Five Tips for 'Use It or Lose It' Budgets
By Eric Thomas
“Use it or lose it!” You might hear your doctor say that expression about your mental acuity or your personal trainer about your physique. I often hear it from my clients in government, specifically from federal CIOs or IT managers. The phrase relates to their IT budget; if they don’t spend their money in the current year, it goes away the following year. Of course, we should have smarter incentives to reward spending under budget, but we’ll properly address that issue another day.
The impact of “use it or lose it” or, more aptly, “spend it or lose it” is most acutely felt during the budgeting process. The federal budgeting process is highly regulated, long and not very transparent to the layperson. In short, the U.S. Congress appropriates funds to agencies which then appropriate funds within the agency. From there, the IT manager is given a sum of money to spend during the fiscal year. The manager starts with a spend plan, allocates money to individual projects or line items, and tracks obligations and actual spending throughout the fiscal year.
This budgetary process is cumbersome because the amount planned never equals the amount needed. Some projects need more money, some projects need less money. However, the overall amount that the IT manager plans to spend is fixed. The process is like a shell game, with money being shifted from one project to another in the hope that everything works out in the end. This has given rise to the common phrase “spending end-of-year money.”
Operating under the assumption this process won’t change any time soon, here are five things IT managers can do to better manage their budgeting process.
1. Distribute responsibility. Each budget line item should have a single point of contact. This person should know the specifics of the underlying contracts, estimates, costs and so on. They should update their budget regularly to reflect changes. One person should not be responsible for trying to track down the specifics for every line item.
2. Centralize reporting. Everyone contributes to and helps update the budget, but the IT manager has the primary responsibility to analyze the larger picture. Reports should allow managers to quickly and reliably identify potential shortfalls or overruns and make necessary corrections. For example, a real-time dashboard that tracks the percentage of total commitments, obligations and expenditures would eliminate many repeat calls for ad hoc reports.
3. Include confidence factors. Inevitably, budget estimates improve as the year progresses. But identifying the accuracy of these projections will help the IT manager anticipate future problems. It is prudent for everyone to include a confidence factor with each budget entry. Knowing that certain budget estimates are highly likely to come in as planned will allow the manager to make better allocation decisions.
4. Learn from the past. Often times, a project traditionally comes in under budget or a project manager typically underestimates the costs of her or his projects. Identifying and analyzing this information from years past can help the manager predict and mitigate problems. Too often project managers reinvent the wheel each fiscal year. Or if they carry over the budget line items from the previous year, they don’t incorporate any prior knowledge of wildly optimistic or pessimistic projections.
5. Improve your spreadsheet. Excel is a great tool, but it is not perfect. Excel is best used to show static data. Although the data can be shared, manipulated and be widely understood, Excel is not as useful as a database for budget management. Fortunately, many organizations have business collaboration platforms. These platforms allow you to create forms, and to assign users with edit access to only their budget line items and to publish reports and create dashboards—all without the need to invest in a separate budgeting tool. These platforms can be quickly and easily customized to fit the particular needs of any organization.
These five tips will help make an imperfect budgeting process and system less cumbersome, more organized and easier to manage, thereby providing more opportunity to “use it, not lose it.”
About the Author
Eric Thomas is the founder and the managing partner at Vergys LLC, which provides strategic management consulting services to federal, public and private sector organizations. He has trained and consulted on the business of IT for nearly 14 years on topics including portfolio management, capital planning, project management and strategic planning. You can read his previous CIO Insight article, “How the Federal Government Controls IT Spending,” by clicking here.