e., department or division), their contextwithin a larger corporation makes their contributionsgermane to our specific interest of understanding howbudget influences the relationships between businessunits and IT organizations; specifically:

Forty-four respondents cover the IT spend for theirentire company.3

Twenty-five respondents cover the IT spend for thecentral IT organization only.

An additional seven cover the IT spend for the ITorganization but indicate that it is also 100% of theIT spend for the company.

We report and comment on the survey data from fourrespondent perspectives:

1. We look at the patterns for all 76 organizations.

2. For some purposes, we segment the respondentsinto IT budget categories.

3. For other purposes, we look only at the largercompanies.

4. Finally, for some purposes, we separate the respon-dents into business categories.

We describe these categories in the following sections.

IT Budget Categories

We focus on the way these budget categories, shownin Table 1, result in assigning costs to business units.For the top four categories shown in the table, in effect,business units directly pay for IT in one form oranother. Presumably, business units budget for ITto cover the costs assigned to the business.

For some purposes here, we lump those four IT budgetcategories into the general category of “cost recoveryor allocation.” The fifth category in Table 1 representscompanies that allocate IT costs to business units in ageneral way, if at all. Consequently, we discuss the 76organizations as being in two basic categories: costrecovery or allocation (37 respondents) and no directcost allocation (39 respondents).


3We will use the term “company” throughout, with the understanding that, in some cases, the reference is to a government, university,or military organization. Where the distinction is significant, we’ll make it.


Larger Organization Categories

For some analysis, we used responses from the largerorganizations only. We did this because, below a certainlevel, organizations do not need formal processes ormuch of a formal organization. For these smaller orga-nizations, the issues of managing IT’s finances aredirect. Above a certain level, though, processes andstructures are necessary in order to plan and manage;we are specifically interested in the ways in which theseprocesses and structures affect how these companiesmanage and plan for IT.

We selected the 35 largest of the responding organiza-tions. Table 2 shows the breakdown of these companies’characteristics. We selected these three classifications(i.e., level of IT spending) because, in our consulting,teaching, and research activities over the last 20 years,these clusters reflect significantly different characteris-tics, in terms of the sophistication and extent of theIT and financial management processes employed.

Business Categories

In some cases, we reflect on different answers basedon the kind of organization represented (shown asbusiness categories in Table 2). In this context:

Forty-two respondents are from a for-profit company.

Nine respondents are from a government, university,or military organization.

Twenty-one respondents are from consultingcompanies.

Four are undesignated.

Distribution of IT Budget Categories Within Business Categories

As shown in Table 3, it probably is not surprising thatcompanies have a much larger percentage (64%) in thecost recovery category as compared to government(33%) and consulting (25%) organizations. We suspectthis is because business — again, not surprisingly — ismore interested in putting IT costs into its various oper-ating units, its P/L activities.

(See Appendix Table 1 on page 26 for the counts in eachcategory corresponding to Table 3.)

Implications for Companies

It takes a lot of work to do charge-out of any kind.From our perspective, a simple corporate cost center,one not allocated at the end of the year to business



Smaller units: level of IT spending is $1 million-$10 million annually

• 7 for-profit companies• 1 government, university, or military organization• 1 consulting company

Midsized units: level of IT spending is $10 million-$100 million annually

• 10 for-profit companies• 3 government, university, or military organizations• 2 consulting companies

Larger units: level of IT spending is over $100 million annually

• 10 for-profit companies• 1 consulting company

IT Spending ClassificationBreakdown of

Business Categories

Table 2 — Large Company Characteristics (in US Dollars)

1. Profit center 4

2. Break-even center (users are billed, but no profit is made) 12

3. Partially charged out (some users are billed) 6

4. Cost center: costs are allocated to users 15

5. Cost center: costs are part of the general corporate overhead 39

Number of

RespondentsIT Budget Category

Table 1 — IT Budget Categories


units, is surely easier than any alternative. This meansthat business units and IT never argue about allocationformulas or usage. It also means that budget negotia-tions each year are simple, involving only the corporatebudget process. As Dennis notes in his article, IT unitshave gone through a period of considerable squeezingof costs, and perhaps that’s relaxing somewhat now. Atthe least, dealing with IT cost budgets has to be simplerwith a single cost center and no allocation. Yet half therespondents go through the effort of some form of allo-cation or charge-out. And the reasons for going throughthis effort, in our experience, range from political (getthe users engaged) to financial (get the revenue sourcesto pay) and all kinds of combinations thereof.

Perhaps the answer lies in basic philosophy. At the riskof injecting some whimsy into the discussion, we havewritten the following, somewhat tongue in cheek:

Our interest in understanding company IT budgetprocesses, reflected by this survey, is a surrogate for ourinterest in a more fundamental issue. This is the processcompanies use to manage IT costs and, by extension,IT benefits. A process that doesn’t charge IT costs to busi-ness-unit management, by default, means that IT costs,resources, and decisions about benefits are managedcentrally “for the good of the business” and “for thegood of the user.” We’ve occasionally remarked (in weakmoments) that IT is the most Marxist of any businessfunction: give to those (users) according to their need,charge (allocate cost) to those according to their ability topay. No, it’s even simpler: all IT resources are owned bycorporate (the “state”) at the center. So we don’t providetransparency for costs, or allocate costs, or engage usersin the management of costs, as the center will provideaccording to need.

In contrast, we’re reminded of a core accounting princi-ple: to assign the cost of producing revenue to the busi-ness component earning the revenue. And IT is certainly

a cost of producing revenue. Just as a modest example,note that the vast majority of companies in this surveymanage PC and laptop costs and resources centrally.Of course, there are valid IT management principlesinvolved, like standards, reducing unit costs, achievingcommon good such as network connectivity, and so forth.(Hmmm. Marx was a CIO? Or more likely, a CTO?)

The Cutter survey does not study which IT budget cate-gory — “cost recovery or allocation” or “no direct costallocation” — is better. We don’t take a position oneway or the other; it’s largely an issue of the overall com-pany philosophy. The implication for companies, how-ever, is to be sure the philosophy for adopting one orthe other of the IT budget categories is based on goodbusiness purpose.

We recommend a company consider the following twoquestions:

1. Why, or why not, do we charge or allocate IT costs tobusiness units (the users)?

2. Is our reason for doing so consistent with the otherways in which we manage the company?

The survey suggests significant variability in IT budgetmethods between companies — variability that isn’twell correlated to other aspects of the companies, suchas company size, size of IT, existence of central IT, andso forth. Given that costs and governance are bothinvolved, it is important to understand why a particularapproach has been adopted.

THE VARIABILITY OF IT COSTS

Many IT executives are asked, “What’s our IT spendcompared to other organizations?” Most often, thisis answered in terms of percentage of IT expenses


IT Budget Categories

4% 5% 25% 5%

22% 11% 10% 16%

12% 11% 8%

26% 11% 10% 25% 20%

64% 33% 25% 50% 49%

36% 67% 76% 50% 51%

36% 67% 76% 50% 51%

1. Profit center

2. Break-even

3. Partially charged out

4. Cost center, allocated to users

Total (cost recovery or allocation)

5. Cost center, overhead

Total (no direct cost allocation)

Government Consulting Other TotalCompanies

Table 3 — Percentage of Business Categories and Budget Categories


compared to revenues — numbers achieved throughbenchmark studies. Our survey, however, suggestsmany problems with this type of questioning; industrybenchmark studies may not provide details of the costmodels used, which, as this data suggests, can introduceenormous variability among individual participants.

