IT costs are often a mix of equipment refresh cycles, convoluted software licenses, and often confusing IT service provider proposals. Add into the mix, cloud computing and managed service providers and how do you even start to develop an IT budget?
This session provided an overview of an Excel-based IT budgeting approach that enables organizations to take a more proactive approach to managing their IT investment.
It also covered some basic IT knowledge that non-technical managers need to know to validate the budgets that their IT Managers may be submitting to them. Lastly, it focused on techniques to shift management’s perspective of IT from a cost to an investment.
Key Takeaways & Insights:
o How to develop a detailed IT Budget based on types, categories, and classes of IT spend
o How a detailed IT budget can supports better cash flow and financial management
o How to segregate mandatory from discretionary IT spend for organizational agility
o Understand IT hardware lifecycle risk and refresh cycle impacts
o Understand common software licensing models and cost model impacts
o Look at managed service providers and cloud computing and their impact to the budget
o Switching the IT paradigm from cost to investment and tying to organizational strategy
Presenter Bio
Donny ShimamotoDonny Shimamoto, CPA.CITP, CGMA, is the founder and managing director of IntrapriseTechKnowlogies LLC, a CPA consultancy focused on organizational development and advisory services for the middle market and nonprofits. An active CPA, Certified Information Technology Professional (CITP), and Chartered Global Management Accountant (CGMA), Donny is a recognized national expert in IT management and international author/speaker on business intelligence initiatives.
Donny helps many nonprofits by bridging accounting and IT to strengthen organizational governance and risk management, improve business processes through technology, and increase the effectiveness of decision through business intelligence and evidence-based management.
In addition to being a frequent speaker for the Nonprofit Technology Enterprise Network (NTEN), Donny is the chairman of the American Institute of CPA’s (AICPA’s) Information Management & Technology Assurance Executive Committee and a former member of its Governing Council and Assurance Services Executive Committee.
Donny was recognized as one of 2013′s Top 100 Most Influential People by Accounting Today, and was a Top Thought Leader in Public Accounting by CPA Practice Advisor in 2012 and 2013, received the 2009-2010 President’s Award from the Hawaii Society of CPAs, was named to CPA Technology Advisor’s 40 Under 40 list in 2007 & 2009, and was also a Hawaii Top High Tech Leader in 2004.
Donny works with a variety of nonprofits including community foundations, social service agencies, educational institutions, and membership associations.
Strategies for Unlocking Knowledge Management in Microsoft 365 in the Copilot...
Community IT Innovators - IT Budgeting for Nonprofits 022714
1. Community IT Innovators Webinar Series
IT Budgeting for Nonprofits
Donny Shimamoto
February 27, 2014
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3. About Community IT
Community IT Innovators partners with nonprofits to help them solve
their strategic & day-to-day IT challenges.
Strategic
Proactive approach so you can make IT decisions that support your
mission and grow with you
Collaborative
Team of over 40 staff who empower you to make informed IT choices
Invested
We are committed to supporting your mission, and take care of your IT
network as if it were our own
Nonprofit focus
Worked with over 900 nonprofits since 1993
4. About the Presenter
Donny Shimamoto
Founder & Managing Director
IntrapriseTechKnowlogies
donny@intraprisetechknowlogies.com
@donnyitk
6. Speaker Biography
Donny C. Shimamoto,
CPA/CITP, CGMA
Donny Shimamoto, CPA.CITP, CGMA, is the founder and managing director
of IntrapriseTechKnowlogies LLC, a CPA consultancy focused on
organizational development and advisory services for the middle market and
nonprofits. Donny is a recognized national expert in IT management and
international author/speaker on business intelligence initiatives. Donny
helps many nonprofits by bridging accounting and IT to strengthen
organizational governance and risk management, improve business
processes through technology, and increase the effectiveness of
decision through business intelligence and evidence-based management.
Donny was a member of the AICPA Governing Council and is the chairman of
its Information Management & Technology Assurance Executive Committee.
Donny was recognized as one of 2013’s Top 100 Most Influential People in
Accounting by Accounting Today, Top Thought Leaders in Public Accounting
by CPA Practice Advisor in 2012, 2013 and 2014, received the 2009-2010
President’s Award from the Hawaii Society of CPAs, was named to CPA
Technology Advisor’s 40 Under 40 list in 2007 & 2009, and was also a
Hawaii Top High Tech Leader in 2004.
