Many IT leaders complain constantly that they can’t satisfy their users because their budget doesn’t provide enough money for new services. Meanwhile, many unsatisfied users complain that IT should not be given more money until new services are delivered. It’s a vicious circle.
But there is always money somewhere, especially in a large and established enterprise. According to a recent Fortune magazine survey of private companies’ CEOs, 92% said they have all the cash they need to fund investments. In many cases, even literal bankruptcy isn’t an automatic impediment, since judges will approve expenditures that they believe are important for companies under their protection.
Although the best time to obtain more funding is during the annual budgeting process, money for opportune investments is almost always available throughout the year. The key is to prove that the need is truly compelling. To do that, the following four things must be in place:
- A compelling business case. The best business cases address a highly visible problem or opportunity. A data breach, a significant complaint from a major customer or another highly visible event can transform a problem from something that only IT understands to something that is widely acknowledged by the executive ranks. That simplifies the problem statement. But even without a highly visible challenge, the potential for significant cost reductions or new revenue sources can be presented as solid reasons for the organization to spend unallocated funds.
In making your argument, the assumptions in the business case need to be conservative, and the projections about benefits must be specific. One-time costs and benefits need to be separated from annual costs and benefits in order to make internal rate of return calculations easier. This allows reviewers to compare your proposal’s ROI to the return of competing investment requests. It’s also a good idea to calculate for contingencies, because CFOs, internal auditors and others in charge of approving funding requests are always wary that costs can be higher or benefits lower than projected.
The business case must be clearly written and easy to understand. Documents containing bad grammar or lacking clarity are usually judged to have been hastily written and therefore unimportant to the writer — sufficient reason to ignore them or dismiss them out of hand.
- An involved and committed executive sponsor. The executive sponsor of a proposed new system expects it to improve the way his department or business unit operates, and it is up to him to define the business problem, the business boundaries of the solution and the expected benefits. The best sponsors are politically savvy enough to be able to get other executives to support their program. They sense the prevailing winds and build coalitions around organizational priorities, and then they demonstrate how the proposed program supports those priorities.
Effective executive sponsors demonstrate commitment by publicly discussing the reasons why the program is important. The most dedicated sponsors announce that they are so committed to the program that they are willing to make realizing the projected benefits part of their performance plan and bonus criteria for the year.
Some proposals will affect all parts of the business, in which case the CFO, COO or CEO is likely to be the best sponsor and source of new funds. However, when the opportunity is relevant only to a single business unit, the head of that business unit is a better funding source. Business unit heads in large organizations usually have a great deal of discretion over their budget as long as revenue and profit goals are met. Business unit heads who believe that a project is critical to the business unit’s goals are usually able to find the necessary funds.
In many ways, getting business unit funding is the best outcome. By reallocating business unit funds to the project, the business unit head is making a very visible public commitment. Frequently, this convinces skeptics of the project’s importance while forcing the business unit sponsor to be actively involved in any trade-offs that must be made during the project.
- Credible IT leadership. Success in getting new projects funded will depend greatly on the CIO and the IT organization having a history of successfully delivering projects that are visible and valuable to the business. Those that lack a history of successful projects (or worse, have a track record of project failures) usually get few resources during the annual planning process. Requests for additional resources outside the annual planning process are almost never honored without established credibility.
IT leadership that lacks a good reputation needs to take a hard look at itself, then develop a plan to improve. Without a history of delivering value to the enterprise, the IT organization has no hope of getting additional funds. So get out of the rut and build a plan to improve IT’s track record.
- Organizational optimism. Requests for resources outside the normal budgeting process are best made when management feels positive. Good quarterly earnings, a major new client, a successful product launch — these are the sorts of things that are likely to inspire the optimism necessary to fund additional projects.
Conversely, it makes no sense to request additional money when management is distracted by a product recall, a government investigation, a new CEO, a hostile takeover or some other major setback. Proposing an unrelated project during a time of corporate chaos will label the requestor as naive and lacking business acumen. Even if the request was made before the external event was known, it is usually best to postpone the decision-making process.
But mergers, acquisitions, divestitures and restructurings can be opportunities for acquiring additional IT funds. If a particular project can be shown to support changes and shifts in the corporate structure or is critical to the success of the new corporate entity, the project is likely to be seriously considered in light of the new priorities.
IT leadership needs to change its perspective from scarcity to abundance. Most IT leaders worry that they won’t have enough money for critical activities. Instead of focusing on the limits, focus on the possibilities. Given the comparatively low returns in current markets, many corporations have chosen to hold excess profits rather than invest them externally at poor rates. This has resulted in what former Federal Reserve Chairman Ben Bernanke calls the “global savings glut.” If you can produce a comprehensive business case that shows returns greater than the internal cost of capital, many executive management teams will be willing to fund your proposed project, even if it is not in the budget. Work with executive sponsors to demonstrate how new project opportunities support corporate objectives and contribute to the current and future bottom line. Then they will look under every rock for available funds.
Bart Perkins is managing partner at Louisville, Ky.-based Leverage Partners Inc., which helps organizations invest well in IT. Contact him at BartPerkins@LeveragePartners.com.