A primary issue in this line of questioning is that the“enterprise-level IT costs” aren’t the same as the “cen-tral IT organization costs.” Therefore, in this survey, wespecifically asked the question “What percentage of thetotal company’s IT spend is in the central IT organiza-tion?” (see Table 4).

In other words, there are a lot of IT expenses in thebusiness units directly. And this doesn’t depend onthe kind of business organization, as shown in Table 5— 25 respondents’ business units have their own ITorganizations.

This comes back to the proposition that there’s a lot ofIT expenditures not accounted for as either a part of the

central IT organization or business-unit IT organizations.That is, even for the 51 organizations for which there isno business-unit IT, only 15 state that 100% of the com-pany’s IT expenditures are reflected in the central ITorganization. And only 24 have more than two-thirds inthe IT unit.

This, of course, is a limited sample of organizationsworldwide. But it dramatically demonstrates the enor-mous difficulty of using surveys as the basis for draw-ing conclusions about the level of IT expenditures incompanies and industries. This is because of the vastdifferences in how IT expenses are managed, from thecentralized or decentralized perspective. For the 35largest organizations, 28 have a central IT organization,and seven do not. The percentage of IT costs reflected inthe central IT organization is shown in Table 6.

But what’s particularly interesting is the rank order ofwhat’s included in the central IT organization’s budget— or more accurately what isn’t included. This data ispresented in Table 7. Although all 76 respondents



Expenditures in

the Central IT

Organization

None

1%-33%

34%-66%

67%-99%

100%

Total

2 1 1 0

31 20 1 9 1

12 6 2 3 1

16 10 2 2 2

15 5 3 7

76 42 9 21 4

All

ResponsesCompanies Government Consulting Nonclassified

Table 4 — Distribution of Enterprise-Level IT Costs to the Central IT Organization

Expenditures in

the Central IT

Organization

None

1%-33%

34%-66%

67%-99%

100%

Total

2 0 2

31 22 9

12 5 7

16 9 7

15 15 0

76 51 25

All Responses

Those Without

Business-Unit

IT Organizations

Those With

Business-Unit

IT Organizations

Table 5 — Central IT Costs Compared to the Existence of Business-Unit IT Organizations


answered the question, we base the comparison to thecategory most mentioned (server application software.)

Assuming that the highest number (68) represents all ofthe respondents for which there is some form of a cen-tral IT organization, we can then reflect the propositionof those IT organizations that also include the othercategories of expenses. In other words, assuming therespondents represent 68 central IT organizations’ prac-tices, 94% of those organization also include networkingin the IT budget, and only 35% include energy/utilities.

Three propositions can be advanced from this data:

1. There’s wide variance of what’s included in centralIT budgets. This makes survey-based studies ofwhether IT expenses are increasing or decreasing dif-ficult; what may be increasing for one company maynot even be considered a part of IT expenses foranother.

2. The definition of “IT expenses” isn’t based on a fullyloaded cost by any measure. Less than half of theorganizations in the survey include energy or bene-fits or insurance. Space costs are included for onlyhalf as well.

3. Almost all central IT organizations pay at least someof the business units’ IT costs for laptops and end-user PCs.

Furthermore, continuing with the theme that there’sconsiderable variation between companies in terms ofwhat is included in IT costs, we asked whether the ITorganization includes activities that might alternativelybe provided by the corporate infrastructure. Table 8shows the results.

It’s probably not surprising that legal is not commonlyin the IT organization and that accounting is in theminority. It is somewhat more interesting that abouthalf have HR functions and almost two-thirds haveprocurement functions.


100% 5

67%-99% 7

34%-66% 7

1%-33% 16

Number of

Organizations

Expenditures in

the Central IT

Organization

Table 6 — Percentage of IT Costs in the Central ITOrganization for the 35 Largest Organizations

Category of Expenses Number Comparison to

of Responses the Max

Server application software 68 100%

Networking 64 94%

Operating system software 63 93%

Desktop application software 61 90%

End-user PCs 58 85%

Backup costs 55 81%

Disaster recovery/continuity 54 79%

Wireless networking 52 76%

End-user laptops, PDAs, etc. 51 75%

Voice communications 48 71%

Space costs 39 57%

Insurance 30 44%

Allocation of corporate costs 28 41%

Benefits 24 35%

Energy/utilities 24 35%

Table 7 — Rank Order of Expense Categories Included in the Central IT Budget


One might argue that the fully loaded cost and othercategories of issues are highly dependent on how theIT organization charges out its costs. The argumentmight be that a full charge-out of IT services couldinclude more costs than a cost-center approach includedin corporate overheads. Again, we looked at the 35largest organizations, displayed in Figure 1.

The main point of Figure 1 is to show the wide varia-tion of cost categories included in IT costs for these 35organizations. The point is that size of the companyalone doesn’t provide the complexity or sophisticationto include all aspects of full cost of the IT activity.

Figure 2 shows the inclusion of specific functionswithin the IT organization (and presumably the costdistribution thereof). Again, there’s wide variationwithin the organizations.


The theme here is variation — asking an organizationabout its IT expenses will produce a highly variedresult. One has to wonder about the validity of suchcommon benchmarks as “percentage of revenue.” Whilewe assume the revenue side is less variable, what’sincluded on the expense side runs the gamut. And



Possible Corporate Services Wholly Provided Provided in Whole or in Part

Provisions of Services by Corporate Infrastructure by the IT Organization

HR 33 36 7

Procurement 28 41 7

Accounting 37 29 10

Legal 49 10 17

Not Applicable

Table 8 — Support Services Included in the IT Organization

0%

20%

40%

60%

80%

100%

Per

centa

ge

of r

espon

den

ts

Larger Midsized Smaller Combined

Space

costs

Benefi

ts

Insur

ance

Alloca

tion o

f cor

pora

te co

sts

Ener

gy/u

tilitie

s

Voice

com

mun

icatio

ns

Wire

less n

etwor

king

End-

user

PCs

End-

user

lapto

ps, P

DAs, etc

.

Networ

king

Deskto

p app

licati

on so

ftwar

e

Serve

r app

licati

on so

ftwar

e

Opera

ting s

ystem

softw

are

Backu

p cos

ts

Disaste

r rec

over

y/bus

iness

conti

nuity

plan

ning a

nd te

sting

Figure 1 — Costs included in the IT organization budget for the 35 largest organizations.


many of these cost categories are large. Overall, thetotal cost of the items being described here may be asmuch as 50% of the total IT organization cost. And thisdoesn’t include the variability of the “shadow” ITexpenses. Again, reviewing the proportion of total ITcost that the central IT organization represents, it’s allover the map.

We suggest a company should answer the followingthree questions:

1. What costs are included in our IT organization’s bud-get and in our total company’s reporting of IT costs?

2. What support costs (e.g., HR) are included in our ITorganization’s budget and in our total company’sreporting of IT costs?

3. What does our industry include in its general report-ing of IT costs?

In our experience, understanding IT costs is vital,especially for the business executives. Clarity on theseotherwise highly variable factors is critical, particularlyif company management tends to look to “percentage ofIT costs compared to revenue” or similar overarchingbenchmarks.

