Budget CIO : How do you draw up a budget for CIO ?

IT budgeting requires us to reflect both on existing activities, and on the new IT projects to be implemented.
This should enable General Management (GM), the IT Services Department (CIO) and the Finance and Administration Department (DAF) to work together to build a sustainable proposal for the IT function. In line with strategic orientations, it should guarantee a real contribution to the business, take account of customer expectations, control costs and processes, and, not least, anticipate the future.

Discover our tips in this article. How to:

• Estimate your IT budget?
• Get the tools you need to manage your CIO budget?
• Anticipate and prepare your IT budget?
• Manage estimates for new projects?

The role of the CIO budget: a strategic challenge

CIO must manage and control its budget so as to play an active role in maintaining or creating value for the company. The IT budget " infuses " the entire organization.

The IT Services Director (CIO) is responsible for managing the company's IT department. He assumes the role of IT expert, while managing and recruiting IT staff. In a context where digital technology is becoming increasingly important,the CIO must manage material and human resources.

First and foremost, it aims to balance the CIO activity between expenses and services. Expenses are aggregated by type of expenditure (infrastructure, operations, support, maintenance, projects, etc.).

Services are valued by business department, according to their actual consumption of work units. An economic model is used to evaluate the costs of CIO activities and services.

The CIO budget depends on the company's activity and digital maturity.

The IT budget according to CIO

CIO is based on 3 missions. It is both a :

• Support : CIO offers services to other departments
• Production : IT is now present in all production processes and in virtually all the company's offerings.
• Performance : CIO takes advantage of the opportunities offered by technology to become a core competency in organizational performance.

The balance between these three missions depends on the company's activity and digital maturity. The budget, and therefore the allocation of resources, will be structured and proportioned accordingly.

Examples of ratios of CIO expenditure to sales by sector

• Financial services, banking: 9%.
• Telecom: 5.5
• Consulting and services, IT: 4.5
• Electronics, Health, Insurance, Transport: 3.5
• Automotive, Chemicals, Consumer Goods, Energy: 2%.
• Buildings, Distribution: 1% of sales

Please note: these ratios vary considerably depending on the sector and size of the company. One of the difficulties lies in the uncertainty as to whether or not all of the company's IT costs are taken into account: those managed directly by CIO , but also those that are less visible because they are diluted in the budgets of CIO's customer businesses. To find out more

CIO is seen as a cost center

Although the company is not the direct beneficiary of the services it offers, they are financed from its budget. The services and human resources involved in setting up these services are usually re-invoiced internally. The company is sometimes seen as a profit center - and may even resell its know-how externally.

This is an engineering department, and human resources, whether in-house or through the purchase of services, are the major budget item - 46% according to KLC, CIGREG and CEGOS observatory.

It's a technical infrastructure direction, a notion that's in the midst of a revolution. Of course, the basic infrastructure remains the same: internal and external network, user workstations, storage, etc.

But this is being profoundly disrupted by cloud offerings, SaaS software, telecommunications undergoing an "internet" transformation and multi-desk users (IOT, smartphone, tablet, BYOD, etc.).

This has a direct impact on the CIO budget, with budget items shifting from CAPEX to OPEX.

CIO is a "project" and MCO (Maintien en Condition Opérationnelle) management department for "project deliverables". Following the example of the new digital players, it is becoming a provider of "platforms" embodied in a catalog of services. It's the creation and maintenance of the service catalog that needs to be "budgeted".

The players in the CIO

Budgeting is, of course, a collective task. This makes the exercise all the more complex, since it requires many iterations between numerous players.

Decision-makers :

• General Manager - validates the strategic alignment of the budget
• CFO - validates alignment with financial forecasts
• Business managers - validate projects to be launched
• Chief Information Officer - validates capability alignment

Operational players :

• The design/project manager and his project managers - draw up budgets to finalize current projects and quantify project requests
• Infrastructure / MCO managers - draw up expenditure forecasts
• Management control - provides feedback, audits, ROI monitoring and helps with budget sizing
• Financial representatives at CIO (budget manager, management controller) - monitor budget execution

For the Design/Project Manager, Program Director or PMO, the IT budget construction process represents an important managerial moment with his team of project managers and IT tool users:

• Reflection on the way they are organized
• Setting course for new goals
• Consideration of the means needed to achieve them
• Launching new IT projects

For an IT budget to be successful, it's best to make it a corporate IT project.

