How to adjust your tech Budget
Blog: AuraQuantic Blog
Currently many CIOs are thinking about how to adjust their tech budget. The current situation, characterized by high volatility and uncertainty, combined with the complexity and ambiguity of the pre-existing conditions, force organizations to adjust their budgets and prepare for different scenarios, of which not all are positive.
In this article I will be giving you some pointers on how to adjust your technology budget without jeopardizing your organization’s improvement efforts. We will focus on two aspects that, in my opinion, are essential when adjusting the budget. First, define the company’s current state. Second, establish which projects are a priority, and which projects to cancel.
Define the company’s current
state
Forrester analysts Bobby Cameron and Andrew Bartels recommend defining what the company’s situation is before considering adjusting the budget. After the state has been established, companies can be divided into 3 categories. The recommended measures will depend on which category the company is in.
State
1: Survival
Companies in this situation are
already suffering a decrease in sales and are having difficulty maintaining
daily operations. In this case, these companies are going to need to reduce
their technology budget by approximately 30%. Of course, this will depend on
the specific situation of each company, it is important to clarify that this is
an estimation, and in no case should any action be taken without adequate prior
study.
State
2: Adaptive
In this case we are talking about
companies that have been partially affected, and have only had minor problems,
or have even partially benefited from the situation. In this case, the
recommendation is to reduce costs by between 10% and 20%.
State 3: Growth
Not all companies are being harmed
by the current situation, in fact, some companies are benefiting from it. In
this case, it is advisable to select the best products and service providers,
in order to maintain and increase the growth rate.
How
to determine which projects are a priority, and which to cancel
To determine which projects should be prioritized, and which projects should be frozen or canceled from our entire existing portfolio, I suggest using a technique created in 1970 by Peter Pyhr for Texas Instrument. I am referring to Zero-based budgeting. This technique involves reevaluating each of the projects in planning, or in the process of being implemented. By doing so, we will be able to adjust the budget and minimize negative effects.
Firstly, we must place all projects
on hold, and bring spending down to zero. After which we can evaluate the
budget for each of the projects and create a decision framework. The typical
decision framework should include mandatory, transformation, differentiation,
growth and improvement projects. Gartner analyst, Laurence Goasduff, explains
this in more detail here.
One of the main virtues of this
approach is that at this stage, it is not necessary to justify why projects
have been stopped. We then move on to the next phase of analysis, which is to justify
why we should resume some projects, or initiate others.
Mandatory Projects
These are projects that we cannot
postpone or cancel. They are usually related to legal obligations, regulatory
compliance or quality standards.
Transformation
Projects
These types of projects must be
linked to the company’s strategy and focus on building the future core
competitive advantages of the organization.
Core
Differentiation Projects
These are vital projects for the
company which are related to the added value offered by the company, that help it
to stay in the market.
Growth Projects
These are projects that focus on growing
existing business lines.
Improvement
Projects
These projects aim to provide
operational or capital efficiencies to the organization. Maintenance or basic
improvement projects are often included.
Summary
Adjusting a company’s budget is
always a difficult task. There are many factors that must be considered, but in
this article, I have focused on two fundamental aspects, the actual state of
the company and the project portfolio.
Taking these two factors into
account and applying the logic that I have suggested in this article, I am sure
that you will be able to determine which projects are necessary for your
organization and will ensure the survival and positive evolution of your
company.
In closing, I would like to add that many companies are finding the solution in low-code software to rapidly create essential applications that reduce costs and boost efficiency and productivity.
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