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How to address IT budgeting challenges for the upcoming fiscal year
What are we seeing in the markets?
Since early July, we've seen increase in growth-oriented business activity and companies are finally making decisions to move forward with new initiatives and projects. While there is a close watch on the horizon for additional fed rate changes or other market signs of economic challenges, companies are still moving at a faster pace than we saw in the first half of 2023.
Additionally, we're seeing a burst in activity for private equity and investment deals, at a volume that hasn't existed in the past 4 quarters. Whether this is a temporary surge or a signal of changing winds remains to be seen.
From an IT perspective, leaders continue to trim excess and push for additional value from vendors - as major vendors push out price increases and license restructuring, seen as inflationary without additional value offered. The talent churn has cooled with more resources staying put as companies begin to change their post-COVID stances on remote work, and instead look for ways to increase visibility and productivity of resources.
The continuing challenges of IT budgeting
With the continued economic challenges and turbulent headwinds with pricing increases and inflationary impacts, CIOs and IT leaders will need to get the most out of their IT budgets in the coming year. As noted by Gartner, the challenges have increased and real IT budgets are contracting, in part, due to the effects of inflation.
“CIOs expect IT budgets to increase 5.1% on average in 2023 – lower than the projected 6.5% global inflation rate. A triple squeeze of economic pressure, scarce and expensive talent and ongoing supply challenges is heightening the desire and urgency to realize time to value.”
What can you be doing?
Let's explore how we can best position IT and you company to effectively get through this year’s budget cycle.
Work closely with the finance team. They are on a schedule and will be moving quickly to pull together preliminary drafts. These numbers can firm up fast and before you know it, parts of your budget can become cemented. Educating the FP&A team on the composition of your budget is important as well. Much of the IT budget is fairly fixed and cannot be changed quickly. Software maintenance, subscriptions with 2- and 3-year commitments, and labor are fairly fixed. This leaves little wiggle room for new needs or business requirements.
Work closely with your business partners and executive sponsors. Supporting the overall company strategy by investing your time and efforts into the projects that have the greatest impact or provide the most support for the strategy is key. This can be done best by getting into the details of their annual plan and ensuring the IT efforts directly align with their efforts. Getting a complete cost picture is important. Complex projects take focused effort, adequate funding and understanding the follow-up run rates (which only helps with clarifying next year’s fixed costs).
Remember you’re competing for both capital and operating expense dollars. Providing clarity in both the investments and “running the business” components of the IT budget is a priority. Engaging your team and team members is important. The diversity in perspective can bring raise alternative ideas on how to better spend budget dollars.
Be a partner that your peers want to work with. When needed, be flexible and willing to make trade-offs. Remember you’re all on the same team and want what’s best for the company both long and short term. Unforeseen events will happen. In the tougher times, you’ll get tremendous benefits from the partnerships you’ve invested in and can flex as a team more readily.
Leverage partnerships and build experience by engaging the rights consulting professionals. No matter how well you develop your team, you will have needs for skills that are readily available or developed on your team. Also, leveraging experienced resources can make a real difference. The is no reason to have to go through the same challenges that others have when it is much more effective to leverage their experiences to fill in the gaps or reinforce weak spots in your organization. More importantly, you can accelerate your projects and reduce costs by leveraging partnerships appropriately.
How do you best optimize your fixed costs?
Get ahead of negotiations and know your renewal dates. Negotiating with short runways, when a provider knows the switching costs, can put you at an extreme disadvantage. Plan ahead.
Leverage your partners in procurement. Many times, they have experience and different vantage points than that of IT, and can assist in negotiating or renegotiating deals.
It’s not always a matter of reducing costs. Suppliers are often reluctant to reduce the total cost but have wiggle room to provide add-ons such as training, POC funding and trial licensing. See what additional value you can bring the business from existing spend.
How Can X1 Help?
Companies should work not only to right-size their IT spend but to ensure that they are monitoring return on investment for the products, services and projects they choose to invest in. We can assist leadership in a number of supporting areas:
Reviewing the budget to baseline and identify opportunities to reduce expenditure, lower costs, outsource select capabilities, or otherwise make budgetary room for key initiatives or investments
Helping to define (or refine) and execute your 18-24 month IT strategy to ensure stability and continuity of services in line with right-sizing your IT budget
Identifying budgetary savings strategies and renegotiating your base contracts to reduce your overall spending – including sensible use of managed service providers or offshoring, when it makes sense
Providing dedicated IT leadership for key company projects to ensure you have the dedicated bandwidth to execute successfully and extract the highest return on your investments
Managing completion for integration of prior acquisitions and ensuring alignment and optimization of IT across the enterprise
Conducting a risk assessment of your current environment and establishing a plan of action to mitigate major risks identified and reduce the potential financial impact of a major failure, security breach or other issue
Supporting Articles
Contact
Justin Webb Founder & Managing Director Justin@x1consulting.com 540.412.8227 |  | Eric Norden Managing Director Eric@x1consulting.com 404.434.6915 |
| Dave Woods Director, Process and Program Management Dave@x1consulting.com 804.350.7470 | |