As 2017 quickly approaches, businesses are busy planning IT strategies and budgets for the year ahead. They’re asking themselves: what are the company’s biggest goals? How can we deploy IT-associated financial resources to help meet our objectives? In 2016, a Gartner’s report cited overall spending only increased by 0.6% over 2015 spending, with the biggest category growth in infrastructure and software.
Now more than ever, it’s becoming more important for IT departments to internally justify their budgets and any plans on expanding into new technology. IT departments have to keep up with the expanding demands on technology, with limited resources to accomplish their goals. Finance managers or CEOs may be unwilling to approve expenses for new technology services and infrastructure – in part because they don’t truly understand the value or they may want to invest in areas leading directly to sales. Here is a closer look at how IT managers can make a compelling case for new technology and better educate your finance team around making technology purchasing decisions.
The Differing Needs of Tech and Finance
In mid-size companies, the simple reality is that technology and finance departments tend to prioritize money differently. For the technology department, the goal is to identify services and equipment that maximize productivity, improve network uptime and enable a superior customer experience. Finance leaders are interested in how each purchase impacts the bottom line, where they can cut costs, and approving only those purchases that have a dramatic impact on the business’ bottom line.
The two objectives are not necessarily misaligned. All parties involved are looking for ways to make teams and processes more efficient while increasing revenue and profitability. Often, technology and finance are simply speaking different languages around how best to achieve these goals. Acknowledging this disconnect is the first step toward making a compelling business case to support purchasing new technology.
Building a Better IT Budget
Before taking a closer look at how to help your finance department understand the value behind specific line items, it’s useful to look at building a more effective IT budget overall. Factors to consider include:
Annual cycles: An effective IT budget looks beyond a specific project, and instead forecasts the company’s needs throughout the year. What do annual cycles look like? What are your ongoing needs for equipment, staffing and software? Determine what these require in terms of investment on a monthly, quarterly and annual basis.
Explore one-time projects: Typically, each calendar year will include specific projects needed to take the company’s performance to the next level. It might involve purchasing a new server or making investments in the company’s network. Increasing bandwidth, for example, can help make employees more productive through increasing download and upload speed and make the most out of longer-term investments in cloud-based applications. Outline the one-time projects that you’re proposing this year, including up-front, recurring and long-term costs.
Tie proposed expenditures to achievement of business goals: When building your IT budget, it’s helpful to tie specific expenditures to the business goals or problems they solve. For example, if your sales team is struggling with staying connected on the road, a VoIP system provides a better way to forward phones to mobile devices. Contextualize proposed expenditures in terms of how they’ll help the company or the ROI they’re likely to generate.
Understanding the Value of Technology in Expense Forecasting
Finance often looks at a specific purchase or budget request through the lens of its potential long-term value and return on investment. However, the world of technology is changing so fast that it can be difficult for the layperson to really grasp the sometimes subtle, yet critical differences that characterize the evolution of technology. Services like cloud computing can completely change the way the critical processes are done, while a seemingly small upgrade in processing speed may be the difference in a company’s ability to run a mission-critical application.
As a result, IT managers who are working to justify expenditures on new equipment and services can help by demonstrating value as part of the overall argument. Focus on three core areas: what part of the business does the technology serve, what is the payoff for the cost structure, and what additional benefits can the company expect to receive?
Consider answering questions such as:
- What does this technology service or equipment actually do for the business?
- What problem does it solve or what process does it make more efficient?
- What is the current problem costing the business or how are inefficiencies negatively impacting performance and profitability?
- What is the cost – both up front and in terms of maintenance or ongoing capital expense?
- How do you anticipate this technology service or new piece of equipment to help solve the problem – and can you forecast the potential financial impact of onboarding the new technology?
- What intangibles can the technology help the business to capture, that directly or indirectly impacts the bottom line?
How to Better Educate Your Finance Team to Support Technology Investments
Consider, for example, making an argument for a hosted VoIP solution. The average finance person may not understand the key differences between a hosted VoIP solution and regular telephone service. Perhaps you’re trying to solve a business challenge of making it easier for customers and prospects to connect with busy salespeople and workers who are often on the road. The ability to forward office lines to your team’s mobile devices will significantly improve the customer experience and deal closure. An effective presentation or budget request for this product or service would focus on three clear things.
Quantify the problem that you’re trying to solve. It’s important that your budget request or attempt to educate finance starts with the business problem. For example, adding a hosted VoIP solution may help your company address collaboration challenges, by making it easier to share files and communicate seamlessly using the platform. Fundamentally, every technology innovation relates to a critical area of your business and aims to solve a problem, whether it’s completing key tasks more quickly or improving communication. Yet a finance person or executive approving a transaction may see technology for technology’s sake. Start your discussion with defining the problem, quantifying all the ways that it’s negatively impacting your business and how solving the problem will benefit your company on multiple levels.
Explore the technology as both tech and a solution: Your finance team wants to understand what they’re buying. Help outline the specifics of the equipment or service. What’s included, and how does that deliver value? Compare this to what’s already on the market. For example, how is having access to a hosted VoIP solution an improvement over traditional phone services? It can help solve many mobility and collaboration challenges – yet a finance person who typically works from their desk may not have thought of this. From a finance person’s point of view, the most compelling argument may be related to the idea that a VoIP program can shift communications expenses from capital expenditures (capex) to operational expenditures (opex). Understanding the goals that the finance team is focused on at the budget level can help shape how discussions are framed. By helping the IT person understand both the intrinsic value of the technology and its specific value to your company, you have laid the foundation for a yes.
Focus on the numbers: When you’re talking to the finance department, it’s important to start by making a business case and helping them understand the broader value of technology for their forecasting and decision-making. Ultimately, however, you’re going to have to have a numbers conversation. Be clear about both initial (non-recurring) and ongoing (recurring) costs. Put the numbers in context. How does this compare to current expenditures or alternate options? How do your costs compare with your competitors’, vis-à-vis the value that they drive? Finally, what ROI do you expect the investment to drive for the company? In the case of VoIP, it might be relevant to look at how bundling reduces prices and can help make it cheaper to scale as the company grows. Highlighting all the ways that technology or tech services can help cut costs, contribute directly to revenue or indirectly make it easier to make money will help get the finance team on your side.
IT managers have strong ideas about the technology infrastructure and services that will best serve their companies in the year ahead. Getting buy-in from the finance department and the people who control your budgets starts with a clear understanding of how to make a compelling business case. Help educate your management and financial department on the true value of technology and this will yield a positive ROI over the long term in both approving specific purchases and forecasting more funds in the budget to support technology investments.