Six ways to ensure your IT budget doesn't bomb

Given the murky economic outlook, budgetary efficiency is an increasingly important part of every IT leader's job. In fact, according to "The State of Enterprise IT Budgets: 2008," a March report from Gartner, 75 per cent of enterprises say improving the efficiency of IT is a critical or high priority.

Think you have the budget covered? So did many others, who nonetheless found themselves explaining missteps that cost hundreds of thousands -- even millions -- of dollars.

Here are some of the things they learned not to do:

1. Always say yes. Acceding to constant demands can send the budget spiraling out of control, says Mike Gorsage, a partner and regional technology practice leader at Tatum, an Atlanta-based executive services and consulting firm.

Gorsage cites the case of a hospital where the CIO worked under a directive to fulfill all requests. "The senior executives told IT if someone needs something, just get it done," he says.

As a result, planned projects accounted for about 10 per cent of the US$100 million budget, while unplanned work sucked down a staggering 30 per cent. And just over 60 per cent went to maintenance. Best-practices models indicate that 70 per cent should be spent on maintenance, 25 per cent on planned projects and only 5 per cent on unanticipated demands, Gorsage says.

The tipping point came when IT suffered a costly failure on a big project -- a failure that stemmed from all those helter-skelter projects, Gorsage says.

"Finally, the CIO and senior management figured they had to put in strong governance, but it took six or seven months of pain to get that done," Gorsage says. The new rigorous approval and planning process brought the hospital's IT spending closer to that 75/25/5 split.

2. Plan to stop spending once projects go live. Underestimating the work needed after a project goes live is the No. 1 problem with IT budgets, says Ken Gabriel, a partner and global lead for the ERP advisory unit at KPMG International, a global network of professional services firms.

It can leave companies with budget overruns of up to 20 per cent, he says -- hardly pocket change when projects cost millions of dollars.

Gabriel worked with one utility company that realized just two weeks before the completion of its new US$200 million SAP implementation that it hadn't budgeted for postdelivery needs such as working out bugs and training staffers.

"They had planned to get rid of consultants that day [when it went live], and they realized that it wasn't going to be possible," Gabriel says.

IT leaders had to ask the board for US$2 million to bring back about 15 consultants and cover the costs of the 20 internal IT folks needed for that postproject work.

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