7. Audience Polls – Demographics
Organization Type/Size
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Small Organization
Medium Organization
Large Organization
Government
CPA Firm
Role in Organization
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Lead Executive
Executive Leadership
Dept Director/Manager
Dept Staff
Auditor or Consultant
Part of Organization
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Accounting/Finance
Information Technology
Line of Business,
Programs/Departments
Consultant or Auditor
Choose one from each set of
options that best matches how
you view your organization
and your role at work.
8. A Systematic Approach to IT Budgeting
Anatomy of an IT Budget
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IT Asset Lifecycle Planning
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Tying IT Risk to Hardware Refresh Cycles
Software Licensing Explained
Understanding Managed Service Providers
Adding some Cloud into the Budget
–
Types of Expenditures
Categories of Expenditures
Classes of Expenditures
Comparing Cloud vs. On-Premise Solutions via the
Budget
Summary
9. A Systematic Approach to IT Budgeting
Challenges with IT Budgeting
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Personnel knowledge challenges
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Many IT decisions have multi-year impacts, but many IT
budgets focus on only one year at a time
–
IT costs incurred at varying times and recur in multi-year
patterns; single year focus can result higher long term cost
Not just standard personnel and non-personnel costs
May not be the same from year to year
Unable to distinguish mandatory and discretionary IT costs
–
Accounting doesn’t understand IT
IT doesn’t understand Accounting
Often all intermingled and inseparable
Apples-to-apples comparison often difficult due to lack of
consistency in vendor quoting and technical nuances
Let’s deconstruct the anatomy of an IT Budget to see
how we can address the above challenges
10. Anatomy of an IT Budget – Types of Spend
Types of IT Spend
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Personnel
–
Salaries & Benefits – employees and associated costs
Non-Personnel
Hardware – equipment and other fixed assets,
installation costs, maintenance contracts, warranties
Software – licenses and support contracts
Subscriptions – could be associated with hardware,
software, training, cloud computing and managed
service providers
Services – advisors, consultants, service providers,
auditors, legal counsel
Once you identify the Type of Spend then you ask the
right questions to better understand the cost
11. Anatomy of an IT Budget – Personnel
Personnel Budget Questions
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Are there any anticipated changes to salaries?
Are there any anticipated change to benefits/benefits
eligibility?
Are there any licenses/certifications to add/maintain/end?
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Are there any terminations / layoffs planned?
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Which positions and when?
Are there any new hires anticipated?
Do any of those have training associated with them?
Do any of them have exam or license renewals?
Is this a full-time or part-time position?
What benefits would the person be eligible for?
Is there any training that needs to be budgeted for?
Competitive Analysis Question:
–
How does our compensation package compare to market?
12. Anatomy of an IT Budget – Hardware
Hardware Budget Questions
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Additional Hardware Questions
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What hardware is at end-of-life?
How long will new hardware last?
Are there any maintenance or support contracts needed?
Are there any subscriptions associated with the hardware?
Which costs have to be capitalized?
Do we have enough computers for planned new hires?
Are there any other dept plans that will require hardware?
Are there any projects that may impact current hardware?
Competitive Analysis Question:
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What is our competition doing—what HW are they using?
Have we considered virtualization or cloud-based
alternatives to hardware/infrastructure?
13. Anatomy of an IT Budget – Software
Software Budget Questions
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Additional Software Questions
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Are there any software licenses that need to be renewed?
What period is the software license valid for?
Are there any subscriptions associated with the software?
Are there any installation costs?
Which costs have to be capitalized?
Do we have enough software licenses for new hires?
Are there any other dept plans that will require software?
Are there any projects that may impact current software?
Competitive Analysis Question:
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What is our competition doing—what SW are they using?
Have we considered cloud-based alternatives to software?
14. Anatomy of an IT Budget – Services
Services Budget Questions
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Additional Services Questions
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Is the service level adequate for our coming needs?
Are the services provided still needed?
Are there additional services needed?
Has our volume of services changed? Impact to price?
Does the service have a required period associated with it?
Are there any other dept plans that will require services?
Are there any IT projects that may impact current services?
Have services associated with projects been isolated from
operational costs?
Competitive Analysis Question:
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Have we considered outsourcing non-core IT functions?
Have we considered managed service providers?
15. Anatomy of an IT Budget – Subscriptions
Subscriptions Budget Questions
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Additional Subscriptions Questions
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What is the level of usage of the subscription?
Should we renew at a different subscription level?
Does the subscription have a period required by contract?
Are there any installation costs?
Which costs have to be capitalized?
Do we have enough subscriptions for planned new hires?
Should we convert any software to subscriptions?