THE MANAGEMENT OF IT COSTS

General Patterns of IT Spending

Overall, IT spending is increasing; only 10 of ourrespondents expect spending to decrease. This surprisesus. In our experience, especially recently, companies arelooking for flat spending, particularly in the lights-oncategories. The rank order of the areas of increases are

probably predictable (see Graph 2 in the Survey Datasection beginning on page 28). After business require-ments (61%) — the most obvious category— are secu-rity (46%) and technology renewals (45%). Givencurrent issues, this isn’t surprising. And certainly, com-pliance (38%) is a recent source for expenditures. Wewere somewhat surprised to see IT salaries rank rela-tively low (36%) as a driver for increased costs.

Conspicuous in their absence from the top five listare networking/wireless, ERP (enterprise resourceplanning), and energy. Indeed only two of the 76respondents mentioned energy. But we might haveexpected networking/wireless to be one of the top dri-vers of expense increases. However, this leads into oneof the themes of this survey: there are very significantdifferences among organizations as to what is definedas “IT costs” and “IT expenses.”

As shown in Graph 4, the top five areas drivingdecreased expenditures are:

1. Hardware consolidation: 41%

2. Business demands for decreased costs: 38%

3. Productivity increases: 30%

4. Retirement of applications/infrastructure: 30%

5. Reduced technology costs: 25%

Here, too, this is consistent with observed practice. It isinteresting to note the role of business expectations forcost decreases; in our experience, this is the highestsource of pressure for decreases.

So what can we conclude thus far about the patternof IT expenses? Really, no surprise yet: generally the


0%

10%

20%

30%

40%

50%

60%

70%

80%


LegalAccountingProcurementHR

Per

centa

ge

of r

espon

den

ts

Figure 2 — Support functions included in IT costs for the 35 largest organizations.


increases and decreases in spending are driven bymostly predictable things. Originally, we thoughtthere might be some distinction between companiesas to whether IT expenses are expected to increase ordecrease. Table 9 shows the analysis.

The numbers are not different enough between “costrecovery or allocation” and “no direct cost allocation”to support any specific conclusions, with the possibleexception of those expecting stable costs. Many morein the no cost allocation category expect stable costs;perhaps this is due to the effect of central managementof the IT costs in the organization.

We asked respondents in which categories of cost theymight expect to see significant growth. The results arein Table 10. (See Appendix Table 2 for the counts corre-sponding to this table.)

A couple of observations. Note that government ishighest in thinking security will be a significant costincrease. And less than one-quarter of respondentsacross the board expect salaries to see significantgrowth. For-profit companies (31%) are highest in termsof thinking compliance will. No surprises here, but it isinteresting.

Finally, we looked at the 35 largest organizations to seewhether they expect IT costs to increase. Table 11 showsthe results; in general, IT costs are expected to increase.Figure 3 shows the specific categories of expected costincreases for these 35 organizations. Energy is not afactor for these companies, again reflecting what Dennisnotes in his article. IT salaries are somewhat so, but notas much as we might have expected. Perhaps outsourc-ing has influenced this. Networking, surprisingly, isrelatively low. We understand that while bandwidthrequirements are growing, unit costs are declining, yetoverall, networking is a major continuing initiative inmany of the companies we see, and we’d have expectedthis category to be more of a factor.

Management Actions to Control Cost

The question is, what is the most important thing thatmanagement is doing to control IT costs? The numberof respondents, categorized by IT budget category, isas follows: 58 of the 76 respondents indicate that con-solidation is a management initiative. Outsourcing,interestingly, is mostly in the no cost allocation orga-nizations (see Table 12 on page 20).



All Responses Government

Energy 14% 12% 11% 24%

Compliance 24% 31% 11% 19%

Security 38% 40% 55% 33%

Networking/

wireless

IT salaries 20% 19% 22% 19%

32% 26% 44%

ConsultingCompanies

43%

Table 10 — Percentage of Respondents Expecting Significant Growth

IT Budget Category Expected to Expected to Expected to Total Companies

Decrease Increase Be Stable Represented

Cost recovery or 7 25 5 37allocation

No direct cost 3 21 15 39allocation

Total 10 46 20 76

Table 9 — Expected Changes in IT Expenditures


We also looked at the difference between companies,shown in Table 13. Interestingly, 100% of the gov-ernment organizations are looking at consolidation.Outsourcing, on the other hand, is almost entirely inthe company areas. (See Appendix Table 3 for thecounts corresponding to Table 13.)

Some points to be made:

1. Consolidation is by far the most important initiativefor all organizations.

2. The use of outsourcing is biased toward no cost allo-cation organizations.

3. The use of demand management is slightly higher incost recovery organizations.

Figure 4 looks at the same controlling cost questionsfrom the perspective of the 35 largest organizations.Here, too, consolidation is the most often called out.Interestingly, outsourcing is a consideration for thelarger organizations.


The two key questions for companies are: (1) Will ourIT costs increase? and (2) What’s the best way to controlcosts? While this survey is a small sample, more thanhalf of the respondents do expect increased costs.

Dennis’s article speaks to some of the underlying rea-sons for this; company management, of course, is thecontrolling influence. So our attention now turns tohow to manage costs best, whether expected to increaseor not. Here the results are clear: consolidation is by farthe most used method. Other methods, such as COTS,ITIL, and demand management, provide more possibili-ties, but are only employed in less than a third of therespondents.

What to do? Manage those costs — and pay particularattention to opportunities to consolidate.

THE MANAGEMENT OF IT COST RECOVERY

This section is, to us, the most significant one of thesurvey, because we’re particularly interested in how


Large 8 of 11

Midsized 8 of 15

Smaller 7 of 9

Total 23 of 35

Table 11 — Expected IT Costs Increasing, for the 35 Largest Organizations

0%

10%

20%

30%

40%

50%

60%

70%

80%


Per

centa

ge

of r

espon

den

ts

Security Compliance Business requirements

Technology renewals

Networking/wireless

Business continuity planning

Energy IT salaries

Figure 3 — Expected IT cost increases for the 35 largest companies.




IT Budget Category Consolidation Outsourcing COTS ITIL

Cost recovery 28 10 6 11 12 37or allocation

No direct cost 30 19 7 11 8 39allocation

Total 58 29 13 22 20 76

Demand

Management

Total Companies

Represented

Table 12 — Companies Employing Methods for Controlling Costs

Consolidation Outsourcing COTS ITIL

Companies 74% 50% 19% 36% 26%

Government 100% 11% 11% 22% 22%

Consulting 72% 19% 14% 19% 29%

Demand

Management

Table 13 — Different Organizations Employing Methods for Controlling Costs


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Per

centa

ge

of r

espon

den

ts

Demand management

OtherITILCOTSConsolidation Outsourcing

Figure 4 — Methods for controlling costs for the 35 largest organizations.


businesses manage and control IT in general and ITcosts in particular. The respondent set is almost allwithin groups for which this can be a complex set ofissues. As noted previously, 54 of the 76 respondentsare from organizations with multiple business units.And 58 state there is a single primary IT organizationin their company. We didn’t ask if there are multiple ITorganizations for the others, but 25 did state that busi-ness units have their own IT organizations.

