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The Budget Management (BGM) capability aims to ensure that the allocated IT budgets are spent appropriately and within expectations.

• 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.

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.

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.

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.

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.

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).

The following CCs cover topics that are related to BGM in some way:

AAAccounting and Allocation

Allocating the costs of provisioning IT services to consumers

AAAccounting and Allocation

Details of cost accounting and chargeback models, which may impact on the budget management process

BARBenefits Assessment and Realization

Benefit assessments of IT services and solutions, which can be used as input to budgeting

BOPBudget Oversight and Performance Analysis

Analysis of budget performance data, which can be used to improve future budgeting activities

BOPBudget Oversight and Performance Analysis

Trending of projects and budget expenditure categories on a multi-year basis

BPBusiness Planning

Details of how strategic objectives should be supported

FFFunding and Financing

Details of IT funding allocations for capital expenditure and operating expenditure

FFFunding and Financing

Determining various sources of potential IT funding

ITGIT Leadership and Governance

Guidelines for governance structures to link budgeting decisions to key activities

PPPPortfolio Planning and Prioritization

Selecting individual programmes/projects for funding

TCOTotal Cost of Ownership

Full understanding of direct and indirect costs to inform accurate budget decisions, and enable tracking of actual expenditure against budget plans

TCOTotal Cost of Ownership

Understanding direct and indirect costs for IT services and assets