Banking

IT managers should help develop capital budgets

By keeping a hand in the development of a capital budget, an IT manager can anticipate plans across the organization that will have IT support implications.


Nowhere is planning more important than in the budgeting process. Developing a budget allows IT managers to anticipate and prepare for business changes that will affect their departments. This is especially true with capital expenditure budgeting.

A capital budget is the forecast of items that the organization plans to depreciate over time or that are large, one-time expenses the company can depreciate if desired. Generally, companies will place items in a capital budget category if they exceed $500, sometimes $1,000, and include any equipment or software item added as an asset to the company. Even though software is normally licensed, it can be depreciated and is usually considered a capital purchase. Certain consulting engagements or studies can also be capitalized (depreciated over time versus expensing in the month that the cost is incurred) when they’re considered investments for the company.

Every organization has a philosophy as to how aggressive or conservative an approach it will take to depreciating assets. Federal regulations also exist on what can and cannot be done.

The value of a capital budget
The benefits of developing a thorough capital budget include:
  • Forcing the departments to think about major expenditures they will need in the new year, which initiates at least some amount of planning.
  • Helping IT anticipate new hires and other plans, like new office openings or office relocations, that affect the infrastructure.
  • Creating awareness of special department plans that might have IT support implications.
  • Giving the company insight into cash flow for the new year.

Who should submit a capital budget?
Every department manager across the company should develop and submit a capital budget. Depending on the size of your company, the senior IT manager may submit a plan for the entire IT department, or the CIO may collect input from several of his or her senior managers. The same holds true for other company departments.

In most cases, the CFO or controller usually drives development of operational and capital budgets for the new year. If you’re the most senior IT manager, make sure you are actively involved in the process, and position yourself for a full review of the capital budget as it is submitted. You should also be involved in developing the guidelines for capital budget submissions. After all, your department will probably be the one most affected by other departments’ capital purchases.

As you provide input to capital budget guidelines, include items that will give you insight into technology purchases and anticipated changes that affect IT support, timing, and major project implications.

Capital budgeting guidelines
If you don’t have a process already in place, you can use the guidelines shown in Figure A as a model to collect each department’s capital needs.
Figure A

Capital Budget Guidelines

Due Date:  _______________________________

Minimal Dollar Amount  $__________________

Name ________________________________ Department: _____________________

Capital Item/Qty

Cost

Estimated
Timeframe

Comments

1.    u u u
2.         u   u u
3.         u   u u
4.    u u u
5. u u u
6. u u u
7.   u u u
8. u u u
9. u u u
10. u u u

Include equipment, software, and one-time expenses associated with the following events:

1.       New employees

2.       Office relocations, renovations, etc.

3.       New office openings

4.       Projects or initiatives requiring IT support

5.       Department projects including furniture, improvements, etc.

For questions, please contact _____________________ at ______________________.

 

Review for IT impacts
After each department submits a capital budget, someone in IT should review each plan to assess its impact on IT. This early review provides a great opportunity for you to line up all the project work the IT department will take on to support the initiatives planned for the new year. Too often, department managers plan to do something and fail to tell the IT organization. An early review is just another way to help you get ahead of the curve.

Look for items that will affect IT, include the following:
  • New employees—Require new PCs, possibly software, and local area network wiring to new cubes or offices.
  • New offices—Require systems connectivity, wiring, PC and network setup support, and WAN or other telecom support.
  • Office relocations—Require systems connectivity, equipment relocation support, network changes, and so on.
  • Projects—Can require anything from a simple setup of a new user to the development of an intricate data interface between multiple application systems.

Every time you find a capital item that affects IT, quantify the implications by interviewing the source of the request so you know what to expect. The objective is to be able to anticipate the workload and skill sets needed as early as possible in order to plan for the support required. You can use a table or spreadsheet like the one in Figure B to help you in this effort.
Figure B
Capital Budget Plans for 20_ _—IT Implications

Capital Item

Dept.

Target Date

IT
Requirements

Estimated
Scope

Comments

u u u u u u
u u u u u u
u u u u u u
u u u u u u
u u u u u u
u u u u u u
u u u u u u
u u u u u u
u u u u u u

The more you can anticipate the IT resources needed to support your organization’s business plans, the better. It also helps to begin developing a general scope of effort as soon as possible. Having information allows you to support your company and users in a professional, proactive manner. The information you glean may also point out issues you need to consider in your own capital and operating budgets.

Mike Sisco is the CEO of MDE Enterprises, an IT manager training and consulting company in Atlanta. For more of Mike’s insight, take a look at his IT Manager Development Series.

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