Have all subscriptions associated with hardware and
software been included in the budget?
Competitive Analysis Question:
–
Have we looked a new subscription offerings/pricing
models to validate that we are optimizing our software and
subscriptions cost?
16. Anatomy of an IT Budget – Types of Spend
Types of IT Spend
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Personnel
–
Salaries & Benefits – employees and associated costs
Non-Personnel
Hardware – equipment and other fixed assets,
installation costs, maintenance contracts, warranties
Software – licenses and support contracts
Subscriptions – could be associated with hardware,
software, training, cloud computing and managed
service providers
Services – advisors, consultants, service providers,
auditors, legal counsel
Remember to focus on the coming year and also on
future periods that may impact purchase decisions
17. Anatomy of an IT Budget – Categories
Categories of IT Spend – Defined
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Capital – expenditures that will need to be considered as
part of the capital budget (usually needs to be capitalized)
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Operating – expenditures that are related to operations
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Subscriptions, maintenance, support for HW/SW usually here
Project – expenditures that are tied to a discreet effort
Hardware and large software license purchases usually here
Significant repairs, parts replacements, upgrades
May or may not need to be capitalized
May be required or discretionary expenditures
Consider allocating personnel costs among these
categories to better understand how IT personnel
resources are being deployed
18. Anatomy of an IT Budget – Categories
Categories of IT Spend – Considerations
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Capital – expenditures that will need to be considered as
part of the capital budget (usually needs to be capitalized)
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Operating – expenditures that are related to operations
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Has a greater cash flow impact, but may also be eligible for
financing from vendors or banks
Consider impact to the financial statements
Usually “required” expenditures related to day-to-day ops
Usually somewhat of a fixed cost; focus usually to minimize
Project – expenditures that are tied to a discreet effort
May have associated capital or operating expenditures
Usually discretionary, but not executing may have impact too
Timing may be adjusted for cash flow
Proper categorization can help to analyze impact to
cash flow and financial statements
19. Anatomy of an IT Budget – Classes
Classes of IT Spend (Run – Optimize – Innovate)
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Run – activities and projects that keep the organization
running at its current level of service/operations
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Optimize – projects and initiatives that help to improve
organizational efficiencies and effectiveness
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Most Operating expenditures fall here
Project expenditures related to support and maintenance of
the IT infrastructure also fall here
Many Project expenditures fall here, particularly when they
are related to business improvement activities
Many Capital expenditures fall here
Innovate – providing new capabilities, products, or services
Also thought of as ‘Research & Development”
Some Project and Capital expenditures fall here
When trying to “tweak” the IT budget, Run usually should be
kept, Optimize and Innovate should be prioritized
20. Anatomy of an IT Budget – Classes
Classes of IT Spend – Analyzing your budget
(Laggards)
(Mainstream)
(Leaders)
Your
Org?
Run
80%
60%
50%
??
Optimize
20%
30%
30%
??
Innovate
0%
10%
20%
??
IT Budget
Entity C
Entity B
Entity A
None of these spending patterns are “wrong”.
They just represent different types of IT
roles/investment.
21. Audience Poll
Which entity are you most similar to?
a)
b)
c)
d)
e)
Entity A (Run = 50; Optimize=30; Innovate=20)
Entity B (Run = 60; Optimize=30; Innovate=10)
Entity C (Run=80; Optimize=20; Innovate=0)
Other
Not sure
Remember
None of these spending patterns are “wrong”.
They just represent different types of
IT roles/investment.
22. IT Asset Lifecycle Planning
What is an “IT Asset Lifecycle”?
