A few tips that can save the year
Developing aggressive, but achievable, budgets is easier than you might think. It requires that you anticipate surprises and build in buffers to offset them. Here are the items you can't afford to leave out of your budget.
Salary and benefits are key
In most IT organisations, staff payroll expenses make up about 70 percent of the budget. Get this piece right, and you're well on your way to building an achievable budget.
- Get your headcount right: Budget all employees, open positions, and planned new hires for every month you expect to pay the wages.
- Plan salary increases: Budget the salary increases you plan to make for each member of your staff. Here's more information on ways to plan for salary increases.
- Contract help may be a big expense: Pay close attention to contracted employees and consultant expenses; these costs can run up quickly.
- Don't forget recruiting expenses for new hires and replacements: Recruiting is expensive.
Telecommunications costs are dynamic
In many organisations, telecommunications costs to support remote office connectivity can be dynamic, especially if offices are opening and closing every month. Do your homework and build in a reasonable growth and activity plan that coincides with senior management expectations.
Hardware and software maintenance
Annual software maintenance fees should not be a surprise. Neither should fee increases for hardware maintenance, etc. Be sure you maintain an accurate asset list that helps you budget the proper amounts to avoid any surprises and review contract terms for planned increases.
Travel and entertainment
You should know who travels and who doesn't. It doesn't take a rocket scientist to estimate the number of trips per month by all those who need to travel. Take the trips per month and apply an average cost per trip to arrive at each month's budgeted expense amount.
Education
I usually take a fixed expense dollar factor and multiply it by the number of employees, then divide it evenly over the 12 months. If you know of large training expense items, you can budget them individually for the month you expect to spend the money.
Compare the new plan to past trends
Past operating expense trends can tell you a lot. Use them as a source to find expense peaks and to validate your new plan.
Plan for major project initiatives
New projects may have significant costs associated with them. Be sure to include these in your new budget.
Investigate company plans
Ask around and determine if there are major initiatives planned that will have an impact on your budget. If you discover something, build in a reserve to handle it as necessary. If you have profit and loss (P&L) responsibility, you're expected to prepare for initiatives that have a cost impact on your organization.
There's nothing wrong with building a conservative budget that allows you to achieve your financial plan. In fact, your senior management team wants a plan that can be achieved. The Board of Directors looks for IT executives that deliver what they say they will, and over half of the measurement is in delivering the financial numbers. Therefore, it is totally reasonable that your CEO expects you to build a plan that is aggressive, but that you can and will achieve.
Don't -sand bag" your budget
It's just as bad for managers to intentionally -sand bag" their budgets to ensure they make their budgets as it is to budget too tightly and fail to make the plan. Budgets should be aggressive, but realistic to achieve. When a manager low-balls his or her plan by 30 percent to ensure there is plenty of room, it usually takes away some initiatives that senior management would like to plan for in other areas. The image you want to shoot for is of a manager who understands the business and budgets aggressively, but has safety valves in place for unforeseen circumstances in key areas. And by all means, you want to be seen by all as a manager who always achieves your plan.
Mike Sisco is the CEO of MDE Enterprises, an IT management training and consulting company.
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