Www.techfoundation.org TechConnect Curriculum 2006-2007 IT Budgets that Don't Bite: A Template for IT Budgeting Presented by: Kathleen Sherwin Director,

www.techfoundation.org

TechConnect Curriculum 2006-2007

IT Budgets that Don't Bite:

A Template for IT Budgeting

Presented by:Kathleen Sherwin

Director, Programs & External AffairsTechFoundation



AbstractSince technology began to find its way into nonprofits in the 1980’s, budgeting for IT has been a problem. Many nonprofits still have no distinct IT budget or budgeting process, let alone separate capital, operations, and support budgets. This presentation argues that preparation of an IT budget is a critical step both toward controlling IT costs and increasing the usefulness of IT systems. Through the use of standards, templates, and industry experience, nonprofits can develop IT budgets with relative ease, and should.



Purpose of Presentation• The purpose of this presentation is to

encourage nonprofit managers to develop and follow IT budgeting strategies and practices, resulting in more effective systems and better control of costs. By presenting IT budgeting as a process and using budget templates, attendees should be able to initiate this process in their own organizations.



Goals/Objectives

Attendees will:• Know and apply Total Cost of Ownership & IT

Life Cycle concepts in their agencies• Learn the 6 steps to developing an IT budget• Have spending standards against which to

compare their budgets



Strategic Technology Vision

Before you begin your budgeting process, you will need a Strategic Technology Vision, including:

• How technology will support your mission• Management buy-in• List of each manager’s priorities• Assessment of current IT systems and

support



The Vision Team

IT Staff Program Staff

ED/Board



Hard and Soft CostsHARD

• Hardware• Software• Professional services• Personnel• Training• Telecommunications• Supplies & Incidentals• Environment• Maintenance Cost

SOFT• User time – using• User time - fixing• Helper time• Management time• Inefficiencies



Budget Line Items

A. Hardware

B. Software

C. Professional services

D. Personnel

E. Training

F. Telecommunications

G. Supplies & Incidentals

H. Environment



Budget Columns

HardwareSoftwareServicesLaborTrainingTelecommunicationSupplies &

IncidentalsEnvironment

Item Maint. New Total

PC’s

Servers

Hubs/Switches

Routers/F’wall

Peripherals

Other



Five Concepts Underlying IT Budgeting

A. Projection from current expenses

B. Total Cost of Ownership (TCO)

C. IT Life Cycle

D. Benchmarking against peer organizations

E. Mission-driven, top-down planning



Projection from Current Expenses

• What is it? Start with current costs, add inflation, add/subtract anticipated projects

• Pros: easy to understand and do, easy to calculate, generally pretty accurate, generally a straight-line cost increase

• Cons: no room for new solutions, no measure of effectiveness, easy to hide costs, no challenge for income, sometimes miss opportunity to recognize cost savings



Projection from Current Expenses

For example: We spent $1,000 per month for phone lines and service for 50 staffers, so we need to budget $1,100 per month next year to support 55 staffers.



Total Cost of Ownership• What is it? TCO accounts for all aspects of providing

information technology, including purchasing, operations, training, maintenance, support and network services over the expected lifetime of the system.

• Pros: few hidden costs, encourages multi-year planning, can be made to reflect individual agencies

• Cons: many numbers are guessed or assumed, often not connected to mission, means many things to many people, easy to double-count or underestimate costs



Total Cost of OwnershipFor example:

We need to create a new networked office for 5 people. Assuming a 4 year economic life, we need to budget the following:

Item Year 1 Year 2 Year 3 Year 4

System Consultant $1,000 0 0 0

Cost of hardware/software

$7,500 0 0 0

Hardware updgrades 0 0 500 1000

Networking $500 300 300 500

Training $500 0 0 200

Support $1,000 500 500 1,000

Maintenance/Repair 0 500 750 1500

Total 10,500 1,300 2,050

4,200$18,050 = TCO



Life Cycle• What is it? Every system goes through purchase,

installation, maintenance, enhancement, and decommissioning, and should have corresponding costs

• Pros: budgeted costs vary according to what you specifically plan to do

• Cons: still a lot of guesswork, need a lot of history to develop estimation basis, not connected to mission



Life CycleFor example:

We try for 3 year replacement, but we bought a bunch of computers under a grant 3-1/2 years ago. We need to replace all of those old machines now, which are more than 1/3 of our total machines. We need to buy 11 plus 2 for new people, a total of 13 machines.



Benchmarking• What is it? Compare the systems you have

to your peers’ systems and use their experience as a basis for budgeting

• Pros: based in reality, can provide many insights

• Cons: easy to overlook differences between agencies, hard to get information



Benchmarking

For example:

Our peer agencies spend about $600 per year per employee on PC hardware; we have 100 employees, budget $10,000 for PC hardware.



Mission-driven• What is it? The classic top-down approach.

Decide what you need to achieve, find out how technology supports the goals, budget to the goals.

• Pros: easiest to justify, makes technology an integral part of agency work

• Cons: very hard to translate goals into technology, distant from reality



Mission-drivenFor example:

Words for Nerds run successful, popular programs, but needs to increase advocacy and awareness. We are adding 2 staff members for that purpose. We need to do all we do now plus have 2 more people, which is why we’re adding 2 computers.



Baseline Costs1. Determine current actual costs and cost

allocations

2. Compute your agency’s TCO

3. Compute your agency’s cost for each year of life cycle



The Six Steps1. Develop baseline

2. Develop technology vision statement, decide on new project for coming year

3. Project based on baseline & projects

4. Compare results with your Total Cost of Ownership (TCO)

5. Compare results with Lifecycle plan

6. Compare results with peer agencies



Hardware DetailItem Maint. New Total

PC’s

Servers

Hubs/Switches

Routers/Firewall

Peripherals

Other



Software DetailItem Maint. New Total

Licenses

Maint. Agreements

Applications

Other



Services Detail


Service contracts

Consultants

Web developer

Applic. Developer

Tech support fees

Offsite storage costs

Other



Labor Detail


Payroll

Fringe

Stipends

Temps/Coverage

Other



Training DetailItem Maint. New Total

Books, CD’s, publs

Conferences

Classes

In-house classes

On the job

Other



Telecommunications Detail


Data lines

Internet access

Hosting fees

Cells, PDAs, WiFi etc.

Other



Supplies Detail


Cables, tapes, etc.

Ink & toner

Paper & stock

Other



Environment DetailItem Maint. New Total

Share of rent

Climate control

Security

Utilities

Other



The Six Steps (reprise)

1. Develop baseline

2. Develop technology vision statement, decide on new project for coming year

3. Project based on baseline & projects

4. Compare results with your TCO

5. Compare results with Lifecycle plan

6. Compare results with peer agencies



ResourcesTCO worksheets and information – school based: http://www.cosn.org/tco/

Similar ideas, different tools - http://www.iaete.org/tco/

An online curriculum - http://www.rms.net/tut_bud_map.htm

The economist’s point of view: http://www.educause.edu/ir/library/html/cem9624.html

From a nonprofit point of view: http://www.techsoup.org/articlepage.cfm?articleid=197&topicid=11&CFID=1665978&CFTOKEN=1601270

A life-cycle article: http://www.lsit.ucsb.edu/funding/lifecycle.php

Another corporate point of view: http://www.costblaster.com/it.htm



Contact Information

Kathleen SherwinDirector, Programs & External Affairs

TechFoundation617-354-7595

[email protected]•

.

Documents

Www.techfoundation.org TechConnect Curriculum 2006-2007 IT Budgets that Don't Bite: A Template for IT Budgeting Presented by: Kathleen Sherwin Director,