Budget Management
The Budget Management (BGM) capability is the ability to oversee and adjust the IT budget to ensure that it is spent effectively. The Budget Management (BGM) capability covers:
- Planning the IT budget.
- Tracking actual expenditure and variances from the budget.
- Establishing budget accountability, oversight structures, and decision rights.
- Predicting future expenditure and out-of-tolerance variances.
Structure
BGM is made up of the following Categories and CBBs. Maturity and Planning are described at both the CC and the CBB level.
- APlanning
The creation of the IT budget.
- A1Budget Scope
Manage the scope and depth of information relating to the categories of expenditure in the IT budget (for example, capital expenses, operations expenses, shadow IT, and so on).
- A2Budget Processes
Develop processes to manage budget planning and expenditure (such as processes to manage stakeholder involvement, processes to align the budget planning with business planning cycles, processes to manage payments, and so on).
- A3Business Alignment
Engage stakeholders from the wider business in setting the IT budget to ensure that strategic priorities are reflected in the IT budget priorities.
- BPerformance Management
The monitoring of spending against the IT budget plan.
- B1Budget Monitoring
Monitor and report to stakeholders on actual performance against planned expenditure.
- B2Variance Management
Manage deviations of expenditure from the planned budget (by, for example, establishing escalation channels, and taking corrective actions).
- B3Predictability
Manage IT expenditure within budget targets and variance ranges.
- CGovernance
The responsibilities and accountabilities for managing the IT budget.
- C1Budget Governance
Establish oversight structures and decision rights to set IT budgets and manage allocations.
- C2Accountability Assignment
Establish accountability for managing the expenditure of IT budgets.
Overview
Goal
The Budget Management (BGM) capability aims to ensure that the allocated IT budgets are spent appropriately and within expectations.
Objectives
- Make budget allocation decisions in a deliberative, participatory, and transparent manner.
- Achieve predictable IT financial performance by establishing responsible fiscal management and clear lines of accountability.
- Maintain the flexibility to respond to short-term challenges and opportunities by allowing managers to reallocate IT funds across budget categories and projects at their discretion.
- Make sure that expenditure matches the allocated budget. Identify and plan for any likely overrun in advance.
Value
The Budget Management (BGM) capability helps ensure that IT budget planning is transparent and participatory and that it responds to changing needs and unanticipated opportunities.
Relevance
At a time when most organizations rely on IT to grow and innovate, managing the IT budget is of critical but sometimes under-rated importance1. The IT budget facilitates implementation of the IT strategic plan by providing funding for the required resources and activities. It also provides the means of initiating corrective action when business conditions change, by allowing budgets to be reallocated as necessary. However, if IT budgets are arbitrarily managed, problems can occur, such as erratic over- or under-spending, inability to reallocate previously committed budgets to more productive activities, and so on.
By establishing an effective Budget Management (BGM) capability, an organization can improve business outcomes by enabling rapid response to changing business needs and unanticipated expenses. Money saved by managing the IT budget effectively can be reinvested in IT innovation programmes to drive further savings, creating a virtuous cycle.
Scope
Definition
The Budget Management (BGM) capability is the ability to oversee and adjust the IT budget to ensure that it is spent effectively. The Budget Management (BGM) capability covers:
- Planning the IT budget.
- Tracking actual expenditure and variances from the budget.
- Establishing budget accountability, oversight structures, and decision rights.
- Predicting future expenditure and out-of-tolerance variances.
Improvement Planning
Practices-Outcomes-Metrics (POM)
Representative POMs are described for BGM at each level of maturity.
- 2Basic
- Practice
- Explicitly define the approach for relevant stakeholders to participate in planning the IT budget for the coming year.
- Outcome
- Participatory planning of the IT budget is likely to lead to higher levels of support for it.
- Metric
- Percentage of identified key stakeholders who are involved in defining IT budget planning approaches.
- Practice
- Prioritize which IT budget items should carry the highest levels of expenditure monitoring (for example, include major IT projects and significant business-as-usual expenditure activities).
- Outcome
- Expenditure monitoring allows greater levels of visibility, planning, and predictability.
- Metric
- Extent to which actual expenditure matches budgeted expenditure.
- Practice
- Establish formal IT budget oversight structures with the support of the corporate finance function.
- Outcome
- Budget oversight benefits from corporate finance's expertise.
- Metric
- Percentage of IT expenditure approved using IT budget oversight structures.
- 3Intermediate
- Practice
- Designate managers accountable for forecasting and managing actual expenditure.
- Outcome
- By assigning individual accountability and authority, there is greater likelihood that budgets will be effectively managed.
- Metric
- Percentage of IT budget and associated expenditure assigned to designated managers.
- Practice
- Ensure budget allocations across IT projects are fully aligned with the IT strategy.
- Outcome
- Confidence increases that the IT budget supports the implementation of the IT strategy.
- Metric
- Percentage of projects funded that are aligned with the IT strategy.
- Practice
- Review deviations of expenditure from the IT budget, and take corrective action as required.
- Outcome
- Run rates for IT expenditure are more reliably predicted, and budget targets are increasingly met.
- Metrics
- Percentage of IT budget targets that are met.
- Percentage of IT budget variances satisfactorily resolved.
- Practice
- Ensure that the potential impact of proposed IT budget expenditure is taken into account in the budget for future years (for example, the effect of this year's capital expenditure on future depreciation and maintenance costs).
- Outcome
- The knock-on demands of the current IT budget commitments can be better predicted to increase future budget flexibility.
- Metric
- Budget split between predetermined (often longer-term) versus discretionary budget expenditure.
- 4Advanced
- Practice
- Expand IT budgeting to include all of ‘shadow IT’ expenditure.
- Outcome
- Total IT expenditure across the organization is clarified, enabling identification of more synergies and variances.
- Metric
- Percentage of total IT expenditure accounted for by the IT function.
- Practice
- Involve all relevant stakeholders in IT budgeting and ensure that the budgeting process is aligned with business planning cycles.
- Outcome
- There is increasing stakeholder participation in recognizing and resolving budget variances.
- Metrics
- Percentage of identified relevant stakeholders participating in IT budget planning and management.
- Number of unresolved budget variances.
- Practice
- Broaden the IT budget governance structures to authorize appropriate individuals to facilitate budget reallocation.
- Outcome
- Flexible governance structures facilitate appropriate responses to unanticipated events.
- Metrics
- Number of IT budget changes per quarter.
- Number of budget reassignments.
- Practice
- Automatically escalate expenditure that deviates from the IT budget plan.
- Outcome
- Key stakeholders are immediately informed of variances to encourage a timely response.
- Metric
- Number of unresolved budget variances.
- 5Optimized
- Practice
- Advocate and identify budget management improvement opportunities across the organization.
- Outcome
- The IT budget is predictable, inclusive, and continually improved.
- Metric
- Planned budget versus actual expenditure.
- Practice
- Ensure that the IT budget continues to be actively managed for flexibility, so that the organization can capitalize on emerging opportunities to invest in innovation.
- Outcome
- Budget management is seen to enable innovation.
- Metric
- Percentage of IT expenditure invested in innovation.
Reference
History
This capability was introduced in Revision 16 as a new critical capability.
It was deprecated in Revision 18.10, being updated by Budget Management (18.10).