AFM241 Chapter Notes - Chapter 9: It Portfolio Management, Data Center, Gartner
17 May 2018
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Chapter 9
9.1 Introduction – Pg 358
• Based on 2011 survey from McKinsey, executives expect more from IT than ever before
- This means higher budgets for IT
- More range of options for IT project proposals
- Must look at expected benefits and costs as well as risks of project
• This chapter will focus on two things
1. IT budgets
2. IT portfolio management
9.2 Corporate and IT Budget
• Budget: How organizations allocate financial resources to different units
- Typically starts in fall or several months before end of fiscal year
• Things to provide
- Forecast level of sales, level of services for next year
- Various long and short-term expenditures needed to support the projected level of sales
• Pros for budgeting
- Can help senior execs coordinate many activities in organization
- Maintain control of multiple divisions and business units
- Can compare budgeted to actual results
- Provide a way of communicating the firm’s short-term financing goals to its members
• Cons for budgeting
- Too rigid or stiff structure will hinder innovation
- Limit agility in competitive environment
• CFOs and C)Os don’t get along all the time
- Synergistic relationship is really great
- CFO’s are )T’s business partner, banker, and boss. This means that in a given work week, it’s
not unusual for CFOs to request additional IT support, cut the IT budget, and criticize the
C)O’s progress in strengthening the company’s competitive position
- But most of time CFOs and C)Os don’t get along because of way they think of budgets
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o CFOs think of budgets as fiscal budgets
o CIOs think of budgets as functional budgets
▪ We will explain these differences in the next sections
9.3 IT Budgets – Pg 361
IT Budget: Definitions
• IT Budget: Best estimate of total spending at end of 12-month budget period for IT to support
enterprise
- What constitutes IT spending?
o Capex and opex for infrastructure such as telecom, networking, hardware
o Internet based costs
o Salaries and recruitment
o IT services/outsourcing and training
IT Budget: Elements
• Gartner proposes )T should include following
1. Hardware
a. Current equipment and planned equipment costs
b. Maintenance fees
c. Computers, laptops, servers, routers, etc
2. Software
a. Current and planned software costs
b. Support and maintenance fees
c. Software for servers, computers, antivirus and back up software
3. IT personnel
a. Development, production/operations, IT management people
b. IT independent/dependent contractors
4. Outsourcing
a. External IT services, consulting, data transmission, etc
5. Disaster Recovery
a. Costs with back up, disaster recovery and business continuity systems
b. Software colocation, outsourced back up and licenses
6. Occupancy Costs
a. Cost of facilities being used by IT organization
b. Office space, furniture, maintenance, property taxes, supplies
c. Does not include cost for space dedicated to IT functions ie. Data center
• Elements of )T budget can also be seen from an )T domain or activity perspective. This includes:
- Data center
- Client devices
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- Voice and data networks
- IT help desk and applications
- IT support functions
- Dedicates data processing equipment used in operations, production and engineering
environments
IT Budget: Operational and Strategic
• Classify )T budget between operational and strategic
- Operational: IT spending that is needed to keep organization running
o Critical and key software upgrades, etc
- Strategic: IT spending to grow, transform, advance the ball for IT, change the rules or
simply as capital budgets and projects related to IT spending
o Or basically capital budgets and projects related to IT
o Refers to new )T initiatives that aim to improve the firm’s competitive position,
hence their alignment to the organization’s business and corporate strategy is key
o )mprove firm’s competitive position, more likely to be taken when firm is doing well
rather than when cash flow is tight
o Can divide strategic into grow & advance the ball vs transform or change the rules
▪ Grow = make current operations more efficient
▪ Transform = Identify right technologies for new organizational capabilities
9.4 Accounting View of IT Budget – Pg 366
• )ssues between accounting and )T professionals
- IT professionals want more of their budget capitalized since it will be a lower expense on
their end
- Accountants need to think about GAAP and tax and earnings considerations
- There are few GAAPs for IT spending and we will analyze this below
9.4.1 IT Spending in Accounting Standards
• )FRS is more principle based, requires more disclosure, US GAAP is more rules based
- Fundamental objectives of standards are similar but some underlying conceptual
differences
- IFRS offers greater freedom and flexibility in its interpretation, so that companies can
report their results in a way that most faithfully represents their economic position- also
requires more extensive disclosure
- IFRS focuses on topics such as classifying technology investments and outsourcing
- US GAAP covers more of the implementation aspect of IT, including process of
reengineering business processes and monitoring project completion
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Chapter 9: based on 2011 survey from mckinsey, executives expect more from it than ever before. More range of options for it project proposals. Must look at expected benefits and costs as well as risks of project: this chapter will focus on two things, it budgets, it portfolio management. 9. 2 corporate and it budget: budget: how organizations allocate financial resources to different units. Typically starts in fall or several months before end of fiscal year. Forecast level of sales, level of services for next year. Various long and short-term expenditures needed to support the projected level of sales. Can help senior execs coordinate many activities in organization. Maintain control of multiple divisions and business units. Can compare budgeted to actual results: things to provide, pros for budgeting. Provide a way of communicating the firm"s short-term financing goals to its members: cons for budgeting, cfos and c)os don"t get along all the time. Cfo"s are )t"s business partner, banker, and boss.
