Let’s look at both costs and benefits

Of the many articles that are published on searchfinancialapplications.com, one particularly got me to think about a popular topic I’ve had to deal with quite a bit in last 10-15 years, namely, Information Technology Budgeting. This article, titled “Keep an eye to value in the IT budgeting process”, and is authored by Rob Livingstone, Owner and Principal, Rob Livingstone Advisory.

The main point the author is trying to make is that while IT costs can be relatively easily forecasted and formally budgeted, the value that these costs will (and should) bring to the organization are not as simple to forecast. However, value and benefit of these IT capital expenditures should be tied to the underlying expenses. The author then goes on to recommend several key activities that will help the organization in tying these two pieces together.

This reminds me of how we can use KPIs (Key Performance Indicators) and drivers in our planning and budgeting process. IT capital expenditure budgeting is a great example where KPIs and drivers should be used.

In my blog post “Do you Budget for Technology Spending?” dated May 30 2014 (link goes here), I touch on the topic of using drivers in the planning solution for IT budgeting. KPIs are used to define these drivers and the appropriate expense results are dependent on these drivers. For example: IT spending $s per FTE (Full Time Equivalent).

In that blog post I also made reference to a software solution titled Budget Maestro, published by Centage Corporation, where drivers (based on KPIs) can be easily placed without any programing, formulas, macros or links. The output is directly driven by these values and always follows the pre-determined business rules established for them.

To take it one step further and in conjunction with the topic of the above referenced article, KPIs can be developed to establish drivers that will affect revenue streams in the revenue module of the planning application. In Budget Maestro this is as simple as defining the driver and tying the revenue line to it. As mentioned before, this step does not involve any programing or formula work, which is one of the features that stands out in Budget Maestro and makes it much more practical to implement and maintain by many organizations.

To use a simple example, a revenue line can be defined and tied to a driver based on IT capital expenditures. This driver can be the number of outbound sales calls made based on equipment capacity budgeted for in IT capital expenditure. That in turn, and using an established KPI called revenue per outbound call, will drive the forecasted revenue on that line, which becomes part of the organization’s budget and will roll up according to the enterprise structure in the system.

This is one of many examples that demonstrate how seemingly complex planning challenges (e.g., forecasting value derived from IT capital expenditure) can be overcome with use of KPIs and drivers.

Employing an advanced planning and budgeting software solution, such as Budget Maestro makes it logical and straightforward to employ these KPIs and drivers. An obscure concept of forecasting and measuring value derived from use of technology becomes manageable and with useful and hopefully tangible results.