Why IT Executives need a Financial Plan, Not just a Budget

MohanArumugam24 28 views 51 slides Sep 11, 2024
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About This Presentation

Why IT Executives need a Financial Plan, Not just a budget.


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Why IT Executives Need a
Financial Plan, Not Just a Budget
Bryan Hayes
Sr Director Analyst

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The Annual IT Budget Provides Only A Limited View…

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…Expand Your Horizons To Unlock Greater Value

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Evolving The IT Budget: Three Key Elements
Timeframe
Moving Beyond The IT Budget Requires An Expansion
Of All Three
Scope Value

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What’s In Scope?
CIO IT Budget BU IT Budget
Includes
(but is not limited to):
•Business
Technologists
•Martech
•IoT
•AI
•OT
•Tech products for
resale
Business Owned
Technology Budgets
Expand The Scope Beyond The CIO’s IT Budget
Other TechnologyTraditional IT

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Expand The Timeframe
Timeframe (years)
Scope / Perspective
-2
CY
2+
Look Beyond The Current Year
IT Financial Plan
Enterprise Tech. Financial
Plan
Annual IT Budget

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Why Build A Longer-Term View?
Alignment:
Does the IT budget
support the wider
enterprise-wide
strategy?
Context:
Where have we
come from?
How did we get
here?
Future Value:
Does the IT budget
enable future
organizational
plans?
20252023 2027

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Value Is At Risk When Enterprise IT Doesn’t Work
•Bloated Technology Spend
•Duplication
•Redundancy
•Strategic Misalignment
•Cyber Risk
•Compliance Risk
•Siloed, suboptimal development –
Tech. Debt
•Spiralling Integration, Run and
Maintenance cost
Expand IT’s Value Proposition

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Start With The IT
Budget
1
Coordinate All
Traditional
Technology
2
Maximize
Enterprise-Wide
Technology Value
3

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Start With The IT
Budget
1
Coordinate All
Traditional
Technology
2
Maximize
Enterprise-Wide
Technology Value
3

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What’s In Scope?
Traditional IT
CIO IT Budget
Traditional IT
BU IT Budget
“Other”
Technology
Business Owned
Technology Budgets

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Explain Your Numbers First
$m
2024 2025
YoY Change
(Increase) / Decrease
YoY %
(Increase) / Decrease
Actual Run Change Total
Personnel Expense 50.3 42.5 10.6 53.1 (2.8) (6%)
Professional Services 5.2 4.4 1.4 5.8 (0.6) (12%)
Hardware 23.6 20.1 4.0 24.1 (0.5) (2%)
Software 10.7 10.5 2.2 12.7 (2.0) (19%)
Network 4.7 3.9 0.7 4.6 0.1 2%
Facility Expense 6.0 5.8 0.3 6.1 (0.1) (2%)
Other 8.6 3.8 4.4 8.2 0.4 5%
Total Operating Expense 109.2 91.0 23.6 114.6 (5.4) (5%)
Note: Depreciation and Amortization 18.9 17.6 1.9 19.5 (0.6) (3%)
Capitalized Labor 7.3 0.3 9.1 9.4 (2.1) (29%)
Hardware and Software 18.9 2.1 17.0 19.1 (0.2) (1%)
Other 2.1 0.2 2.2 2.4 (0.3) (14%)
Total Capital Expense 28.4 2.6 28.3 30.9 (2.5) (9%)
Total Opex + Capex (Excl. Depn.) 137.6 93.6 51.9 145.5 (7.9) (6%)
64% 36%
Tool: Board-Ready IT Budget Presentation

Consumption
•Matrix of service
consumption by
business unit /
function / user
Business
Services
•Business valued
services
Technology
Services
•Mainframe
•Servers
•Storage
•End User
•Network
•App Development
Asset / GL
•People
•Hardware
•Software
•Facilities
•Other
•Opex / Capex
Different outcomes require different views of the IT Budget
Mapped
Into
Communicate
•Run / Grow /
Transform
•High Level Spend
Categories
Executive Leadership Technologists Business Stakeholders CIO / CFOFinance
Follow the quickest path to answer the question asked

