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Computerworld - Fall is coming, and in most corporations, that's the silly season of budget wars. Getting your budget approved requires clear communication and mutual understanding. Unfortunately, the budgeting process is organized around financial practices (capital and operating expenditures), rather than the way IT operates. To communicate the needs of your IT organization more effectively, forget about capital and operating expenses for a while and consider your budget from the perspective of discretionary and nondiscretionary spending.
Nondiscretionary budget. This funds the operation and maintenance of existing systems and infrastructure. It includes the cost of running and maintaining software applications as well as production services (such as e-mail desktop support for office workers). This is analogous to operating a car after you buy it: In addition to buying gasoline, you need to change the oil, rotate the tires, replace the brake pads and so on.
Your nondiscretionary budget is more than just your operating budget. It includes both capital and expense items. For example, capitalized hardware and license fees required for infrastructure support are nondiscretionary items.
The CIO has ultimate responsibility for the nondiscretionary budget and is held accountable for both explaining and minimizing it. To justify its size, you need to know how your unit costs compare with industry norms, such as per seat, per PC installation or per help desk call. Research your costs before you have to justify them. If they are below industry norms, use this information to deflect budget attacks. If your costs are above industry norms, get them down in the following ways:

• Simplify your architecture to reduce infrastructure support costs, and use commodity products wherever possible. It's easier and cheaper to support less diversity.


• Comparison-shop for this year's deals, especially for application packages and telecommunications.


• Manage your vendors and their costs closely.


• Consider going offshore when it won't compromise quality.

Discretionary budget. This budget is used to fund development of new functionality and replace existing systems or parts of the infrastructure. Discretionary projects usually enable a company to do at least one of the following:

• Provide financial benefits, such as increased sales or reduced costs. The benefits of a project are usually expressed in terms of financial return. These days, most corporations will fund only projects that provide substantial financial benefits.


• Meet regulatory requirements.


• Provide significant intangible benefits. For example, a hospital might fund a system that enables it to deliver a higher quality of care, regardless of financial return.

Your discretionary budget is not the same as your capital budget. IRS regulations on software capitalization require that certain parts of the software