Your Relationship with Finance and the CFO
Budgeting can be a source of frustration and is often one of the least-liked aspects of running IT. Working with CFOs and financial analysts can feel like working with someone who speaks a foreign language, which mirrors the way others feel when working with some IT individuals. In some organizations, the relationship between the CIO and the CFO can be a tenuous one. The reason for this inherent tension is not apparent as on the surface both individuals have the company's best interests in mind. However, if you dig deeper, the two often have very different objectives. The CIO is trying to get funding for IT investments. The CFO is trying to control spending and ensure company investments generate the proper value. The CFO must determine which budget managers are proposing honest plans and which are trying to play the budgeting game. As a result, CFOs are tasked with being skeptical about your budget. Do not take it personally.
Therefore, a key tip for surviving the IT budgeting process is to get to know your CFO and financial department staff, to understand what they want to see and how they want to see it. Learn their hot buttons. Discover how to work with them, not against them. Finance is IT's best ally in a time of need. Look to them for advice on the budgeting process and on managing IT costs. To do that, you have to be either financially astute or willing to enlist the help of others, or both.
Top Tip : Communicate to minimize surprises
"Over communicate to minimize surprises. Be transparent. Have a dialogue with the executives to ask them if you are focusing on the right things. The executives are your customer. Eliminate technical speak; communicate the business value."
—Randy Witt
Restaurant Technologies
Restaurant Technologies
Top Tip : Be financially savvy
"Alignment is a great concept, but you need more. Know the business units and how they operate, especially their financial goals and how they achieve them. Understand how the economy affects the company. Be financially savvy. This knowledge will help establish your business credibility and help set you up for alignment."
—Scott Simerlein
North American
Membership Group Inc.
North American
Membership Group Inc.
Having a financial resource within IT is a tremendous help. If you do not have a financial resource available that assists with IT issues, consider cost justifying a position. Particularly in cost reduction times, this can save significantly more money than it costs by helping with the financial management and control of the IT budget.
Surprises or Assumptions Hurt Your Credibility
In general, CFOs do not like surprises. When it comes to surprising the CFO, CIOs have plenty of opportunities, such as making incomplete project estimates, failing to plan for infrastructure maintenance, allowing inadequate support from the business, making inaccurate or imprecise estimates, forming broad assumptions, or padding budgets. These appear in both the operating and capital budgeting process as both are equally vulnerable when it comes to surprises. Each of these areas is outlined in more detail:
Top Tip: Engender trust with the CFO
"You need to engender trust with the CFO. They want to see governance, financial controls, and a real cost savings methodology. We document and classify all the savings (hard, one-time, recurring), and use an approval process for financial expenditures. The CFO weighs in on decisions, which builds confidence that we are doing the right things."
—Paul Kay
Long Term Care Group
Long Term Care Group
- Incomplete project estimates. One of the easiest ways for a CIO to lose credibility with a CFO is to fail to communicate all the upfront costs when the project is seeking approval during the governance or budgeting processes. List of costs to consider when looking at the total cost of ownership. It is distressing for a CFO or CEO to approve a project or expenditure only to find out after the project is completed that additional money is necessary to keep things operational. Include the project's on-going maintenance and support costs, support resources, and upgrades before approving projects through the governance process.
- Unplanned infrastructure maintenance. Communicate and plan for major infrastructure investments years before you need them. Give early warning signs on infrastructure investments that will be required in the next three years. When presenting the annual budget, provide a forecast for the next two years. Then, when you present the budget, use phrases like "as we talked about last year" so they know the expenses were planned and did not come as a surprise.
- Inadequate business support. Make sure you work with business executives to develop the IT budget and garner their support before presenting the budget. Through the governance and budgeting processes, position the projects as business projects, not IT projects. As you present the IT budget, make it personal by using the executives’ terms so that it sounds like it is their initiative (which it is). Drop names such as, "CRM, which is John's project to improve sales.""The budgeting process became much easier when the business didn't see IT as something being done unto them, but rather something they were asking IT to do. They need to see and understand their costs a mile away."—Roger Champagne
Laitram
- Inaccurate or imprecise estimates. For capital expenditures and larger projects, always have detailed plans on where and how you will spend the money. Take the time to get a request for proposal (RFP) or a request for information (RFI) in order to get accurate and detailed cost estimates. Do not guess at the costs. Validate estimates through reference checks. It is also helpful to provide the CFO or finance department with a time-phased cash flow estimate in addition to the overall cost estimates because you typically do not pay expenditures evenly throughout the life of the project.
- Broad assumptions. Do not make broad assumptions. For example, just because the company experienced a 10 percent growth, the IT budget would automatically increase by 10 percent. Alternatively, if you read in the latest IT journal that IT spending is projected to rise by 13 percent during the next year, do not use that to forecast your annual budget growth. These broad-brush tactics are not nearly as persuasive as a detailed cost breakdown by category.
- Padding or sand bagging. For some, it can be common practice to pad or sand bag the IT budget knowing that you will always spend more. Although there is nothing wrong with a conservative budget that you will be able to meet, do not have pockets of unnecessary costs that are questioned. Instead, provide details on budget increases that are tied to business needs. It is reasonable to include contingency funds for projects because it is difficult to know everything at the evaluation or design phase.
In summary, improve your relationship with the CFO and minimize surprises. Begin your operating and capital budget planning early enough so that you have time to be thorough. Start working on the IT budget at least four weeks ahead of the company budget cycle so that you do not run out of time. Take enough time to meet with all the business executives to understand their initiatives and plans so that you are able to determine how they affect IT. Leave no room for doubt. Know what you need versus what you would like to have and draw a clear distinction between the two. Make sure the benefits of the items you would like are clear and real. Be credible. Say what you are going to do, then do what you say. Tell the CFO that you did what you said you were going to do. Do your homework in order to select good technology and solid vendors. Take responsibility for vetting the cost estimates your vendors provide. Be cost conscious and a good corporate citizen who always looks for ways to reduce costs.
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