How to be the Master of Your Budget
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A former CIO of Bank Leumi USA, Angelo Incorvaia offers wide-ranging advice about establishing financial credibility and managing IT budgets.
By Pat O'Connell
Building financial credibility with a business is critical for IT, and as the CIO you need your budget to be in order to have a shot at building and sustaining that credibility. However, this is not as easy as it sounds. “IT budgets are not taken seriously,” says Angelo Incorvaia, former CIO of Bank Leumi USA and a board member of The Society for Information Management (SIM). Typically, a business views IT as being “up in their ivory tower or looking to build a spaceship,” says Incorvaia. “IT is not viewed as being cost effective, and their focus is seen as primarily about ‘innovation’ rather than what the business really needs.”
Compounding this problem is that, in Incorvaia’s experience, “IT teams tend to overestimate budgets and need to learn to find the right balance, which is a challenge for IT folks.” Another related challenge is that while the budget cycle typically starts in June and is finalized in December or January, receiving business input about IT budget plans can be difficult.
Today’s CIO also faces the challenge of having to manage the budget and time commitments to IT projects in multiple business units. “The business typically does not include the time they’ll need to commit to IT projects,” says Incorvaia. “Neither do they always include IT expenses they incur outside of the IT department.” In addition, “the business will often undertake their own IT projects without IT’s participation,” says Incorvaia. “Then in the 11th hour, when the project is not going well, they will call IT for support or ask that IT manage the project. And when the project is viewed as a failure, the creditability of IT is tarnished.”
Sometimes IT’s functions are outsourced to address budget problems, and not just to lower costs. Depreciation can build up over the years and without adequate asset tracking and cost allocation mechanisms, carried over depreciation can grow into an unwieldy budget item. “You cannot let depreciation smother IT,” Incorvaia says. “Amortization and depreciation schedules need to be balanced. You don’t want to penalize the business and IT in the future for past depreciation decisions. The CFO owns these decisions and has skin in the game. IT needs to be the CFO’s partner with regard to IT expense treatments.”
Incorvaia also believes in empowering his staff to own their budgets, with appropriate spending limits and signing authority. This approach works best in larger organizations, like Citibank, where Incorvaia previously worked, but can backfire in “smaller organizations as IT staff may lose time and responsiveness as they focus on budgets and expenditure,” he says.
Incorvaia recommends that IT managers should manage their profit and loss statements. “They are the custodians of the IT budget, and have to be communicating the value they are delivering,” he says. “In this context, the CIO should be seen as a businessperson rather than an IT person. In some industries, such as insurance, businesses have profit-sharing mechanisms so that when the results are good, money flows back to IT.”
Amongst the many skills a CIO needs, communication, negotiation and selling skills are critical when speaking to the business side. “You need to be able to speak in their terms,” says Incorvaia. “The business can get lost with IT acronyms and jargon. It’s best to use analogies and to explain what the business will get, like ‘Virtualization will lead to lower data center and server costs.’ ”
Knowing the IT budgets and technology investment strategies for other companies in your industry is also key. “It’s important to be aware of what your competitors spend,” Incorvaia says. “Utilize industry sources like Gartner and Forrester, but also be sure to validate your findings with peer groups, such SIM. All of this information needs to be factored in senior management communications, as well as ensuring quality is maintained in all IT budget decisions.
“As the CIO, you own the IT budget, and need to treat it as if it’s coming out of your own wallet,” says Incorvaia. “Spend the money as if it’s yours.”
About the Author
Pat O'Connell is the founder and president of The Conall Group, a consulting and research firm, and an adjunct professor at Columbia University in its Executive Masters of Science In Technology Management Program. Prior to starting The Conall Group, he worked for several years at three of the major global financial services companies, attaining the role of regional CIO of the equity division in one of the firms. You can read his previous CIO Insight article, "Managing Time So It Flows," by clicking here.