An it manager’s new best friend the company balance sheet it-toolkits

2/28/2016 An IT Manager’s New Best Friend: The Company Balance Sheet - IT-Toolkits.org

http://it-toolkits.org/blog/?p=422 1/5

An IT Manager’s New Best Friend: The Company

Balance Sheet - IT-Toolkits.org

Hey IT manager, how is that company that you are working for currently doing? Yeah, yeah – I

know that all of the press releases that your management keeps putting out say that things have

never been better and the internal emails that you get from the big guy say the same thing. However,

how are things really going? It turns out that you can answer this question if you know how to read

your company’s balance sheet…

What Is A Balance Sheet?

One of the biggest questions that both investors and IT managers always ask about a company is

“how is it doing?” Answering question can be complicated, but one way to start to get a handle on it

is to take a look at the company’s numbers: what is their current financial position?

The balance sheet is designed to an answer to this question. Itsummarizes the company’s

financial position at the end of a time period: month, quarter, or year. The balance sheet describes

the assets that the company controls and documents how those assets are financed.

The 3 Parts To A Balance Sheet

Every balance sheet is designed to document how a company is providing a solution to the classic

accounting equation:

Assets = Liabilities + Owner’s Equity

Perhaps we should spend just a moment talking about what each of these three components

actually are.

The easiest one is Assets. An asset is something that the company has decided to invest in so that

they can conduct business. If the company was a newspaper publisher, then a printing press would be

one of their assets. Assets can also consist of cash and financial instruments along with inventories of

raw materials and even finished goods. The list can be rounded out by including land, buildings, and

equipment.

Next comes Liabilities. The money that was used to obtain the assets that the company uses had to

come from somewhere. If the company borrowed money or made arrangements to pay suppliers for

goods and services, then this money that they owe is called a liability.

Finally, Owner’s Equity is what would be left over after the company’s total liabilities were deducted

from the company’s assets. One way of thinking about the owner’s equity is if the company was sold

off today, how much would the owners walk away with?



The balance sheet “balances” a company’s assets and its liabilities. It shows you how much it

has invested in assets and just exactly where the money has been invested. A balance sheet will show

you how the company has paid for its assets: did it borrow money or did it spend the owner’s

investment?

By itself, a single balance sheet is only so useful. However, whencompared to a balance sheet for

a period in the past, a balance sheet can reveal a great deal about how well a company is

managing its assets.

What All Of This Means For You

As an IT manager, you have an obligation to know how the firm that you are working for is

currently doing. This obligation comes about because you need to be able to manage your career

as well as to show some leadership and be able to answer company related questions for your team.

The company’s balance sheet is a key part of how you’ll understand how the company is doing

at any point in time . The balance sheet will show you the company’s assets, liabilities, and owner’s

equity.

Using the current balance sheet, you’ll be able to compare the company’s performance to previous

years. Ultimately this will tell you and your IT dream team how you can expect your IT manager

career to proceed where you are currently working.

You may also like



Step 1: Set Budget Goals and Strategies

Once you are aware of your budgeting “realities”, you can begin the process of identifying related

priorities, which will shape and refine actual budget results.

Will it be possible to maintain the budget and still provide the necessary services and projects?

If not, what items in the budget can be reduced to compensate?

If budget cuts are in order, how will essential services and projects still be provided?

How will difficult budget decisions be made and communicated?

How will you deal with staff disappointments and end-user complaints?

Step 2: Identify Budget Components

How will IT funding be spent considering staffing, capital investments, supplies, overhead, facilities,

travel and related expenditures?

Step 3: Identify Service Priorities

What are the identified priorities for the IT service portfolio and what are the related operational

costs to deliver these services?

Step 4: Identify Business Priorities:

In order to prepare a realistic IT budget, you must have a solid grasp on business priorities.Based on

business type, current conditions and circumstances, likely business priorities will likely include any or

all of the following:

To cut IT (acquisition and/or operational) costs and related expenditures.

To improve workplace and IT management productivity.

To deliver new or improved technologies.

To eliminate technology (system and/or operational) problems.

To improve IT service delivery and related customer service satisfaction.

To improve performance of in-place technology systems and solutions.

Step 5: Align IT Priorities with Business Priorities:

The final step in this budget planning process is to align IT priorities with business priorities, aligning

technology spending, IT services and related projects with established business goals (all as part of

the IT management vision). As you begin this alignment process, you first need to look at your budget

as a whole in terms of overall goals and management directives.

This is the time to expand the planning scope and make tough decisions.

Do you need to maintain, cut or increase the current budget from prior budget levels?

If you need to maintain the budget levels from your prior budget, will you need to eliminate or defer

any projects or planned initiatives that would require additional spending?

If you need to cut (reduce) budget levels from your prior budget, how will those cuts be made?

Across the board (equally to all budget items)? Apportioned to specific budget items, leaving



others intact? Apportioned to specific budget items, allowing for necessary increases in some

areas, with corresponding cuts in others?

If you need to request budget increases, can those increases be justified on the basis of IT and

business priorities?

You may also like

Realistic project budgets can be achieved in four (4) steps designed to ensure that your budgets are

sufficiently defined and aligned to existing project needs and capabilities.

Stage 1: Set a justifiable basis for your budget projection by answering the following

questions….

What is the source of the cost projection?

How was the projection derived?

How was the projection validated?

How confident are you in the accuracy of each projection?

Stage 2: Identify assumptions and constraints.

Project budgets are based on more than actual numbers. Behind every cost projection lie three

factors – assumptions, constraints and risks. Assumptions are the beliefs assumed to be true for the

purposes of planning. Constraints are the conditions, circumstances or events that limit “the

possibilities” and are known from the outset (i.e. lack of staff). Risks are possible and probable

conditions, circumstances or events that could threaten the success of a given project.

Stage 3: Skip the pad and plan for measurable contingencies.

Budgets are often “padded” to account for the unknown, taking verifiable cost estimates and then

adding a “fudge factor” percentage, usually 10 to 20%. This can work for smaller, less complex

projects, but in large, complex projects, fudge factors can be difficult to manage and justify. In order to

establish a credible budget, separate budgets can be created to account for contingencies.

Stage 4: Establish actionable tracking procedures.

Once a budget is approved, expenditures must be monitored, and for that, budgets must be tied to a

schedule (how much will be spent and when?). In this way, expenditures can be tracked for expected

utilization… i.e. at any given point in time have we spent more than expected, less than expected, or



pretty much as expected? Variances can then be examined to determine whether they can be

absorbed or whether corrective action must be taken.

Closing Tip: Finding the Budget “Sweet Spot”

No one wants to be over budget, and while “under budget” may seem attractive, if projects are

continually under budget, at some point, individual budgeting skills will be called into question. And

once skills are in question, so is credibility. So the trick is to find the sweet spot – a realistic budget

with appropriate contingency funding to allow for the unexpected.

You may also like

Technology

An it manager’s new best friend the company balance sheet it-toolkits