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Issue of August 2004 
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CIO Strategies: Tackling The Hurdles

IT budgets: A case for business

IT budgets won't be a challenge for CIOs who can communicate well about the business benefits. And here's how organizations prioritize when funds are limited. by Brian Pereira

Traditionally, pitching for IT budgets has been a big challenge for CIOs. Planning for IT is now treated like any other business activity. Appealing for funds is no longer perceived to be a difficult task, if there's a strong business case for it. About 28 percent of the respondents in the Network Magazine survey said inadequate budgets & prioritizing is a challenge for them. But the CIOs we spoke to do not regard this as a challenge. They said IT funds are available if top management can see the business benefits.

"The period of tightly controlled budgets is over and restricted budgets are no longer a problem faced by CIOs," asserts Mani B. Mulki, General Manager (Information Systems), Godrej Industries Ltd. "Top management became quite tech savvy in the last 2 - 3 years. They know the benefits that a technology can bring [to business]. Now CIOs don't have to fight to get funds for IT—this is a joint decision that is taken like any other business decision."

Now that IT and its benefits are acknowledged, the CIO can focus on learning about the various technologies and how his business can leverage on these. With this knowledge in hand, it then becomes a matter of clearly articulating it all to top management when proposing a budget.

The important thing here is communication. The CIO should be able to convince top management that bringing in IT will help the business in certain ways. Take Information Security for instance. Many organizations give this low priority in terms of spending. But if a CIO can communicate the risk of not having good security architecture, top management would surely understand the consequences.

Of course, ROI is expected within a certain period, and this has to be communicated upfront. After all, investments in IT are made keeping the business benefits in mind. So a CIO has to do sufficient planning and analysis, and be sure about the benefits, whether tangible or intangible.

"For us budgets has never been an issue if we are able to show ROI in a reasonable period of time. We have been able to show the value and benefits it brings to the business. The groundwork has to be thorough. So a CIO starts screening what projects he should take or drop. We also don't take too many initiatives at one time. Every year we try to adopt one initiative. We can't make unreasonable demands to management for funds," says Jason Gonsalves, General Manager, IT & Costing, Goodlass Nerolac Paints.

The other issue with budgets is that they are either under- or over-utilized. If funds are exhausted long before the year winds out, asking for more could pose a challenge.

Additional funds

Going by Network Magazine's Infrastructure Strategy surveys, 2002-03 witnessed under-utilization of IT budgets. But 2003-04 saw many organizations exceed their initially defined budgets. IT budgets are usually planned at the beginning of the year, but organizations often overspend before the year is over. That means CIOs in some organizations would press for additional funds during the course of the year. This calls for some flexibility and planning when allocating funds.

"Budget allocation has to be flexible. In a given time period, some projects need to be taken up to meet business urgency or some other requirements, say, a security threat to the operations, which is detected during the course of the year. This is met by providing a certain percentage of the total budget for contingencies," says V.K. Ramani, President (Information Technology), UTI Bank.

Vijay Kumar Magapu, CIO and Executive Director, Larsen & Toubro Infotech Limited, says funds always seem to be limited as new projects or extensions are encountered during the course of the year.

"Funds are always limited. However, funds are rationed whenever intended use is perceived as a cost. It is therefore incumbent on any fund seeker to highlight and credibly promise to deliver value to the company in excess of funds deployed. That is, funds should always be sought as part of wise investments. In case of information technology, wise investment takes the form of two lines: One hopes that the investment may increase the capacity of the company in new ways; secondly, and more often the case, it pertains to the realization that many investments are needed if only to keep the systems in the organization from getting outmoded, archaic, and therefore leading to loss of value," says Magapu.

Companies like LG Electronics India go by the yearly budget concept. However, spending is closely monitored and the budget is reviewed quarterly.

Normally, the IT budget at the beginning of the year should be adequate. But additional funds may be required midway, if there is bad planning, or if some unforeseen incident/emergency calls for a significant business initiative that's dependant on IT.

Whatever the case, the additional budget allocation has to be justified by corresponding business benefits.

But what happens when it is a policy not to allocate additional funds during the year?

First things first!

In organizations where budgets are constrained, IT managers allocate funds for projects on a priority basis. And these priorities depend on the nature of the business.

Air-India (AI) is a service-centric business. The management generally agrees to the budget proposed by the IT department. But when funds are limited, priorities are given to infrastructure that directly supports customer services.

"In case of fund limitations, the priorities will be to augment resources for our customer service applications running on mainframes, where the loads have shown a steady increase and are at present touching more than two million transactions a day, on one mainframe alone. Currently, AI owns a bank of five mainframes hosting passenger and cargo service applications that are operated on 24x7 basis," says S. Mukerji, Director-IT (O), Air-India.

LG Electronics India (LGIL), is a manufacturer of consumer electronics products. So communication networks and infrastructure maintenance are given high priority.

The National Stock Exchange runs a mission critical business so downtime should be minimum. NSE.IT gives importance to on-going maintenance and administration in key areas such as core business applications, critical enterprise-wide applications, and security set-up. These are regarded as "high priority" without any compromise.

"For new initiatives, higher priority will be assigned to capacity optimization by deploying stringent standards to manage within given budgets," says C. Kajwadkar, Sr. Vice President - NSE.IT Limited.

Ramani of UTI Bank says his priorities are directed at the business and operational needs. "New projects are kept on hold, unless there is a compelling reason to invest. Sometimes an ongoing project is shelved if the delay is not critical, and the budget is utilized for other immediate requirements."

Once the business priorities are clear, it is easier to allocate funds for different areas of IT. And when top management is convinced that certain IT initiatives have paid off (read ROI is realized), then getting funds for similar initiatives in the following year does not become a big issue for the CIO.

Brian Pereira can be reached at brianp@networkmagazineindia.com

 
     
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