Senior executives are caught in a double bind: ever greater commitments to IT investment are being driven by competitive necessity and discouraged by escalating costs and uncertain benefits.
It is thus useful to understand the origin of these costs and identify IT projects where benefits cannot be measured and those where benefits can (the latter being the minority).
This discussion will be limited to an examination of management and budgets in software development, the main discretionary expenditure in IT planning and also the key element in using IT for business innovation.
This focus is admittedly narrow but, nonetheless, relevant because software development is extremely expensive, when measured in terms of full lifecycle costs. Inasmuch as operations and maintenance costs can amount to one to three times development cost, today’s development budget sets a considerable portion of the IT budget for the next several years.
Many managers regard budgets negatively. The word budget is about as popular as, say, strike or layoff.
Yet top managers must convince their subordinates that the budget is a positive device designed to help managers choose and reach goals. Note that budgets are not cure-alls. They are not remedies for weak management talent, faulty organization, or a poor accounting system.
At the same time, these subordinates must be able to justify, in simple terms, their numbers. When they can, not only is a more collegial relationship likely to take hold, but the proposed budget is more likely to be funded.
It is easy for managers to demand that IT costs be brought under control, but it is reasonable for them to do so only if they acquaint themselves with the origins of those costs. Thus, management must recognize all development costs, many of which are hidden.
Furthermore, management must understand that its current investment in development creates future operations and maintenance costs. And, management frequently overlooks the ensuing organizational, support, and infrastructure costs, which can be obscured by an accounting system that expenses IT as overhead.
Tradition has led senior business managers and many IT executives to view IT as an annual expenditure. In good times, the IT manager makes the case for an increase of “X” percent or adds up all the approved new software development requests from the business units and factors in aggregate operations costs.
In bad times, senior management demands either a decrease in the rate of growth or even an absolute cut in the budget.