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IT Assets follow a general “life” pattern
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IT Assets have different timelines for their life cycles
From Acquisition (“birth”)
To Disposal/Discontinuance (“death”)
Hardware – 3-5 years
Software – depends on license agreement
Subscriptions – usually monthly to annually, depends on
agreement
Services – depends on contract
Understanding the IT Asset Lifecycle helps to
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Identify the total cost of an IT Asset over its life
Identify points in time with option to change cost structure
Identify future impact of current decisions
Ensure the IT decisions balance short & long term value
23. IT Asset Lifecycle Planning – Hardware
Acquisition costs usually capitalized
Costs in other phases usually expensed
Option to Repurpose usually forgotten/skipped
Acquire
Maintain
Dispose
Replace
Repurpose
24. Tying IT Risk to Hardware Refresh Cycles
How often an organizations refreshes its hardware
depends on its level of risk tolerance
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Different IT Assets have varying risk of failure as they age
Consider the criticality of the IT Asset to operations
Consider the ease of replacement in the event of failure
Risk of
Failure
Laptop
Desktop
Virtual
Terminal
Servers
Firewall
Low
<2 yrs
<3 yrs
<6 yrs
<3 yrs
<4 yrs
Moderate
2-3 yrs
3-5 yrs
6-8 yrs
3-4 yrs
4-6 yrs
High
4+ yrs
5+ yrs
8+ yrs
4+ yrs
6+ yrs
Ease of
Replacement
Moderate
Moderate
Easy
Hard
Moderate
25. Tying IT Risk to Hardware Refresh Cycles
Consider repurposing servers and workstations into
a lower risk role (e.g. login/DNS/file/print server,
etc.) when they reach a Moderate risk of failure
Acquire
Maintain
Dispose
Replace
Repurpose
26. IT Asset Lifecycle Planning – Software
Acquire/Replace costs may be capitalized
Maintain/Renew/Dispose costs usually expensed
Upgrade costs might be capitalized
Replace/Renew/Upgrade is a key decision point
usually tied to the software license agreement
Acquire
Maintain
Replace / Renew
/ Upgrade
Dispose
27. Software Licensing Explained
Types of License Programs
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Outright Purchase
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Defined Period
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“retail” software license – one time cost
One time cost; Only valid for a defined period
Defined Period + Subscription
Usually large one time cost, plus subscription
–
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annually usually 15-20% or original purchase price
Only valid for a defined period, subscription = renewal
Subscription
May have one-time activation cost
Usually has regularly recurring payments
(annually/monthly)
Usually has a defined period with renewal option
Upgrades usually included / available
28. Software Licensing Explained
Types of License Programs – Impact to Budget
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Outright Purchase
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Defined Period
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One time expenditure in year of acquisition
Recurring subscription cost in subsequent years
Subscription
One time expenditure in year of acquisition
Potential renewal cost at end of period
Defined Period + Subscription
–
One time expenditure in year of acquisition
May have one-time expenditure in year of acquisition
Recurring subscription cost in subsequent years
When analyzing a purchase decision be sure to
look at the costs in out years / total cost
29. Software Licensing Explained
Microsoft License Programs
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OEM = provided with purchased equipment
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Retail = purchased from a “store”
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Only valid for that equipment (can’t be moved/transferred)
Can’t transfer to virtualized environment
No previous version rights
Can be moved/transferred between equipment
Can transfer into virtualized environment
No previous version rights
Open License = purchased from a “retailer”
Can be moved/transferred between equipment
Can transfer into virtualized environment
Rights to use previous versions with Software Assurance
Has a license period, may be treated like a subscription
30. Software Licensing Explained
Microsoft Open License
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Open Business
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Open Value / Open Value Subscription
Two-year periods, pay upfront
Software Assurance optional
Three-year periods (one-year allowed for subscription)
Pay upfront or pay annually (subscription)
Must include Software Assurance
Can purchase Online Subscriptions, but must pay annually
Microsoft Online Subscriptions
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–
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Priced monthly, pay monthly
Different plan levels with different costs
Annual contracts, increases allowed at any time,
decreases only at annual renewal point
31. IT Asset Lifecycle Planning – Subscriptions
All costs usually expensed
Replace/Renew/Upgrade is a key decision point
usually tied to the subscription agreement
Increases usually allowed at any time
Decreases usually only at Renew point
Acquire
Maintain
Replace / Renew
/ Upgrade
Discontinue
32. IT Asset Lifecycle Planning – Services
Capitalize/expense depending on type of work
Lifecycle depends on contract with service provider
Managed Service Provider contracts often behave
like Subscriptions; and may have software
associated with it
Acquire
Maintain
Replace /
Renew
Discontinue
33. Understanding Managed Service Providers
Managed Services is the practice of transferring day-to-day
related management responsibility as a strategic method for
improved effective and efficient operations inclusive of
Production Support & lifecycle build/maintenance activities.
–
A Managed Services Provider (MSP), is typically an IT services
provider, who manages and assumes responsibility for
providing a defined set of services to their clients either
proactively or as they (not the client) determine that the
services are needed.
– Most MSPs bill an upfront setup or transition and an
ongoing flat or near-fixed monthly fee, which benefits
clients by providing them with predictable IT support costs
–
Source: Wikipedia, http://en.wikipedia.org/wiki/Managed_services
Source: Wikipedia, http://en.wikipedia.org/wiki/Managed_services
Could bookkeeping be considered a managed service?