Communicate View: ExampleHardware
Other
0
0
0
0
0
0
0
0
0
0
0
Example Co IT Cost Breakdown
57%
43%
Capex/Opex Split
Opex
Capex
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Transaction
Systems
Shopping Cart Sales Tracking
Customer Support Production System
Service Request
System Order Entry
Scheduling System
Delivery/Routing
System
CRM Systems
Other
Example Co: Capex/Opex Split by Application or Service
Opex
Capex
958,030
1,112,224
2,286,998
1,718,485
1,891,455
3,613,397
1,790,119
1,631,827
994,487
3,289,683
786,059
0
1,000,000
2,000,000
3,000,000
4,000,000
Transaction Systems
Shopping Cart Sales Tracking
Customer Support Production System
Service Request System
Order Entry
Scheduling System
Delivery/Routing System
CRM Systems
Other
Example Co: Total Cost by Application or Service -EUR
5%
6%
11%
9%
9%
18%
9%
8%
5%
16%
4%
Example Co: Total Cost by Application or Service -EUR
Transaction Systems
Shopping Cart
Sales Tracking
Customer Support
Production System
Service Request System
Order Entry
Scheduling System
Delivery/Routing System
CRM Systems
Other
68%
32%
Run / Change Split
Run
Change
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Transaction Systems
Shopping Cart Sales Tracking
Customer Support Production System
Service Request
System Order Entry
Scheduling System
Delivery/Routing
System
CRM Systems
Other
Example Co: Run/Change Split by Application or Service
Run
Change
Toolkit: Simple IT Budget Cost Allocation Model

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Use Gartner’s IT Benchmarks To Tell a Cost and
Value Story
2023Cross Industry Averages (Global)
Accounting View 2023
Hardware 11%
IaaS / Pub Cld. 5%
Networks 6%
Software 17%
SaaS 12%
Personnel 34%
Outsourcing 14%
Run 73%
Grow 17%
Transform 10%
Formal IT 86%
BU IT 12%
Shadow IT 2%
IT Capex 22%
IT Opex 78%
Functional View Spend
Staffing
Distribution
Data Centre 13% 9%
Network 10% 6%
Workplace Services 9% 8%
IT Service Desk 4% 8%
Applications Development 22% 26%
Applications Support 24% 20%
Governance. & Service Management 9% 14%
IT Security 5% 4%
IT Ops Mgt. 4% 4%
IT DR 1% 1%
IT Spending % of Revenue 3.3% 3.0%
IT Spending % of Operational Expenses 4.1% 3.7%
IT Spending per Employee $10.6k $11.4k
IT Employees % of Total Employees 3.7% 4.0%
2022
IT Budget & Efficiency Benchmark

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Strategic Alignment (Example)
IT Measurement
•IT Spend per FTE and Customer
•IT Spend % Revenue
•YTD IT Budget Variance
•Run, Transform, Grow to Industry
•% Capacity Utilized
•Benefit Realization From Application and Infrastructure
Consolidation
•No. of Client-Funded Initiatives
•Client-Funded Revenues Generated Out of a "Common"
Solution for Three or More Clients
•% Tier 1 System Availability
•No. of Severity 1 or 2 Incidents/Resolution Time
•IT Change Success Rate
•No. of IT Security Breaches
•No. of IT Data Privacy Breaches
•No. of High-Rated Audit Issues in More Than Three Months
•No. of Exemptions Required From XX
•No. of Exemptions Required From ZZ
•No. of Integrations Achieved
•No. of Reused IT Applications to No. of New IT
ApplicationsRequired
Reliable
Right First Time
Consolidated Information
Low Cost
Customer, Employer and
Product Insight
Enhanced Outcomes Through
High-Quality Extended
Services
Low-Cost Business Support
Services
End-to-End Outcome Solution
Basic Value Proposition
Additional Value
Drivers
Financial Optimization
Operational Resilience
Appropriate Controls
Proactive Innovation
Broader Integration
IT StrategyBusiness Strategy Business Outcomes
Simplify The Business
Build New Revenue Platforms
Enhance Customer
Satisfaction
Outcome-Driven Metrics for the Digital Era

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Run
Explain Both Aspects Of Your Budget
Change
(Grow and Transform)
Added Value
•New Investments
•Digital Innovation
Value Measure: ROI

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Run
Run Spend Is The Majority Of Most IT Budgets –
Explain The Value!
Change
(Grow and Transform)
Added Value
Run
Change
27% 73%
•Operations
•Deliverables
Value Measure:
Price for Performance
Expected Value
•New Investments
•Digital Innovation
Value Measure: ROI

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4 Ways To Tell The Run Value Story
Scare tactics
Provide trade-off options
Align to business-critical outcomes
Differentiate and elevate the conversation

