As economic uncertainty seems to not be leaving the enterprise horizon anytime soon, enterprise leaders need to rethink the IT budget to sustain their position in today’s marketplace.
Historically, most enterprises have never given much thought nor have a designated IT budget in place as it was a part of the corporate, indirect cost, also known as overheads. As digital transformation journeys are full swing ahead, for those who have not already there, ignoring the IT budget or camouflaging it is no longer an option.
The significant increase in the IT initiatives has made it essential for CIOs to go through the absolute numbers and revenue percentage. It is critical for them to comprehensively go through expenditure and how they can best optimize it to keep with the competition’s pace.
There are many areas where CIOs can best view their budget, though traditionally, on-premise IT infrastructure, as well as the perpetual licensing, had been consistently fitting in CAPEX and OPEX. However, with the availability of SaaS Options and Cloud Hosting, this split between OPEX and CAPEX can be planned as per the financial strength and planning of the company.
In recent, most enterprises have witnessed a sharp decline in CAPEX and a surge in OPEX.
For CIOs, categorizing IT expenditure as Annual Recurring Cost (ARC) and One-Time Cost (OTC), can go long when deciding the IT budget.
A long-term commitment, ARC is a mandatory addition to the budget portfolio. But, just like the bad of consumer loans, many unproductive responsibilities towards ARC can suck up the IT budget leaving little room for future initiatives. Also, as many ARC contracts have hidden costs, it can dry up the account as fast as possible.
The other option that CIOs lead with is OTC. Being CAPEX in nature, OTC is permanent and doesn’t provide exit options. Furthermore, all investments like this have ARC ingrained in it in the form of Annual Maintenance Cost (AMC). This can make it difficult for CIOs to sort through the complexity and find a sustainable way to document their IT budget.
However, by categorizing the budget in Sustenance V/s Discretionary spending, the IT leaders have an effective way to sort out their IT budget. The basic minimum designated budget, sustenance, helps IT facilities to keep on working and is accessible to users. Also, most ARC expenses will form a significant portion, which does not have an exit option for this budget alongside the services required to maintain the systems. The lower the sustenance cost, the better is the health of the IT budget with the ability to reprioritize the expenditure.
On the other hand, a discretionary budget forms a business case for each proposal. CIOs should analyze it, not only for reaping the benefits, merit, and success probabilities but also for its impact on ARC in the coming years. Therefore, CIOs must consider all the initiatives and make appropriate forecasts to maintain a credible position in the eyes of their c-suite counterparts.
The introduction of the novel coronavirus has posed a challenge to keep up with the increasing demand for digitization and the scarcity of funds at the same time. Having a robust budget and reliable forecasting capabilities, CIOs can effectively churn ARC/OTC portfolio, decrease their sustenance costs, and reprioritize their fund allocations to make informed decisions.