IT organizations at high performing companies are backed by world-class IT budgeting and forecasting processes. The financial teams behind these processes achieve tremendous budgeting and forecasting performance: maintaining budget and forecast accuracy within three percent variance; completing monthly close cycles within two days; and expanding their monthly forecast process beyond two rolling years.
They also strive for qualitative goals like cross-departmental collaboration and positive team morale. Their ability to quickly and accurately provide valuable analysis to multiple audiences (IT leaders, service and application owners, customers, etc.) helps drive strategic decisions and creates a level of inclusion IT financial analysts long for.
If you’re plotting a path to achieving true “best-in-class” status for your IT financial process, beware of an often-overlooked obstacle to success: your corporate planning tool. Corporate planning tools can be very powerful for corporate finance needs, but still fall short in several critical ways for IT budgeting.
Level of Granularity
The first step to improved forecast accuracy and efficiency is gaining the right level of granularity in your budgets and forecasts to support rapid variance analysis and decision making.
IT budgets include many different types of spend, such as labor, capital purchases, hardware and software maintenance, and cloud services, which set them apart from many other shared service functions primarily made up of labor costs.
Individual line items within these categories can vary widely in size and significantly impact the overall budget. This requires tracking spend at a very detailed level – more detailed than many expect. Research and advisory firm Gartner, Inc., reports that often “users underestimate the high level of granularity and detail required to build an effective IT budget.”
Corporate planning tools rarely offer the level of granularity needed to effectively build an IT budget, forcing organizations to maintain the “real” IT budget offline, typically in spreadsheets.
Reduce cycle time and free up staff for value-add analysis with an ITFM solution that will use the proper forecast methodology and deliver the right level of detail depending on the type of expense.
Detailed Multiyear Expense Management
Corporate planning tools track multi-year assets, but rarely track the detailed information that IT needs such as annual price increases. With up to 60% of non-labor IT expenses incurred over multiple years, tracking this information can significantly improve annual budgeting exercises. For example, hardware and software maintenance contracts might be paid for annually, but rates are contracted for multi-year periods. Infrastructure may be depreciated over 5-10 years, depending on its useful life.
An ITFM solution will allow a user to automatically maintain information about this type of spend and calculate the future expense stream for the user. For example, the system should track maintenance contract terms, expected renewal rates, and prepaid flags and automatically create a baseline budget
In addition, the ITFM solution will be able to interface with a Fixed Asset system and calculate depreciation streams on existing assets. This ensures accuracy and efficiency, as analysts just need to focus on future capital purchases.
Benefits of this include:
- Saving time and reducing errors when building out budgets by automatically including already-committed spend (this is the baseline), including price increases, renewal and payment dates, and other information.
- Enhancing what-if scenarios by tracking early term/cancellation fees and automatically including them in scenario planning.
- Reducing time and mistakes by importing contract details from an ITAM / SAM system.
- Supporting rolling forecast with automated, multi-year forecasting
A well-oiled IT Finance team will track actuals against specific forecasted items, which is difficult, if not impossible in a corporate planning tool. When variances are provided only at a cost center and account level, many hours are wasted digging through various data sources and matching data within spreadsheets.
Quickly understanding drivers of variances and being able to communicate them effectively to business leaders is key. “Sub-ledger” detail for various types of expenses, for example, is another perk of an ITFM tool resulting in improved cycle times.
Best-in-class IT budgeting and forecasting gives key stakeholders inside and outside IT critical insights into actual spend that inform effective business decisions. Whether it’s IT service owners needing to understand the total cost of delivering their service; application owners who must track the total cost of the hardware, software, and labor powering their application; or business unit leaders who should know their department’s IT consumption and value, each audience requires visibility and clarity.
Because corporate planning tools lack the requisite granularity, they are unable to render these different views, leaving the company in the dark about where IT spend goes.
If your organization struggles to produce multiple views of budget and forecast simultaneously and insight into true drivers of cost, it may be time to consider an ITFM tool.
Don’t let your organization’s corporate planning tool stand in the way of best-in-class IT budgeting and forecasting. See how an ITFM tool can help your team achieve granularity, real-time actuals, visibility and more by taking a test drive with Nicus.