IT Budget Management

Our first question regarding this area is whether IT ismanaged to a bottom line or an aggregate. What wemean by “bottom line” is that, in budgeting; manage-ment expects the net of the IT organization’s costs andcost recoveries to be a certain number, perhaps zero. By“aggregate,” we mean that, irrespective of cost recov-ery, the total expenses of IT — the sum of the central ITorganization’s net and the distributed and local costs inbusiness units — equal a total number.

One would think that all of the cost recovery categories— companies that distribute costs to business units —would manage IT to the bottom line and that those thathave a central cost pool that may be allocated wouldmanage to the aggregate of IT spend. It turns out, how-ever, that there’s no such pattern in our sample, asshown in Table 14.

While it is true that more than half of the no cost alloca-tion category is managed by the cost aggregate, the factis that 50% of the cost recovery category is also meas-ured to the IT expense aggregate. The point here is that,for even the cost recovery category, the IT organizationis measured to the aggregate of expenses for half of therespondents. This is contrary to expectations, wherewe’d expect these organizations to be bottom-linemanaged.

We have to say, however, that we have experiencednumerous IT organizations that do charge out, but still,the CIO manages the total spend to a bottom line. Whatthis implies in our sample is that only 19 of the compa-nies represented are on a true bottom line — that is, ITcan charge its users whatever it can get away with.

As Table 15 shows, overall, the majority of respondentsare managed to the aggregate. From a managementprocess perspective, what this typically means is thatIT is given a target for a budget, and the managementtask is to manage to that target. Most often, in ourexperience, that target is not derived from any businesscases or other analytical process — it’s essentially a“flat” or “cost-plus” approach from year to year. Thismeans the management task is to manage costs withinthe target, to reduce in some areas in order to coverincreases in other areas. IT has been fortunate, in ourview, in that IT technology costs have generallydeclined, so that this is possible. (See Appendix Table 4for the counts that correspond to Table 15.)

What this further implies is that there’s an implicitstrong central management oversight of the total ITspend. Now, there are some variations as discussedbelow. Obviously, as well, if things like energy costsand so on are not included in IT, the burdens of manag-ing in this context are not so severe. And as we’ll dis-cover below, this also leads to practices to coverextraordinary expenditures like ERP, outside thenormal IT budget process.

Again, what this implies is that formal cost justificationprocesses are probably not useful in these “aggregate”companies. While it might be useful for prioritizationwithin the fixed-budget targets, the best business casein the world doesn’t add to the aggregate cost target.


Managed to Managed to Total Companies

Bottom Line Cost Aggregate Represented

Cost recovery or 19 18 37allocation

No direct cost 14 25 39allocation

Total 33 43 76

IT Budget Category

Table 14 — How Is IT Financially Managed?


What’s Included in Central IT Costs?

With respect to business-unit costs included in the cen-tral IT budget, it is remarkable that desktop applica-tions, PCs, and laptops are so high in the counts. Thissuggests considerable control by central IT over thoseresources. We understand that companies have beenconcerned about PCs in particular, and that the conceptof TCO (total cost of ownership) is often used to betterunderstand PC costs. But from an organizational per-spective, we think it’s remarkable that business unitshave as little direct control over these costs as isreflected in this survey. As Table 16 illustrates, there is

a slight point that for organizations that allocate somecosts to business units, there is less control over the costsof business-unit resources like PCs, laptops, and desktopapplications.

What’s Included in Cost Recovery?

We asked about cost recovery methods in this survey.By combining those responses with the specifics ofwhat’s included within IT costs, we find the following.

It’s pretty clear, as shown in Table 17, that the nature ofassigning costs to business units has only a small con-nection to the inclusion of costs;4 for example, withrespect to space costs, 18 of 39 cost center as comparedto 21 of 37 where there’s some process for direct assign-ing of costs to user. We also see that special costs — likeERP — are not included in the overall IT spend for allcompanies. This reduces the burden of managing to anoverall aggregate cost target.

Table 18 shows that doing cost recovery tends toinvolve specialized budget structures. This is notsurprising in the sense that typical CFO-provided bud-get categories aren’t helpful in managing IT costs, andthis is more significant in cost recovery organizations.The table also shows that the use of general IT budgetsto fund very large projects (e.g., ERP) is the same inboth categories.



Bottom Line Aggregate Total

Companies 45% 55% 100%

Government 45% 55% 100%

Consulting 33% 67% 100%

Other 75% 25% 100%

Total 43% 57% 100%

Table 15 — Financial Management, by Company Type

39 32 29 37

15 13 11 13

12 7 6 7

6 4 4 3

4 2 1 1

37 26 22 24

76 58 51 61

Cost center, part of corporate overhead

Cost center, allocated costs to users

Break-even center

Partially charged out

Profit center

Subtotal: some form of costs assigned to business units

Total responses

Total

Responses

Desktop

PCs

Laptops

and PDAs

Desktop

Applications

Table 16 — Items Included in Central IT Costs

4One might also argue that corporate or country culture has a lot to do with this. Though beyond the scope of this article, we havelooked at both questions through the detailed data. We found absolutely no correlation between any of these practices and country orculture (inferred from the several questions about multidivisional, etc.).


What’s Involved in the Budget Process?

We explored some of the specific characteristics of costsassigned to business units and the related managementquestions, shown in Table 19. The core issue is how cen-tral IT relates to business units and how business unitsmake decisions about their level of IT expenditures.

These questions go to the degree of control that centralIT has. Even if the company charges out and businessunits pay for IT, this doesn’t necessarily mean the busi-ness unit executive has any flexibility to change thedirections of IT spend for the business unit. For theorganizations represented in Table 19, there’s significantbusiness-unit-level authority. Business executives inthese companies can direct the expenditure of theirbudgets in ways outside of central IT’s control.

In all types of organizations, central IT tends to retainconsiderable authority over individual business-unit

behavior. In the companies represented in Table 20,even though there’s charge-out in the case of cost recov-ery and perhaps business units can spend their moneyin ways they might direct, central IT still has someapproval rights. The point here is that business unitsgenerally are subject to the guidance of central IT.


Fundamentally, we believe that cost managementis a main — perhaps the only — means companymanagement uses to manage IT. Certainly, corporatebusiness management tends to pay the most attentionto IT during budget processes — and often uses basic“blunt instrument” means for setting IT’s direction.This blunt instrument is applied through edicts like“Next year, we will spend what we spent this year” —in other words, flat year-to-year IT costs. We find, inour consulting, that most companies do this.


39 18 10 13 9

15 9 5 7 9

12 6 4 7 3

6 3 3 2 2

4 3 2 1 1

37 21 14 17 15

76 39 24 30 24

Cost center, part of corporate overhead

Cost center, allocated costs to users

Break-even center


Profit center

Subtotal: some form of costsassigned to business units

Total responses

Total

Responses Space Benefits Insurance Energy

Table 17 — Costs Included in IT Cost Recovery

IT Budget CategorySpecialized Noncorporate

Budget

Cost recovery or allocation

No direct cost allocation

Total

20

12

32

Large Projects —

Separate Budget

19

19

38

Table 18 — Budget Categories


Accordingly, IT management should aggressively man-age their IT cost processes and the way the companyemploys cost to manage IT. This means understandingexactly what’s in IT costs; influencing the choices madeabout what should be included (e.g., energy, space, ben-efits); and adopting the best IT budget category (e.g.,cost recovery) to meet the needs of the company.

