IT Budget: Diversifying, aligning & prioritizing

“In choosing a portfolio, investors should seek broad diversification, Further, they should understand that equities–and corporate bonds also–involve risk; that markets inevitably fluctuate; and their portfolio should be such that they are willing to ride out the bad as well as the good times.” - Harry Markowitz

Diversifying risks & providing IT’s Business Value

When thinking about how to manage our IT Budget, we should refuse those initiatives that does not present return of investment (ROI), choosing instead those that are focused on business outcomes.

For that purpose, we need to focus on (and be in sync with) business pains, concerns, goals, challenges, needs and outcomes, rather than just the underlying technology:

• What are we trying to achieve?
• What people, departments and process need to change?
• Who will benefit from the outcome of the project?
• What “signals” will indicate we have solved the real problem in a way that adds value to our customers/business units?
• How will we measure success?
• . . .

It’s also the best way to build credibility within the organization, offer a real and measurable added value, and communicate effectively IT’s Business Value.

The IT budget can't therefore be limited to maintaining the current infrastructure and corporate applications, or even the evolution of these, but must consider investment in new initiatives, tools, systems, etc., that allow for accompanying and achieving company's business goals.

Thus, for example, Gartner proposes diversifying the IT budget per the following typology of initiatives

• Run the business
• Grow the business
• Transform the business

Aligning IT Functions with Business Strategy

Technology costs can come from different departments within the organization, and therefore are not covered only by the "IT Budget". This type of IT expenditure from other Business Units is known as Shadow IT.

According to Gartner (2018), on average, 81% of IT expenditure is in the CIO budget and the remaining 19% is in the Shadow IT budget.

Shadow IT is commonly interpreted as an element of risk (mainly from the prism of security, maintainability and/or technological disparity). However, it can facilitate the identification of needs and opportunities for improvement in other departments, which can directly contribute to improvements for the entire company if we try to align ourselves with those business areas.

In addition, looking for synergies with these departments (stakeholders) can facilitate the effective governance of all corporate IT expenses, regardless of the area promoting the expense/investment.

Prioritizing

Both when defining the investment portfolio and when executing it (addressing the initiatives included in the portfolio), it is necessary to have tools that allow us to (re)prioritize the different IT initiatives/programs.

Without establishing any type of criteria or tool for the investments prioritization and management, we will not be able to establish at every moment the work route to follow to comply with the established objectives.

To Sum up:

• If we do not diversify the IT investment portfolio properly, we will be assuming a high business impact risk.
• If we are not in sync with other leaders in the organization, we will not be promoting the alignment between technology and business, and the organization will continue to consider IT as a cost center instead of a profit vehicle.
• If we do not prioritize and manage the order in which programs are executed, we will not be able to achieve the best possible results.

“Lack of funds is not the main reason for not being able to invest in IT. It’s the inability to see value,” - Sanil Solanki