It’s budget preparation season in Australia right now, and many Not for Profits are having to make hard decisions about where to cut costs.
An important question for you? Are you cutting your IT budget next year?
Many organisations view IT as a utility, like electricity or water. You need it, but if you can reduce it in any way, you will.
However, this view is not accurate. Other than internet or phone services, your IT costs are not utilities.
Let’s think about it…
When was the last time your electricity needs changed dramatically? Or when has your water consumption been significantly different than the previous year?
For utilities, you can budget for future years with just a CPI increase.
This is not the same for your IT needs as your organisation’s requirements change, technology advances, and stakeholder expectations evolve. Not to mention the ever-present risks of a cyberattack!
So, are you sure you want to cut your IT budget this year?
Technical debt: the issue of underfunding your IT budget over time
Not for Profits come to me when they finally decide to make IT investments. Sometimes this is after a cybersecurity breach. Other times, it’s because one of their application vendors will no longer support their system.
However, most of the time, it’s because the pain points of the current system(s) are significant enough to warrant a change and the corresponding investment.
Staff are overworked with manual processes. Stakeholders are complaining about how hard it is to digitally interact with your organisation. System maintenance costs and/or issues are out of control.
When this happens, it’s usually because the organisation has underfunded their IT budget for so long that the gap between what they need and what they have budgeted is significant.
We often call this gap a technical debt.
Figure: Technical debt
I really wish technical debt could be on an organisation’s balance sheet because it would give executives and the board more visibility to this future cost.
Unfortunately, if the organisation is not planning appropriately, it may have to find the funds at a time when they really can’t afford to do so.
How to put together a proper IT budget
I recommend considering IT budgets from both recurring costs and a project point of view. Both should be a part of an IT strategy that ultimately supports your organisation’s strategic plan.
The recurring costs are known costs for existing licensing, hardware and support.
Project costs bridge the gap between the BAU budget and IT needs. As the figure above shows, the longer you wait to budget for project costs, the greater that gap becomes.
So, it’s easier to manage at least some project costs every year than to spend a lot of money at once.
The projects themselves will be determined by your IT strategy. It may be enhancements to your existing CRM or HR system, for example. Or it could be added reporting capabilities.
This approach will not eliminate larger investments completely, but it will flatten the curve as long as the projects are aligned to your overall enterprise architecture and IT strategy, not just cheap bandaids that cause more technical debt.
Summary
When budgets are tight, many Not for Profits will cut their IT budgets. However, this approach not only creates significant risks for the organisation’s operations, it will also create a technical debt that will eventually need to be paid.
I regularly help Not for Profits with decisions about their IT investments. Let me know if you need some help.
P.S. If you found this article helpful, you might want to read these too:
- What is the business case for IT investments in Not for Profits
- What if your Not for Profit cannot afford to upgrade your IT systems?
Tammy Ven Dange is a former charity CEO, Association President, Not for Profit Board Member and IT Executive. Today, she helps NFPs with strategic IT decisions, especially around investments.