CONCLUSION

The experience of doing this IT budget survey has bol-stered our basic beliefs derived from consulting practiceand management education:

1. Business really needs to understand IT’s costs —especially centrally managed infrastructure costs.

2. Cost greatly influences decisions. For business man-agers — say, CEOs of business units — there’s a bigdifference between assigned costs, which are com-plained about, and charged costs, which can be man-aged. If it is assigned, it’s not managed.

3. The costs should be full costs.

4. Costs should be transparent.

One company with which we’re working now illus-trates what we’re talking about. About half of the ITspend is charged out to business units — primarilydevelopment projects and business-unit-specific appli-cations. The other half is allocated to business units viaan annual corporate process that bundles IT costs with

other costs of corporate-provided services, like HR andaccounting, into a single large charge.

The attitude of the company and IT management aboutmanaging IT costs and benefits is as follows: let’s man-age the centrally allocated portion to a flat budget yearto year (irrespective of any business rationale for eitherincreasing or decreasing the spend). But for the portionfor which business units pay, let them spend what theywill. After all, they know better what they need andwhat they can afford. Oh, the business units loudlycomplain about the allocated cost; they don’t under-stand it, they don’t know what they get for it, and mostfundamentally, they can’t do anything to influence it.But they don’t complain about what they decide theyneed. It’s not our point that this is bad for the company.It is that the company doesn’t know whether it is or not,because the process of managing IT costs (and benefits)is largely divorced from the business units that are thecompetitive core of the company.

This brings us back to this survey. Against the back-drop of our suspicion that managers manage IT differ-ently when they are directly responsible for the coststhey consume, we’ve hoped to better understand whatcompanies do, across the globe, to manage IT budgets.And we think we have made some progress.


Companies that participated in this survey shouldbe struck by the basic conclusion we have reached.Namely:



IT Budget Category



Total

13

5

18

11

10

21

16

11

27

8

10

18

8

7

15

4

6

10

9

8

17

Invoices/

Billings Paid

BUs Have Flexibility

with Other Internal

IT Service Units

Fungible Funds:

BUs Can Spend

Budget on Non-IT

BUs Have an

IT Organization

and Do Compete

BUs Have Flexibility

with Other External

IT Service Units

BUs Have an

IT Organization

and Don’t Compete

BUs Budget IT

in Noncorporate

Standard

Table 19 — Characteristics of the IT Budget Process

IT Budget Category



Total

18

26

44

27

28

55

24

29

53

27

29

56

14

25

39

Central IT Approves

BU Budget

Central IT Approves

Hardware Acquired

Central IT

Approves Networking

Central IT Approves

Software Acquired

Central IT

Approves Consulting

Table 20 — Approvals in the IT Budget Process


1. There is enormous variation in what is included inthe category of IT costs.

2. There is enormous variation in how companieschoose to budget IT costs in the business units — asdistinct from budgeting them in the central IT organi-zation if one exists.

3. The variability isn’t affected too much by the basicbudget category, cost recovery versus no cost alloca-tion. Though there is some, it isn’t as large as onemight imagine.

As a result, we offer these suggestions and observationsto companies.

First, in our experience in companies around the world,we have concluded that how IT manages its budgetsand how IT costs end up in the business units doeshave an enormous impact on how business units workwith IT. In effect, this forms a large aspect of IT gover-nance processes.

Consequently, companies should decide exactly whatthe business objectives are in their IT budget processes,with special attention to how IT costs end up in thebusiness units. We believe it is too important to leaveit as a simple accounting process or as a simple way toattempt to control central IT costs. Possible businessobjectives include the following:

1. To fairly distribute costs to business units

2. To fairly distribute the complete IT costs to businessunits

3. To influence the behavior of business units (e.g., as aform of demand management)

4. To directly engage business units in the decisionsabout IT costs that affect them

5. To provide the opportunity to trade off decisionsabout IT costs centrally provided versus either doingit locally or not doing it at all

6. To improve the bottom-line impact of IT, by provid-ing cost transparency in the budget process and byincreasing the business-driven decision making thatcan be done

These are just some of the possibilities. The point is tothink about it. The answer as to why do it, from a busi-ness perspective, should significantly influence other ITbudget process decisions. Among other things, whilewe believe it’s important to assign IT costs to businessunits, this is a basic decision for a company to make.

Second, companies should decide what should beincluded in IT costs, as it affects budgets, cost recover-ies, and fundamental decision making about IT costs.This survey dramatically shows how wide the varia-tions can be.

Third, companies should be wary of industry bench-marks professing to compare how much is being spentfrom one company to another and applying simplemeasures such as cost per employee or cost as percent-age of revenue. Leaving aside the variability of thenumerator (What is an employee? What is revenue?),the enormous variability of cost practices between com-panies makes it problematic as to the usefulness of thecomparisons.

Fourth, managers and practitioners can apply parts ofthis survey’s questions as a profile for what they aredoing in IT budgets and cost recovery methodologies.By having a profile for practice, both business and ITmanagers can better understand what they are doingand potentially determine how to improve IT’sperformance.

Finally, IT management needs to treat IT cost processesas the most strategic aspect of IT management — proba-bly more strategic than the more traditional methods,such as enterprise architecture, project prioritization,governance, and so forth. IT management ignores ITcost processes (budgeting, cost recovery, the definitionof IT cost, the impact of IT cost allocations on businessunits, etc.) or relegates IT cost processes to junior mem-bers of the IT staff, at their peril.

FUTURE DIRECTIONS FOR STUDY

An important aspect of doing survey work like this isthat, when the data is reviewed, it suggests importantquestions that weren’t asked. This is particularly truehere. A major issue with our survey is that we don’tconnect any of the data to any measures of outcomes.Do companies make better decisions? Are businessusers happier? Is there any evidence of improved per-formance? In our 40-year consulting practice, and in ouracademic and research career, we certainly believe so.But it would be interesting to go to the next step withthis survey.

APPENDIX: THE DATA TABLES

The following tables provide the response counts thatare reported as percentages in the text of the report.





Companies Government Consulting Other Total

2 0 1 1 4

9 1 2 0 12

5 1 0 0 6

11 1 2 1 15

27 3 5 2 37

15 6 16 2 39

15 6 16 2 39

Profit center

Break-even


Cost center, allocated to users

Total (cost recovery or allocation)

Cost center, overhead

Total (no direct cost allocation)

IT Budget Category

Basic Type

Energy 11 5 1 5

Compliance 18 13 1 4

Security 29 17 5 7

Networking/

wireless

IT salaries 15 8 2 4

24 11 4 9

Significant

Growth Companies Government Consulting

Demand

Management

Companies 31 21 8 15 11

Government 9 1 1 2 2

Consulting 15 4 3 4 6

ITILCOTSOutsourcingConsolidation

Basic Type Bottom Line Aggregate Total

Companies 19 23 42

Government 4 5 9

Consulting 7 14 21

Other 3 1 4

Total 33 43 76

Appendix Table 1

Appendix Table 2

Appendix Table 4

Appendix Table 3

This issue of Cutter Benchmark Review is the second topicintended to become a yearly installment. The first, ITtrends, is slated for publication at the beginning of eachyear — stay tuned! The annual budgeting issue willcome out in August, trying to hit the sweet spotbetween the start and completion of the budgetingprocess. We don’t want to issue the survey too early,before you have a chance to evaluate your budgetingpriorities, but we don’t want to come out with the issuetoo late, making our results of little value in helpingyou with the current cycle. Since this is the first of ourannual budgeting issues, we cannot formally drawtrends (even though given the wealth of experience ofour two contributors, we still do!), but we look forwardto doing so in future issues.

