Transitioning from a single-figure budget to a portfolio does have prerequisites. One is awareness of the need for a more meaningful approach to making IT investments. A second is IT governance that includes an investment committee that both approves funds and oversees their expenditure.

For many enterprises, IS can closely align with business strategy only at Stage 3 because its portfolio approach is the first stage where the management of IT investments is differentiated — between managing steady-state by cost and managing project investments by business return.

Today's transparency barrier is an inability to link IS to business services. When only the CIO and CFO handle the IT budget, other executives cannot help set priorities. There are three ways to increase transparency: Clarify cost drivers, use meaningful categories, and disclose appropriate levels of budget detail.

To overcome the transparency barrier use business language. In the early days of IT, when only the CIO and CFO handled the IT budget, other executives could not help set priorities because the budgets were not transparent. There are three ways to increase transparency: Clarify the cost driver, that is, explain the IT cost drivers so the business units know how their actions will increase or decrease their IT costs. Use meaningful budget categories because budgets are too frequently formatted for the convenience of the accounting systems. Reformat them into business-based budgetary units that business customers find meaningful. Disclose appropriate levels of budget details by showing your business customers the information they need to see (which is likely to be more than now) but don't go overboard and breach confidentiality limits.

Today's direction barrier is IS not taking ownership of the IS budget. Overcome the direction barrier by pushing budget responsibility down in IS. Day-to-day actions in IS need to align with the budget for it to have a full effect. When IS staff do not feel "ownership" of the budget, their actions might not align with it.

Devolving budgetary responsibility helps IS staff better understand the business environment and business operations, and see the importance of organizational performance metrics.

Improve tomorrow's IS-business alignment by adding financial approaches. Overcoming today's oversight, transparency and direction barriers fixes problems in the short-term. The problem is, there's a matching set of longer-term "tomorrow" problems that need to be fixed too.

Tomorrow's oversight barrier is that IT portfolio budgeting rules will limit IS's range of options. Also needed are decision rules and funding sources that allow funds to be moved around without requiring major budgetary revisions. Likewise, budgetary flexibility requires finer budgetary controls. Both issues can be addressed with more granular portfolio budgeting — by clustering IT investments into appropriate categories with different governance budgeting and tracking rules for each.

Address the oversight barrier with more granular portfolio budgeting. Portfolio budgeting is not sufficient for business oversight when the budgeting rules limit the easy reallocation of funding to meet business changes. This barrier is driving the evolution of IT budgeting to the final two stages of the financial approaches evolution — Stage 4 and Stage 5 — which divide the budget into more finely divided categories such as efficiency projects that promise to reduce operating costs; business projects that promise to grow business profit; and special investments that usually exit outside the IS budget, and fund things like post-merger integration or geographic expansion.