IT Budgets that Don't Bite: A Template for IT Budgeting

1. IT Budgets that Don't Bite: A Template for IT Budgeting Presented by: Kathleen Sherwin Director, Programs & External Affairs TechFoundation TechConnect Curriculum 2006-2007

2. Abstract Since technology began to find its way into nonprofits in the 1980’s, budgeting for IT has been a problem. Many nonprofits still have no distinct IT budget or budgeting process, let alone separate capital, operations, and support budgets. This presentation argues that preparation of an IT budget is a critical step both toward controlling IT costs and increasing the usefulness of IT systems. Through the use of standards, templates, and industry experience, nonprofits can develop IT budgets with relative ease, and should. TechConnect Curriculum 2006-2007

3. Purpose of Presentation • The purpose of this presentation is to encourage nonprofit managers to develop and follow IT budgeting strategies and practices, resulting in more effective systems and better control of costs. By presenting IT budgeting as a process and using budget templates, attendees should be able to initiate this process in their own organizations. TechConnect Curriculum 2006-2007

4. Goals/Objectives Attendees will: • Know and apply Total Cost of Ownership & IT Life Cycle concepts in their agencies • Learn the 6 steps to developing an IT budget • Have spending standards against which to compare their budgets TechConnect Curriculum 2006-2007

5. Strategic Technology Vision Before you begin your budgeting process, you will need a Strategic Technology Vision, including: • How technology will support your mission • Management buy-in • List of each manager’s priorities • Assessment of current IT systems and support TechConnect Curriculum 2006-2007

6. The Vision Team ED/Board IT Staff Program Staff TechConnect Curriculum 2006-2007

7. HARD Hardware Software Professional services Personnel Training Telecommunications Supplies & Incidentals Environment Maintenance Cost SOFT User time – using User time - fixing Helper time Management time Inefficiencies Hard and Soft Costs TechConnect Curriculum 2006-2007

8. Budget Line Items E. Training F. Telecommunications G. Supplies & Incidentals H. Environment • Hardware • Software • Professional services • Personnel TechConnect Curriculum 2006-2007

9. Budget Columns Hardware Software Services Labor Training Telecommunication Supplies & Incidentals Environment TechConnect Curriculum 2006-2007

10. Five Concepts Underlying IT Budgeting • Projection from current expenses • Total Cost of Ownership (TCO) • IT Life Cycle • Benchmarking against peer organizations • Mission-driven, top-down planning TechConnect Curriculum 2006-2007

11. Projection from Current Expenses • What is it? Start with current costs, add inflation, add/subtract anticipated projects • Pros: easy to understand and do, easy to calculate, generally pretty accurate, generally a straight-line cost increase • Cons: no room for new solutions, no measure of effectiveness, easy to hide costs, no challenge for income, sometimes miss opportunity to recognize cost savings TechConnect Curriculum 2006-2007

12. Projection from Current Expenses For example: We spent $1,000 per month for phone lines and service for 50 staffers, so we need to budget $1,100 per month next year to support 55 staffers. TechConnect Curriculum 2006-2007

13. Total Cost of Ownership • What is it? TCO accounts for all aspects of providing information technology, including purchasing, operations, training, maintenance, support and network services over the expected lifetime of the system. • Pros: few hidden costs, encourages multi-year planning, can be made to reflect individual agencies • Cons: many numbers are guessed or assumed, often not connected to mission, means many things to many people, easy to double-count or underestimate costs TechConnect Curriculum 2006-2007

14. Total Cost of Ownership For example: We need to create a new networked office for 5 people. Assuming a 4 year economic life, we need to budget the following: $18,050 = TCO TechConnect Curriculum 2006-2007

15. Life Cycle • What is it? Every system goes through purchase, installation, maintenance, enhancement, and decommissioning, and should have corresponding costs • Pros: budgeted costs vary according to what you specifically plan to do • Cons: still a lot of guesswork, need a lot of history to develop estimation basis, not connected to mission TechConnect Curriculum 2006-2007

16. Life Cycle For example: We try for 3 year replacement, but we bought a bunch of computers under a grant 3-1/2 years ago. We need to replace all of those old machines now, which are more than 1/3 of our total machines. We need to buy 11 plus 2 for new people, a total of 13 machines. TechConnect Curriculum 2006-2007

17. Benchmarking • What is it? Compare the systems you have to your peers’ systems and use their experience as a basis for budgeting • Pros: based in reality, can provide many insights • Cons: easy to overlook differences between agencies, hard to get information TechConnect Curriculum 2006-2007

18. Benchmarking For example: Our peer agencies spend about $600 per year per employee on PC hardware; we have 100 employees, budget $10,000 for PC hardware. TechConnect Curriculum 2006-2007

19. Mission-driven • What is it? The classic top-down approach. Decide what you need to achieve, find out how technology supports the goals, budget to the goals. • Pros: easiest to justify, makes technology an integral part of agency work • Cons: very hard to translate goals into technology, distant from reality TechConnect Curriculum 2006-2007

20. Mission-driven For example: Words for Nerds run successful, popular programs, but needs to increase advocacy and awareness. We are adding 2 staff members for that purpose. We need to do all we do now plus have 2 more people, which is why we’re adding 2 computers. TechConnect Curriculum 2006-2007

21. Baseline Costs • Determine current actual costs and cost allocations • Compute your agency’s TCO • Compute your agency’s cost for each year of life cycle TechConnect Curriculum 2006-2007

22. The Six Steps • Develop baseline • Develop technology vision statement, decide on new project for coming year • Project based on baseline & projects • Compare results with your Total Cost of Ownership (TCO) • Compare results with Lifecycle plan • Compare results with peer agencies TechConnect Curriculum 2006-2007

23. Hardware Detail TechConnect Curriculum 2006-2007

24. Software Detail TechConnect Curriculum 2006-2007

25. Services Detail TechConnect Curriculum 2006-2007

26. Labor Detail TechConnect Curriculum 2006-2007

27. Training Detail TechConnect Curriculum 2006-2007

28. Telecommunications Detail TechConnect Curriculum 2006-2007

29. Supplies Detail TechConnect Curriculum 2006-2007

30. Environment Detail TechConnect Curriculum 2006-2007

31. The Six Steps (reprise) • Develop baseline • Develop technology vision statement, decide on new project for coming year • Project based on baseline & projects • Compare results with your TCO • Compare results with Lifecycle plan • Compare results with peer agencies TechConnect Curriculum 2006-2007

32. Resources TCO worksheets and information – school based: http://www.cosn.org/tco/  Similar ideas, different tools - http://www.iaete.org/tco/ An online curriculum - http://www.rms.net/tut_bud_map.htm The economist’s point of view: http://www.educause.edu/ir/library/html/cem9624.html From a nonprofit point of view: http://www.techsoup.org/articlepage.cfm?articleid=197&topicid=11&CFID=1665978&CFTOKEN=1601270  A life-cycle article: http://www.lsit.ucsb.edu/funding/lifecycle.php  Another corporate point of view: http://www.costblaster.com/it.htm TechConnect Curriculum 2006-2007

33. Contact Information Kathleen Sherwin Director, Programs & External Affairs TechFoundation 617-354-7595 ksherwin@techfoundation.org . TechConnect Curriculum 2006-2007