Our academic contributor in this month’s issue isDennis Adams, Associate Dean of Graduate andProfessional Programs, C.T. Bauer College of Business,University of Houston (USA). Dennis, a CBR contributorto the yearly IT trends issue, has substantial experienceteaching and consulting in the domain of IT governanceand budgeting. Providing our view from the field isThe Beta Group, comprising Bob Benson, Tom Bugnitz,and Bill Walton, all Senior Consultants with CutterConsortium’s Business-IT Strategies practice. The BetaGroup contributes years of consulting, writing, andeducational experience to this issue of CBR.

As Dennis reminds us, “The budgeting process is amechanism for planning and communication. As aplanning mechanism, it is a statement about whatthe planner believes the future will be like .… As a com-munication vehicle, it is a tool that facilitates a dialoguebetween the budgeting organization and outside con-stituents.” With this as a starting point, we have goodnews to report: IT budgets are increasing, with almost a

2:1 ratio of respondents reporting larger budgets thanthose who foresee it shrinking (15%) or remainingstable (28%). This is hardly surprising, after all thetightening of the past few years.

But there is more good news when we look at wherethe money is going. The item that sees spending increaseby the largest group of respondents is business require-ments — suggesting that “tighten the belt” spendingmay be easing up a bit. This interpretation is reinforcedby the fact that two of the top three areas of decreas-ing pressure on spending are business demands fordecreased costs (38%) and productivity increases (30%).

The survey also brings some surprises. For example,our respondents claim minimal increase spending dueto rising energy costs. This appears to be a function ofaccounting mechanisms, not reality — there is no doubtthat energy costs are increasing for anyone who paid abill or filled up the car lately! The omnipresent attentionto security these days (46%) and some overdue technol-ogy renewal efforts (45%) round out the top spendingpriorities.

If you diligently read CBR, you will notice an encourag-ing pattern of consistency in the results of various sur-veys — IT trends, innovation, budgeting. With pressureon IT departments relenting a bit, and a renewed focuson IT innovation, much of the attention on complianceand cost-cutting technology in the recent past seems tohave cleared the way for revenue-side thinking. Whileyou can’t take your eyes off the ball of lights-on initia-tives and security, there is a clear opportunity to makethe best of the recovery by once again showing to yourcounterparts how IT can contribute to the organiza-tion’s mission by doing more than supporting costcutting and efficiency initiatives.

CONCLUSION


From the Editor, Gabriele Piccoli

IT Budgeting in 2006: Making the Best of the Recovery


SURVEY DATA


Increasing57%

Stable28%

Decreasing15%

61%

46%45%

38%36%

24% 24%

17%

8%

3%5%

0%

10%

20%

30%

40%

50%

60%

70%

Perc

enta

ge o

f re

spondents

Business requirements

Security

Technology renewals

Compliance

IT salaries

Networking/wireless

Disaster recovery/business continuity

planning and testing ERP

Mergers/acquisitions

EnergyOther

SURVEY DEMOGRAPHICS

This survey examined general and specific aspects of IT budgeting in 76organizations: 37% of respondents are in North America, 21% Australia/Pacific, 16% Europe, 13% Asia, 5% the Middle East, and 4% each inSouth America and Africa. Twenty-one percent of responding organi-zations have annual revenues of more than US $1 billion, 28% haveannual revenues between $100 million and $1 billion, 21% have annualrevenues between $10 million and $100 million, and 30% have annualrevenues less than $10 million. Annual IT budgets range from under$100,000 (20%) to more than $50 million (18%). Thirty-two percent ofresponding organizations have more than 5,000 employees, 23% havebetween 500 and 5,000 employees, 20% have between 100 and 500employees, with the remainder having 100 or fewer employees. Forty-three percent of respondents hold senior management/policy making orIS/IT management titles, with project management, consulting, QAmanagement, operations, software engineering/programming, andengineering/R&D being among the other titles.

Graph 1 — Are IT budgets increasing or decreasing?

Graph 2 — For areas of increased spending, what is driving the change? (Please select all that apply.)

IT Budgeting

SURVEY DATA


15%

40%

46%

24%

59%

17%

38%

50%

12%

32%

58%

11%

20%

65%

16%

0%

10%

20%

30%

40%

50%

60%

70%

Perc

enta

ge o

f re

spondents

Energy Compliance Security Networking (e.g., wireless)

Salaries

Significant growth Slight growth Not important factor

41%

38%

30% 30%

25%

21%

18%

8%

4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Perc

enta

ge o

f re

spondents

Hardware consolidation

Business demands for

decreased costs

Productivity increases

Retirement of applications/

infrastructure

Reduced technology costs

Outsourcing

Open sourcing

Reduced demand for IT Other

Graph 3 — Please indicate how dynamic you consider each of these costs to be:

Graph 4 — For areas of decreased spending, what is driving the change? (Please select all that apply.)


SURVEY DATA


90%

84% 83%80%

76%

72% 71%68% 67%

63%

51%

40%37%

32% 32%

5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%P

erc

enta

ge o

f re

spondents

Server

appli

catio

n sof

twar

e

Networ

king

Opera

ting s

ystem

softw

are

Deskto

p ap

plica

tion s

oftw

are

End-

user

PCs

Backu

p cos

ts

Disaste

r rec

over

y/bus

iness

conti

nuity

plann

ing an

d tes

ting

Wire

less n

etwor

king

End-

user

lapto

ps, P

DAs, etc

.

Voice c

omm

unica

tions

Space

costs

Insur

ance

Alloca

tion o

f cor

pora

te co

sts

Benefi

ts

Energ

y/utili

ties

Other

100%27%

67%-99%15%

1%-33%31%

015%

34%-66%12%

Other

3%Remain in IT to be used

for other projects34%

End up in a business-unit budget

13%

End up in the corporate budget

50%

Graph 5 — What is included in the central IT organization’s budget? (Please select all that apply.)

Graph 6 — How much of business-unit-specific IT costs areincluded in the central IT budget? (An example might be a specific

manufacturing automation package used on the plant floor.)

Graph 7 — If the IT organization undertakes a project thatdecreases the costs of providing IT service, the savings ...

SURVEY DATA


Project manager53%

Other17%

Accounting staff30%

ROI37%

Other16%

Cost reduction11%

Strategic alignment36%

76%

38%

29%26%

17%

12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Perc

enta

ge o

f re

spon

dents

Consolidation (e.g.,servers, networks)

Outsourcing ITIL Demand management

COTS Other

Graph 8 — Who calculates ROI for projects? Graph 9 — How is the value of an IT project measured?

Graph 10 — What are the most important management initiatives taken to reduce IT costs? (Please select all that apply.)


Dennis A. Adams is Associate Dean of Graduate andProfessional Programs in the C.T. Bauer College of Businessat the University of Houston (USA). He has published articlesin journals such as Interfaces, Information Systems Research, TheDATA BASE for Advances in Information Systems, MIS Quarterly,and Information & Management. His research interests includethe effects of and techniques associated with valuing thebottom-line contribution IT makes to organizations. He canbe reached at [email protected].