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Expand Your Horizon - The IT Budget
From: To:
Annual IT budget cycles
Over-reliance on ‘change’ to
show value
Multiple views of the IT budget
Multi-year view
Value stories for both IT ‘Run’
and IT ‘Change’
Basic reporting of IT numbers

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Start With The IT
Budget
1
Coordinate All
Traditional
Technology
2
Maximize
Enterprise-Wide
Technology Value
3

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What’s In Scope?
Traditional IT
CIO IT Budget
Traditional IT
BU IT Budget
“Other”
Technology
Business Owned
Technology Budgets

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Capture The Wider Financial Implications Of BU
Or Functional Spend
BU or
Functional
Initiative
Y1Y2Y3
Hardware $$$
Software $$$
External Services $$$
… $$$
Total Cost $$$
Total Benefit $$$
Direct, retained technology cost /
benefit
Capture BU or
Functional Plans
Which Impact IT
Identify & Challenge
Areas Where
Duplication May
Occur

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Capture The Wider Financial Implications Of BU
Spend
Y1Y2Y3
Labor (training /
helpdesk…)
$$$
Infrastructure (data…)$$$
Ongoing Support &
Maintenance
$$$
Integration $$$
… $$$
Total $$$
BU or
Functional
Initiative
Indirect impact on IT budget
Calculate the likely
true impact on the IT
budget
Use to recalibrate
capacity planning in
the IT budget

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Capture The Wider Financial Implications Of BU
Spend
Y1Y2Y3
Labor (training /
helpdesk…)
$$$
Infrastructure (data…)$$$
Ongoing Support &
Maintenance
$$$
Integration $$$
… $$$
Total $$$
BU or
Functional
Initiative
Y1Y2Y3
Hardware $$$
Software $$$
External Services $$$
… $$$
Total $$$
Direct, retained technology costIndirect impact on IT budget
Net
Benefit
Y1Y2Y3
Benefits $ $$
Direct Cost($)($)($)
Indirect
Cost
($)($)($)
Total $ $$
Get to the real TCO
to drive better
decision making

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Balance The Trade Offs Of Model Extremes
Centralization Decentralization
•Economies of Scale
•Consistency &
Harmonization
•Coherence &
Integration
•Interoperability
•Degree of
Commonality
•Enterprise-wide
Agility
•Control / Ownership
•BU Agility & Freedom
•Innovation
•Speed
•Degree of
Uniqueness
•Local Expertise &
Responsiveness

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Expand Your Horizon: Coordinate Traditional IT Spend
From: To:
Incomplete BU business cases
Swinging between central and
decentralization
All BU or Functional IT spend
is captured and challenged
BU initiatives show the true
cost against benefit
Find the sweet spot by
coordinating traditional spend
Surprise costs hitting the IT
budget

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Start With The IT
Budget
1
Coordinate All
Traditional
Technology
2
Maximize
Enterprise-Wide
Technology Value
3

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What’s In Scope?
Traditional IT
CIO IT Budget
Traditional IT
BU IT Budget
“Other”
Technology
Business Owned
Technology Budgets

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Enterprise-wide Technology Spend Has Increased
in All 3 Categories Over the Past 5 Years
n varies, Executive Leaders, Excluding Don’t Know
Q01. Compared to 5 years ago, to what extent have the following types of technology spend changed in your organization?
Source: 2022 Gartner Enterprisewide Technology Value Survey
Change in Types of Technology Spend Compared to Five Years Ago
Rating Scale (1 = Significantly Decreased to 7 = Significantly Increased)
9%
17%
4%
14%
20%
8%
78%
64%
88%
0% 50% 100%
Formal IT Budget (n=140)
Other Traditional IT Spend (n=138)
Other Technology Spend (n=138)
Decreased (Rating 1,2,3) Same as Before (Rating 4) Increased (Rating 5,6,7)

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75%
Are not effective holistic
technology spend managers.
n = 140, Executive Leaders
Respondents who rated their organizations as effective (i.e., who fall in the top quartile) on managing and demonstrating each of the technology spend
are segmented as ‘Effective IT/Technology Spend Managers’ and remaining respondents are being profiled as ‘Others’.

