Process 1: Establish Service Requirements and Plan Budget
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Figure 3. Establish service requirements and plan budget
Activities: Establish Service Requirements and Plan Budget
Proactive and strategic use of technology requires that IT departments do more than simply account for costs. IT must understand the broader drivers affecting the organization and translate these into IT service initiatives. When IT’s expected contribution to business results is understood, these expected benefits need to be tracked and managed through a process called value realization.
The following table lists the activities involved in this process. These activities include:
- Addressing service requirements and business strategy.
- Planning a budget.
- Conducting a budget review.
- Managing IT value realization.
Table 4. Activities and Considerations for Establishing Service Requirements and Planning a Budget
Activities
Considerations
Address service requirements and business strategy
Description:
If IT groups are to understand the organization’s expectations, they need both a high-level perspective—a grasp of the role that IT plays in the overall business—and an awareness of how the business uses the individual services that IT provides. An ongoing dialog between management and IT allows a prioritization of services and clarifies budgetary commitments.
Key questions:
- What are the business functions that this service supports?
- How important are these functions to the business?
- What financial losses would be incurred in the event of an outage?
- Does the organization invest in IT appropriately for the level of importance the function holds for the business?
Inputs:
- Service level agreements (SLAs)
- Business services or processes that rely on IT
- Service maps
- Business plans for the next budget cycle
Outputs:
- Business cost of downtime per service
- Business dependencies on IT services
- Business expectations of IT
- IT strategic plan that aligns business and IT goals
Best practices:
- Prioritize in a consistent way across services.
- Ongoing dialog and a closer integration between IT and the business improve communication and understanding. For more information about this type of dialog as well as SLAs and service maps, see the Business/IT Alignment SMF.
Plan budget
Description:
IT and business relationship managers plan budgets by organizing and analyzing the business needs across all the services—this involves prioritizing and defining the requirements for the next financial period.
Key questions:
- What are the financial impacts of projects undertaken through the IT service portfolio?
- Which are the most critical services that the business will consume over this next year? What financial impact do these services have on the business results?
- What did we learn from previous budget planning exercises and how will that change what we are doing this time around?
Inputs:
- Service catalog
- Project plans
- Previous IT budgets
- IT initiatives and improvement targets
Output:
- Proposed IT budget containing all discretionary and non-discretionary fiscal requirements
Best practices:
- Ensure that the business has a clear understanding of IT costs and how they translate to the delivery of services they deem to be important—in other words, correlate the costs to the business value they deliver.
- Communicate preliminary proposed budget to management to review to identify major resource conflicts or gain potential efficiencies in planned outlays.
Conduct budget review
Description:
Budgets require regular reviews to ensure that costs meet expectations and/or that service delivery meets expectations—with adjustments as necessary.
Key questions:
- What were the significant variances between planned and actual spending in the last budget? Are we repeating any mistakes?
- What spending requests are related to underperforming initiatives?
- Does this budget match any changes in management’s risk tolerance?
- Does every initiative have a mature business case that establishes expected returns?
Inputs:
- Previous IT budgets
- Project status reports
- Reporting on value realization during the past period
Output:
- Approved IT budget
Manage IT value realization
Description:
The value of IT is defined and realized in the context of its contribution to business results. Managing IT value realization involves quantifying the value of IT investments and prioritizing them accordingly. It includes financial models that are applied consistently across investments, that make sense in terms of the overall business model for the organization, and that stand up to the analysis of business impact and reinvestment opportunities.
Key questions:
- How does IT contribute to the overall business results of the organization?
- How do we measure this contribution?
- How do we best ensure that the business is aware of our actual performance against this expected contribution?
- What can we do to improve this contribution?
- What reports should we produce? Who needs to receive them?
Inputs:
- Actual IT financial performance
- Mapping of IT services to business services or processes
- Measured value of business services or processes
- Performance against hurdle rates for risk and rate of return on investment (for more information about hurdle rates, see the “Risk Tolerance” section in this guide)
Outputs:
- Reports of delivered benefits
- Communication plan for the benefit reports
- Improvement plans with business case
- Redistribution of funding
Best practices:
- Identify IT’s contribution to the business results, whether this contribution is related to ongoing operational costs or to projects.
- Measure, monitor, and report on IT contributions at regular intervals. Address underperforming investments. This may mean allocating additional funding to address inaccurate forecasts, or it may mean termination of the initiative.
- Adjust hurdle rates to reflect economic circumstances and changes in organization risk tolerance.
- All communication and reporting should be in business-relevant language so management can clearly understand it.
- Take a proactive approach to developing, reporting, and communicating the actual results. This helps to strengthen the organization’s trust in IT and clearly articulates the value IT delivers.
- To ensure that the numbers are relevant, make sure to involve business managers in the development of metrics and measures.
- Correlation between IT delivery and business value enables the organization to make better informed investment decisions, thereby reducing the resistance to increased IT budgets through clarification of the returns the organization can expect.
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