Robert J. Benson is a Senior Consultant with CutterConsortium’s Business-IT Strategies practice and a Principalwith The Beta Group. His consulting features business value,effective IT application development, consulting methodologydevelopment, IT infrastructure planning, and facilitated plan-ning. Mr. Benson has been instrumental in the developmentof Information Technology Investment Evaluation and TheBusiness Value RoadMap, methodologies based on InformationEconomics used by companies and consulting organizationsaround the world. He has conducted executive seminars onthese subjects throughout the world and has taught graduatecourses in schools of business and engineering in Holland andthe US. Mr. Benson is an Affiliate Professor of ComputerScience at Washington University in St. Louis (USA), where healso served as Associate Vice Chancellor for Computing andCommunications for 20 years.

Since 1965, Mr. Benson has lectured and consulted, created andmanaged academic programs and organizations, developedlarge-scale computer systems, and worked with countless com-panies and agencies in their IT applications. He is coauthor ofseveral books and numerous articles and monographs, includ-ing Information Economics: Linking Information Technology andBusiness Performance and Information Strategy and Economics:Linking Information Systems Strategy to Business Performance. Heis codeveloper of Information Economics and Enterprise-WideInformation Management. These methodologies are used bycompanies and consulting organizations worldwide to bettermanage IT resources for business improvement. He can bereached at [email protected].

Thomas L. Bugnitz is a Senior Consultant with CutterConsortium’s Business Technology Trends and Impacts practiceand Business-IT Strategies practice. He is also President of TheBeta Group. His specialties include business and organizationtransformation through information systems, IS organizationmanagement, technology planning, the impact of new andemerging technologies, the impact of technology on business

strategies, IS operations, strategic systems applications, andleadership for executives. Mr. Bugnitz has lectured widelyon these subjects and has codeveloped methodologies inthese areas. In addition, he is closely associated withWashington University in St. Louis and participates actively inthe development and execution of research in InformationManagement. He is coauthor of several books on computersand computer programming. Since 1974, he has worked in thefield of business and information management. He has con-sulted around the world with numerous companies and gov-ernment organizations.

Mr. Bugnitz brings practical experience to bear on his consult-ing and teaching assignments, having worked at all levels ofIS organizations, including 10 years managing large data cen-ters and telecommunications operations. He has also servedas an expert witness for the last 20 years in the field of soft-ware acquisition and development. He can be reached at [email protected].

Gabriele Piccoli is a Senior Consultant with CutterConsortium’s Business-IT Strategies practice and Editor ofCutter Benchmark Review. He is also Associate Professor ofInformation Systems at the School of Hotel Administration atCornell University. His research and teaching expertise is instrategic information systems and the use of Internet technologyto support customer service, organizational relationship, andinternal operations such as virtual teaming and Web-basedtraining.

Dr. Piccoli has held positions as Adjunct Professor ofInformation Systems at the AB Freeman School of Businessat Tulane University, and as instructor at the EJ Ourso Collegeof Business at Louisiana State University where he receivedhis MBA, as well as his PhD in business administration withemphasis in management information systems. He also holds aLaurea in Economia e Commercio from Università di Pavia.

Dr. Piccoli is actively involved in the profession as a formermanager of the ISWorld Mailing List, a global mailing list ofabout 3,000 academics and professionals in management infor-mation systems, and has served on organizing committees forICIS 2001 and ICIS 2002. He is also a member of the ACM, AIS,and INFORMS. His research has appeared in MIS Quarterly,Decision Sciences Journal, MIS Quarterly Executive, Communica-tions of the ACM, Harvard Business Review, The DATA BASE forAdvances in Information Systems, and Cornell Hotel and RestaurantAdministration Quarterly, as well as other academic and applied

ABOUT THE AUTHORS


About the Authors

ABOUT THE AUTHORS


journals. Dr. Piccoli has also served as ad hoc reviewer for anumber of journals in the field and serves on the editorial boardof the Cornell Hotel and Restaurant Administration Quarterly.He can be reached at [email protected].

William B. Walton is a Senior Consultant with CutterConsortium’s Business-IT Strategies practice and a Principalwith The Beta Group. His areas of special interest and expertiseinclude performance measurement, integrated strategic plan-ning, IT/business value, organizational change management,and technology driven change. Previously, Mr. Walton spent 17years with Gartner Group and Real Decisions, where he wasresponsible for the development of several innovative IT meas-urement services and their associated analytical methods. Mostrecently, Mr. Walton was involved in the development of a setof management frameworks and tools that support IT strategicalignment and planning processes. Additionally, he has beenactive in the adaptation and application of balanced scorecardmethodologies to IT change management issues. Mr. Waltonhas been active in the information and technology managementfield since 1977. He can be reached at [email protected].


How IT Professionals Can Maximize IT’s Bottom-Line ImpactPresenters: Bob Benson or Tom Bugnitz. This workshop — intended for business and IT man-agers responsible for IT resource and spending decisions, IT steering committee members, and othermanagers responsible for setting IT priorities — provides practical tools for controlling IT spendingwhile improving IT’s impact on the business. You will learn how to adopt and implement principlesand practices for planning new investments, controlling the costs of existing IT activities, andassessing business impact of existing and planned IT activities. This includes tools for planning,prioritizing, executing, and measuring activities and resources based on their connection andcontribution to the company’s business strategies and bottom line. You will also perform a companymaturity assessment exercise, which will result in a set of as-is/to-be statements for implementingeffective IT and business planning processes in your company. You can then return to your companyand create customized IT assessment and prioritization tools for controlling IT costs and improvingthe impact of IT activities.

Assessing Existing IT Applications for Business Impact, Quality, Service Level, and RiskPresenters: Bob Benson or Tom Bugnitz. Business and IT managers spend 90% of their timeanalyzing the business impact of proposed IT investments. However, 75%-90% of IT dollars arespent on existing IT activities, which receive very little management scrutiny regarding theircontinued effectiveness and relevance to the business. This workshop provides tools that allowboth business and IT managers to assess how well individual applications and IT portfolios areperforming in supporting the business and in identifying underperforming IT assets that can beredirected at higher-payoff activities. You’ll leave this workshop with a concrete plan of action forassessing and analyzing the state of your company’s IT portfolio. This workshop is customized sothat the business and IT managers who are responsible for making resource and spending decisionsfor IT in your organization will have an opportunity to create a specific plan that your company canuse to perform a detailed assessment and analysis.

IT Performance Measurement and the CIO Dashboard: Measuring the Value Contribution of ITPresenter: Ken Rau. Understanding your company’s investment in — and return on — informationtechnology is key to managing business risk and maximizing value from IT. Enable that understand-ing by creating a CIO dashboard of performance measures that reports IT results in an easy-to-understand format. An effective dashboard must be based on a solid foundation of business andtechnology objectives, critical success factors (CSFs), and key performance indicators (KPIs). Thisworkshop focuses on techniques used to identify measures including the Balanced IT Scorecard, theIT Process Model, the IT Value Proposition, and the IT Performance Measurement Program. You’lldiscover the features and benefits of a comprehensive CIO dashboard implementation and learnfrom case studies and examples of successful dashboards developed by organizations. In this two-day workshop, you will learn how to establish a program of performance measurement for your ITorganization and implement a CIO dashboard for reporting results that link business strategy and ITobjectives, establish an IT value proposition, improve communication between users and providersof technology services, enhance IT management capabilities and controls, and ensure technologyperformance meets expectations and operates within acceptable parameters. Organizations withexisting IT performance measurement programs can discover ways to improve and extend theirprograms.

