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“Ohh Grow up” Maturing your IT Budgeting Process using CMMI

November 21, 2008

From blog

The diagram shows a capability maturity framework that I have created to understand increasing sophistication in managing the IT budget. Here is a synopsis of each of the levels, which will be explored in greater detail subsequently.
• At level 1, the generic ad hoc level, there is chaos around the budget and erratic financial performance. At this level there is no clear owner for the budget and it is often difficult to determine exactly what is being tracked as part of the IT spend. Even if a budget and plan exists, performance to the budget is often spectacularly erratic.
• At level 2, IT organizations have a defined budget and performance against the budget is monitored until it is solidly predictable. Achievement of predictable performance against budget is particularly important for firms with proportionally large IT budgets. A variance in IT spending could materially impact the quarterly or annual performance of a firm. Predictable financial performance by the IT organization is one of the key accomplishments in winning the respect of the CFO and earning the right to future new investments.
• At level 3, IT organizations have introduced systematic cost reduction techniques that focus on reducing the unit cost of IT products and services. Savings realized are to be reinvested in new investments. Disciplined reduction of unit costs using a variety of methodologies and approaches is key to an IT organization—and sometimes the firm—staying in business in an ever changing environment.
• At level 4, IT organizations have expanded their funding options beyond simply corporate funding and are obtaining funding from a number of different sources, perhaps even internal and external to the firm. Funding options may include pay-per-view usage fees, business unit funding, and external funding from supply chain partners. A characteristic at this level is budget flexibility. At level 4, IT organizations are plowing monies captured from systematic cost savings either directly to the firm’s bottom line or to new IT investments.
• At level 5, IT organizations have achieved sustainable economic models for their budgets with optimized capital expenditures and operational expenditures. The balance between solution development and maintenance/support costs is optimized as well. The ongoing IT budget is appropriate for the firm and the budgeting process helps to maximize the return from IT.

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