34. Understanding Managed Service Providers
Benefits of a Managed Service Provider (MSP)
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MSP usually specializes in the services provided
MSP usually incorporates best practices into their service
model
Services automatically provided as needed within scope
E.g., when there is a problem applying a system patch, MSP
will automatically go in and fix it; without additional cost
Considerations when using an MSP
–
Usually requires that you conform to their model /
software suite
–
Works well for standardized environments
When IT staff are employed by organization
Usually shifts non-value-added tasks to MSP
May not decrease staffing cost, but allows staff to focus on
more value-added activities
35. Understanding Managed Service Providers
Impact of an MSP to the IT Budget
–
–
Usually increases predictability in service costs
Usually setup cost, then recurring monthly payments
–
Usually higher recurring cost
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Cost driven by number of supported devices
May have software licenses included in cost
May offer reduced cost of hourly services w/ higher level plan
Higher level plans normally include more managed services
But total cost can be less depending on level of incidences
Total cost may be higher if there is variability in the
environment
Review the MSP contract to determine
How much flexibility you have for increases/decreases
Renewal points and plan levels (options/service levels)
MSPs aren’t right for everyone, requires a leap of faith
36. Adding Some Cloud to the Budget
Cloud Computing / Software-as-a-Service (SaaS)
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Reduces the need for equipment purchases
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Reduces up-front implementation costs
–
Don’t need to pay for setup/config of hardware
Don’t need to incur full platform install/setup
Sometimes user setup is included with subscription fee
Reduces on-going support & maintenance costs
–
Vendor is responsible for server equipment / infrastructure
However, may require bandwidth/network equip upgrade
Vendor is usually responsible for system operations, patches,
backups, business continuity, software upgrades
Don’t need to worry about hardware lifecycle risks
Reduces cost of Replacement phase
Don’t need to incur costs of server upgrade/replacement
Don’t need to incur costs of software upgrade/install
37. Adding Some Cloud to the Budget
Impacts of Cloud / SaaS to the Budget / Cash Flow
–
Usually reduces overall cost of acquisition
–
Usually follows subscription lifecycle model
Implementation costs usually expensed
Many vendors allow monthly payments
Many vendors offer discount for annual payment up-front
Budget / Cash Flow Considerations
–
–
–
–
No “asset” created, so usually not eligible for financing
What is the impact to funding eligibility if cost is spread
over time instead of up-front?
What is the impact to the financial statements (and related
performance incentives) if expensed?
Does a conversion to a cloud/SaaS solution reduce costs
in other areas?
38. IT Asset Lifecycle Planning
Understanding the IT Asset Lifecycle helps to
–
–
–
–
Identify the total cost of an IT Asset over its life
Identify points in time with option to change cost structure
Identify future impact of current decisions
Ensure the IT budget decisions balance short and long
term value
Create a multi-year IT Budget to analyze total cost
–
Note replacement / renewal points and costs
–
–
–
–
Remember to include any associated services with changes
Remember to determine if there are disposal costs
Balance risk and cost over time
Consider the use of an MSP for cost management and
better IT staff utilization
Consider the impact of Cloud Computing to funding, cash
flow, and financial statements
39. Now you have your IT budget created…
After completing the entire budget, go back and
look at the big picture that it shows
Use multiple versions of the IT budget to do “what
if” scenarios
–
–
Compare costs of physical vs. virtual servers
Compare costs of on-premise vs. cloud solutions
Creating the budget the first time can be a big
endeavor
–
Maintaining it usually required less effort
40. Call to Action – IT Budgeting for Nonprofits
CEOs/EDs, CFOs/Controllers, and Dept/Program
Managers should work with their IT Manager or
Service Provider to develop an IT Budget that
–
Ensures alignment of IT with business strategy & mission
–
Balances both short-term and long-term IT costs
–
Balances IT-related risks, costs, and value
–
Helps with organizational planning for cash flow,
funding sources, and financial statements
–
Separates discretionary from non-discretionary IT costs
Enables informed decision-making for IT projects
A good IT budget is both a planning and decision-making tool
that can help to maximize the benefits of your IT investments
and enable your organization to better achieve its mission
41. Thank you for your
attention and participation!
Any Questions?
Donny C. Shimamoto, CPA/CITP, CGMA
IntrapriseTechKnowlogies LLC
email: donny808@cpa.com
voice: (808) 735-8324
twitter: @donnyitk
See also March 2012 Journal of Accountancy article:
“A Strategic Approach to IT Budgeting” @ http://www.journalofaccountancy.com/Issues/2012/Mar/20114439.htm
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