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Silos Prevent Cost From Being Clearly Understood
and Managed
Traditional IT Spend
Other Technology
Spend
Cost Driver
Value
Dependency

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Agree IT’s Focus for Maximum Value
Activity/Cost Type
Other
Technology
Spend
Traditional
Spend
IT Business
Budgetary Ownership
Directly Manage
IT’s Value Proposition
•Cost Efficiency and Optimization
•Provide Strong Digital Foundations
Govern
IT’s Value
Proposition
•Technology
Governance
•Risk Mitigation
•Standardization
?
Coordinate

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Clarify Key Roles When Effectively Managing
Enterprise-wide Technology Spend
•Instrumental in
tracking Enterprise
Technology Spend
•Has the authority to
drive accountability
•Enables others to
understand cost &
benefits
•Drives Enterprise
Technology Strategy
working with CFOs
•Influences the right
tech investments
•Partners with CFOs to
drive digital cohesion
•Owns the benefits
assumptions
•Can own some of
Enterprise Technology
cost
•Drives the value realized
to the enterprise
1
CIO’s Role CFO’s Role Exec’s Role
2 3
Ownership Diverges but Joint Governance Is Essential (CIOs, CFOs and Execs)

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Change The Governance Model From Traditional
to Co-Created
From Traditional
Technology Governance …
… To Co-Created Digital
Business Governance
Technology Governance Is Mostly for IT
Focused on Risks and Economies of Scale
Siloed by Function
Optimized for Stability
Rules Over Practice
Digital Governance Is for Everyone
Focused on Risks and the Customer Experience
Integrated Throughout the Customer Journey
Optimized for Speed
Practice Informs Rules
Embrace Adaptive IT Governance to Accelerate Decision Making
Define Principles for Adaptive Governance to Quickly Respond to Change

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CIO Profiles For Digital Delivery
Percentage of Respondents
Collaborator
Begin to involve
CxOs
Co-Leader
Jointly lead digital
delivery with CxOs
Avoider
Retain digital delivery
within IT
55% 33% 12%CIOs
n = 2,457CIOs and Technology Executives
Source: 2024 Gartner CIO and Technology Executive Survey

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What About Your CxO Colleagues?
Percentage of Respondents
Collaborator
Work closely
together with IT
Co-Leader
Jointly lead digital
delivery with IT
Avoider
Refuse to collaborate
with IT
n = 1,125CxOs outside IT (Business Unit, P&L leaders and Heads of Corporate Functions)
Source: 2023 Gartner Strengthening CxO Digital Leadership Survey, 2024 Gartner Corporate-Business Alignment Survey
18% 64% 18%CxOs

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Co-Leadership Creates Better Outcomes
Collaborator
33% of CIOs
64% of CxOs
Co-Leader
12% of CIOs
18% of CxOs
Avoider
55% of CIOs
18% of CxOs

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Co-Leadership Creates Better Outcomes
Collaborator
33% of CIOs
64% of CxOs
Co-Leader
12% of CIOs
18% of CxOs
Avoider
55% of CIOs
18% of CxOs
37% 45% 71%
n = 1,125CxOs outside IT (Business Unit, P&L leaders and Heads of Corporate Functions)
Source: 2023 Gartner Strengthening CxO Digital Leadership Survey, 2024 Gartner Corporate-Business Alignment Survey
CxOs
CIOs
n = 2,457 CIOs
Source: 2024 Gartner CIO and Technology Executive Survey
43% 53% 63%
Percentage
in each
profile that
meet or
exceed
targets from
digital
investments

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Strength of the CxO-CIO Partnership Matters Most
Impact of CxO Attributes on Outcomes Attainment
Does Not Matter
Enterprise Size (Large v. Midsize)
Industry
Respondent Age/Generation
Role Tenure
Level(s) Below the CEO
n = 618 CxOs outside IT
Source: 2023 Gartner Strengthening CxO Digital Leadership Survey
What Matters Most
CxO Dedicates Staff to Building or Implementing Technology
CIO Is Proficient in Digital Leadership
CIO-CxO Meet Frequently
CIO-CxO Meet to Discuss Digital
CxOs’ effectiveness at maximizing value from digital investments is
driven by the strength and quality of their partnerships with CIOs

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Expand Your Horizon: Maximize Enterprise Value
From: To:
Lack of clarity on the roles of
IT and business in digital
delivery
IT trying to deliver technology
independently from the
business
Siloes broken down to reveal
true cost and value
Clear governance across the
enterprise to maximize value
Co-lead digital delivery
between CIO and CxO
Limited visibility of IT &
business interdependencies

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Build the
context, support
the future
strategy
Build from IT
budget, to
enterprise
technology
Drive enterprise
value with clear
roles and
governance
TimeframeScope Value

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The CIO Roadmap to
Strategic Cost
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Follow IT spending best practices to fund
innovation and growth.
Download the Roadmap

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