22 Jul How to adjust your tech Budget
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.
These are projects that we cannot postpone or cancel. They are usually related to legal obligations, regulatory compliance or quality standards.
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.
These are projects that focus on growing existing business lines.
These projects aim to provide operational or capital efficiencies to the organization. Maintenance or basic improvement projects are often included.
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.