Budget management of an IT department
The budget as a forecast you follow: the budget cycle, run and build, committed and actual, favourable and unfavourable variances, volume and price variances.
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IT budget: what is it?
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A numerical forecast of an IT department's spending and resources over a period, which then serves as the reference for monitoring.
It sets what you allow yourself to spend and provides the basis for comparison. With no forecast there is no variance to analyse.
A “support” line is forecast at 20,000 € and actual is 18,500 €. How is the variance written?
- −1,500 €, favourable
- +1,500 €, unfavourable
- −1,500 €, unfavourable
- +1,500 €, favourable
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−1,500 €, favourable
Variance = actual − forecast = 18,500 − 20,000 = −1,500 €. For a cost, less than forecast is favourable. The sign is the arithmetic, the label depends on the line's nature.
The budget cycle runs in this order: framing, building, …, execution, monitoring, reforecast.
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The budget cycle runs in this order: framing, building, arbitration, execution, monitoring, reforecast.
You arbitrate once requests are gathered, before committing any spending; monitoring and reforecast then feed the next cycle.
Committed amount: what is it?
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Spending already ordered but not yet invoiced.
Actual is invoiced; committed is promised. Following both avoids discovering at year end that orders already placed exceed the budget.
Running the existing system absorbs 85 % of the budget and no project has started in two years. What is the likely cause, and the fix?
- Project teams are too slow; set stricter delivery targets
- The approved budget is too low; ask for an extra allowance for projects
- Licences are too dear; replace them with subscriptions
- Ageing applications never retired cost money every year; plan their retirement to free up budget
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Ageing applications never retired cost money every year; plan their retirement to free up budget
Each application keeps a running cost until it is retired, and new ones pile on top of old ones. Without retirement the run share can only grow and chokes off build.