Inhouse Workshops

Cutter Consortium inhouse workshops

are developed and presented by its

Senior Consultants: you’ll benefit from

cutting-edge ideas, methods, and

strategies presented by the thought

leaders who developed them.

Cutter’s extensive workshop curriculum

can be customized to meet your organi-

zation’s needs to ensure everyone

shares the same base knowledge

and is well-equipped to take on the

challenges of new ways of doing

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Cutter’s training offerings run the

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CUTTER CONSORTIUM

Business Technology StrategyBring these workshops to your organization


The Back End of IT Strategic Planning: Ranking Projects Through the Ongoing Planning ProcessPresenter: Ken Rau. What can you do when the business’s reach exceeds its grasp — when thesum of IT opportunities, qualified projects, and ongoing requirements exceeds the available ITresources required for their simultaneous pursuit? Much has been written about ensuring thatproposed IT projects support the business strategy, identify initiatives that pursue the IT vision,and complete the applications portfolio. But given all the identified IT initiatives and projects theorganization would pursue, how is IT to rank those projects for attention and arrange them into alogical, balanced IT strategic plan? In this two-day workshop, you will learn a consistent methodfor evaluating projects that allows for comparison, ranking, and prioritization of multiple projects.You will explore and discuss techniques and tools for evaluating projects against multiple criteria,then apply them in practical exercises. You’ll learn strategies for gaining management commitmentto the resulting project prioritization and methods for engineering projects into a time-phased ITlong-range project plan. Finally, you will learn how to employ the same techniques used forevaluating and ranking projects in order to establish an ongoing planning process that refreshesand maintains the plan’s ongoing viability.

Improving Software ROIPresenter: Michael Rosen. Most IT organizations today are concerned about the cost of softwaredevelopment and maximizing ROI. There are many different approaches to achieving improved ROI,including tools, processes, outsourcing, and architecture. This seminar discusses the advantagesand disadvantages of different approaches, how they interrelate, as well as guidelines for andissues with implementing them in your organization. You’ll bring home an understanding ofdifferent techniques for improving ROI and how to apply them in your organization.

Business Technology LeadershipPresenter: Stephen Andriole. Instead of focusing on hot new technologies or on how to makeCIOs or CTOs more effective in their existing roles, the Business Technology Leadership programfocuses on the intersection of business models, technology, and management best practices againsta backdrop of leadership. The emphasis is on the interrelationships among business models,processes, technologies, and business impact — defined as sales growth, customer satisfaction,and profitability. Technology is operational, tactical, and strategic. Business is collaborative,continuous, and competitive. Leaders must be creative, adaptive, and responsive. This programenables participants to see all this holistically. You’ll gain an increased awareness of the changesoccurring in the industry as well as what effective leaders need to understand about emergingbusiness and technology as a result of the program’s focus on two closely related objectives: thewide and deep understanding of business and technology trends, and the components of effectivebusiness technology leadership. This program is designed to change the way business perceivestechnology and how technology relates to business. After completing the program, you’ll be ableto add measurable value to the business, contribute to business growth, and think as strategicbusiness partners. This program consists of modules that build upon one another, with the finalmodule an exercise that solves a real problem. By focusing on the new role that technology shouldplay in the enterprise — a role that assumes a partnership between business and technology,between business metrics and technology performance — you’ll acquire the knowledge and skillsto change the business technology relationship in your organization and own a perspective onbusiness technology that will translate into improved business performance. Perhaps mostimportantly, you’ll learn about yourself and your leadership abilities.

Writing Successful IT Business CasesPresenter: Mark Cotteleer. Every expenditure meets close scrutiny in today’s IT spendinglandscape. This workshop will equip you to build business cases for complex projects whileanalyzing the impact of an investment on important aspects of an enterprise. Learn the five-stepprocess for producing a structured and measurable business case that facilitates robust andmeaningful analysis of your IT investments. Find out how to take advantage of these process-basedbusiness cases as the foundation upon which to utilize portfolio management and other moresophisticated approaches. Hone your skills to get nonfinancial people to consider potentialincreases in business value through technology implementations. You’ll leave ready to producebusiness cases that help you balance the risks and rewards of the IT projects you manage.

Executive Coaching

Cutter Consortium’s top experts are

available to advise senior executives

on an ongoing basis through Cutter’s

mentoring services. Select consultants

also provide executive coaching,

focusing on areas as diverse as

leadership and innovation.

For More Information

For more details on these workshops,

and a complete listing of all Cutter

Consortium’s Business-IT Strategies

workshops, contact your account

representative or visit www.cutter.com.

Business ITStrategies

CUTTER CONSORTIUM, 37 BROADWAY, ARLINGTON, MA 02474-5552, USA. Tel: +1 781 648 8700; Email: [email protected]; Web: www.cutter.com


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About Cutter ConsortiumCutter Consortium is a unique IT advisory firm, comprising a group of more than 150 internationally recognized experts who have come together to offer content,consulting, and training to our clients. These experts are committed to delivering top-level, critical, and objective advice. They have done, and are doing, groundbreakingwork in organizations worldwide, helping companies deal with issues in the core areasof software development and agile project management, enterprise architecture, businesstechnology trends and strategies, enterprise risk management, business intelligence,metrics, and sourcing.

Cutter delivers what no other IT research firm can: We give you Access to the Experts.You get practitioners’ points of view, derived from hands-on experience with the samecritical issues you are facing, not the perspective of a desk-bound analyst who can onlymake predictions and observations on what’s happening in the marketplace. WithCutter Consortium, you get the best practices and lessons learned from the world’sleading experts, experts who are implementing these techniques at companies likeyours right now.

Cutter’s clients are able to tap into its expertise in a variety of formats including print andonline advisory services and journals, mentoring, workshops, training, and consulting.And by customizing our information products and training/consulting services, you getthe solutions you need, while staying within your budget.

Cutter Consortium’s philosophy is that there is no single right solution for all enterprises,or all departments within one enterprise, or even all projects within a department. Cutterbelieves that the complexity of the business technology issues confronting corporationstoday demands multiple detailed perspectives from which a company can view itsopportunities and risks in order to make the right strategic and tactical decisions. Thesimplistic pronouncements other analyst firms make do not take into account the uniquesituation of each organization. This is another reason to present the several sides toeach issue: to enable clients to determine the course of action that best fits their uniquesituation.

For more information, contact Cutter Consortium at +1 781 648 8700 [email protected].

The Cutter BusinessTechnology CouncilThe Cutter Business Technology Councilwas established by Cutter Consortium tohelp spot emerging trends in IT, digitaltechnology, and the marketplace. Itsmembers are IT specialists whose ideashave become important building blocksof today’s wide-band, digitally connected,global economy. This brain trust includes:

• Rob Austin• Christine Davis• Tom DeMarco• Lynne Ellyn• Jim Highsmith• Tim Lister• Lou Mazzucchelli• Ken Orr• Ed Yourdon


Documents

Cutter Benchmark Analyzing IT Metrics Review for Informed ...€¦ · advice on the hottest IT trends and challenges that IT professionals like you face each day. ... topic, presenting