it budgets that don’t bite: a template for it budgeting

April 4-6 2007Washington DC

Presented by:Kathleen Sherwin,

Director of Programs and External AffairsTechFoundation

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

TechConnect Curriculum 2006-2007

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.


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.


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


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


The Vision Team

IT Staff Program Staff

ED/Board


Hard and Soft Costs

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


Budget Line Items

A. Hardware

B. Software

C. Professional services

D. Personnel

E. Training

F. Telecommunications

G. Supplies & Incidentals

H. Environment


Budget Columns

Hardware

Software

Services

Labor

Training

Telecommunication

Supplies & Incidentals

Environment

Item Maint. New Total

PC’s

Servers

Hubs/Switches

Routers/F’wall

Peripherals

Other


Five Concepts Underlying IT Budgeting

A. Projection from current expenses

B. Total Cost of Ownership (TCO)

C. IT Life Cycle

D. Benchmarking against peer organizations

E. Mission-driven, top-down planning


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


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.


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


Total Cost of OwnershipFor example:

We need to create a new networked office for 5 people. Assuming a 4 year economic life, we need to budget the following:

Item Year 1 Year 2 Year 3 Year 4

System Consultant $1,000 0 0 0

Cost of hardware/software

$7,500 0 0 0

Hardware upgrades 0 0 500 1000

Networking $500 300 300 500

Training $500 0 0 200

Support $1,000 500 500 1,000

Maintenance/Repair 0 500 750 1500

Total 10,500 1,300 2,050 4,200$18,050 = TCO


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


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.


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


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.


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


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.


Baseline Costs

1. Determine current actual costs and cost allocations

2. Compute your agency’s TCO

3. Compute your agency’s cost for each year of life cycle


The Six Steps

1. Develop baseline

2. Develop technology vision statement, decide on new project for coming year

3. Project based on baseline & projects

4. Compare results with your Total Cost of Ownership (TCO)

5. Compare results with Lifecycle plan

6. Compare results with peer agencies


Hardware Detail


PC’s

Servers

Hubs/Switches

Routers/Firewall

Peripherals

Other


Software Detail


Licenses

Maint. Agreements

Applications

Other


Services Detail


Service contracts

Consultants

Web developer

Applic. Developer

Tech support fees

Offsite storage costs

Other


Labor Detail


Payroll

Fringe

Stipends

Temps/Coverage

Other


Training Detail


Books, CD’s, publs

Conferences

Classes

In-house classes

On the job

Other


Telecommunications Detail


Data lines

Internet access

Hosting fees

Cells, PDAs, WiFi etc.

Other


Supplies Detail


Cables, tapes, etc.

Ink & toner

Paper & stock

Other


Environment Detail


Share of rent

Climate control

Security

Utilities

Other


The Six Steps (reprise)

1. Develop baseline

2. Develop technology vision statement, decide on new project for coming year

3. Project based on baseline & projects

4. Compare results with your TCO

5. Compare results with Lifecycle plan

6. Compare results with peer agencies


ResourcesTCO 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


Contact Information

Kathleen Sherwin

Director, Programs & External Affairs

TechFoundation

617.354.7595

[email protected]

it budgets that don’t bite: a template for it budgeting

Documents

supporttechconnect curriculum

budgetstechconnect curriculum

planningtechconnect

current costs

budgeting process

budget templates

current expenseswhat

budgeting strategies