Budgeting highlights CIO

At theend of the first half of the year, General Management and the Finance and Administration Department launch the budget preparation process. The process is driven by the budget framework letter, with specific variations for each department. The objective for CIO , like the other departments, will be to propose a budget for the coming year that translates the company's strategic orientations into "euros". Depending on the organization, this process ends in November/December with the validation (or even the vote) of the consolidated budget. Between these two milestones, the highlights are :

• Inventory of project work-in-progress, remaining available funds and budget re-estimates to determine budgets for finalizing launched projects.
• Assessment / Updating of "MCO" charts to determine recurring costs
• Inventory of business requests to estimate project budgets to be arbitrated
• Inventory of requests specific to CIO to estimate budgets for "performance" projects to be arbitrated
• Arbitration and exchange with stakeholders
• Negotiating the CIO budget with senior management

IT budget: how to plan ahead?

Budget preparation is best based on upstream elements such as :

• The strategic plan
• The IT master plan, which is an operational translation of the company's strategy that goes beyond the annual exercise.
• The scoping letter
• Project inventory structured into :
  • Projects in progress
  • New projects :
    • "Constrained" by legal and other obligations
    • "Improvement" of existing systems or performance
    • "Value creation
  • Actual income and expenses
  • Cost charts, particularly for MCO
  • Feedback or project assessment

As we've already explained, this work must be carried out in close collaboration between IT teams and other company departments. The company's reflection on its IT system should enable it to answer questions such as :

• What is the value produced by the Information Systems Department?
• Do information systems (IS) help or hinder growth?
• Do IS systems encourage innovation and skills management?
• Do we really only do things that are useful for the company?
• How do our costs compare with external services?
• Where can we cut costs?
• Are we meeting all the expectations of our environment?
• How can we better communicate our performance internally?
• Are we attractive enough to attract the skills we need?
• Are our IS investments paying off?
• How can information systems help to take customer needs into account?
• How can IS help us be more responsive?
• Are the company's assets and operations properly protected?
• Are the main business risks under control?

How to prepare your budget CIO

This preparation phase is crucial to the success of your budget CIO.

The best advice is to initiate an IT cost benchmarking exercise. It enables you to analyze your information system from theangle of costs vs. value created for your company.

Source: July 2018 - CIGREF publication (link to Cigref)

The CIO website is undergoing a major transformation, and it's vital to look at CIO from an economic performance angle. Why? Because we are witnessing a gradual shift from on-premise infrastructures to cloud-based offerings.

The acceleration in the adoption of agile and DevOps approaches is having an impact on projects and operations businesses, with an increasing emphasis on infrastructure automation and "Software Defined" approaches.

And let's not forget that knowing how to analyze data means having an invaluable capacity for anticipation and forecasting (Data is a real gas pedal of the digital transformation of companies).

This new orientation not only makes it possible to monitor IT economic performance, but also to measure the level of transformation of CIO on these new strategic challenges .

IT benchmarking will give you external points of reference, help you develop learning partnerships, motivate your team of project managers, legitimize your objectives and implement a new approach to developing new know-how.

The success factors of the benchmarking process are management commitment, continuous improvement and respect for business ethics.

Based on the various findings, you will draw up estimates for IT investments.

Secondly, project costing is based on the idea that each expense should correspond to either what costs or what pays off. To assess what pays off, it's important to make profitability assumptions by calculating the IT ROI ([(Margin generated - Cost of investment) / Cost of investment] x 100).

How can the budget for new projects be calculated?

To estimate the budget for new projects, we recommend you choose the Abaque method. This method prepares you for negotiation, since you have listed the different hypotheses of the costing. If your senior management tells you "it's much too expensive", you can put forward another hypothesis to present them with a cheaper offer. During this process, you need to think about the allocation of human and material resources to the new project:

• Technical requirements to develop this project?
• Human resources skills and how are they available?
• Tools used to develop this project?

You can rely on tools such as :

• Responsibility matrix and organization chart
• A capacity schedule (or resource load plan)
• A histogram of workloads
• A forecast by skill

Then it is a good idea for the project manager to plan a workload estimate:

• Labor / Service
• Cost of acquisition and software license
• Technical infrastructure
• Team training
• Software testing and patching

Other leading articles on the subject of IT budgets :

• Full interview: How Haute Savoie pilots budget monitoring
• Project budget monitoring with Project Monitor
• IT budget: trends to consider in 2023 according to Gartner
• View a demonstration of our software or download our business resources.