Planning, Budgeting, and Evaluation
Marvin Tanner, Vice President
Silicon Networks USA
July 15, 2006

‘Planning, budgeting, and evaluation’ is an outdated management tool with marginal success in the 1980’s.

The keystone of managerial control has been planning, budgeting, and evaluation.   President Jimmy Carter introduced Zero Based Budgeting as a tool to control governmental spending, which was met with limited success.

Albert C. Hyde in several articles has recommended Zero Based Budgeting from projects originating at Shell Oil in Houston. Programs designed for governmental auditing and control when transplanted from the public sector to the private sector have been met with limited success.

TRW Automotive experimented with a number of metrics in controlling the enterprise. According to Christopher Koch, “Calculating IT spending as a percentage of overall revenue is easy, popular… and misleading.”

The VP and CIO of TRW Automotive, Joe Drouin, claimed the firm was budgeting less for IT than the industry average, in the range of 1.5 to 2 percent.

However, specific budget units were spending many times over the national average with legacy systems and enormous overhead due to aging infrastructure. The firms concept that “inexpensive IT was good IT.”

IT has no GAAP to set principals and there is little correlation between revenue and IT costs. There is a perception that IT is an expense, and not an asset.   Without IT, there is no productivity across the rest of the organization.

A more solid methodology would be Albert Hyde’s zero based budgeting, not based on a percentage of revenue. The IT budget is defended on a needs basis, not on a percentage increase basis.

Perhaps Gartners’ Gomoski has the right idea with per user costs for IT amortized over the enterprise to lower costs.

One goal of financial officers is an across the board matrix to be used by all departments. The budget process is a unified attempt to standardize measurements of control.

One problem in budgeting and control, like accounting, is the definition of service and the classification of service. In the IT field, there is computer technologies expense and then there is Telecom expense.   Computer technologies includes hardware, software, and support services in relation to the enterprise.   Telecom is infrastructure, communications, and unified messaging transport.

Does a PDA get charged off to computer technologies or Telecom? Without GAAP type guidelines, the audit process is problematic, and budgeting is not clearly defined.

The planning element requires forecasting for revenue and expenses. As a former programmer on Wall Street, this author is dismayed at the reliance on forecasting; yet the sophistication and tools have not evolved to provide adequate forecasting methodologies.

Expansion of the matrix from a percentage of sales to IT spending per employee, per employee served by IT, or by employee productivity changes the matrix.

The misuse of budgeting is often to protect the status quo of the existing budget.   As an extension to Zero Based Budgeting by Albert Hyde, Zero based budgeting focuses on needs based analysis.

Training in “Planning, Budgeting, and Evaluation” is a good foundation for budgeting and audit control.    In business planning, the goal is to provide a communication document or plan, to provide discussion elements for the board of directors.

In a survey by the Aberdeen Group, poorly performing IT groups continued to use percentage of revenue, while the top performing IT groups developed alternative budget methodologies.

Forrester’s Orolv states that “IT executives are not good at describing IT work in terms of business terms.”
“. . .They describe it in terms of technologies they are supporting.”   As a budgetary control mechanism, IT needs to be correlated to revenue growth, not expenses.

The final analysis of budgetary control, values need to be assigned to IT output in terms of revenue growth, not expenses.   IT is a major corporate asset, not an expense. Although the Planning, Budgeting, and Evaluation process is flawed, like forecasting, it is a key foundation of managerial control.

References:

http://www.aberdeen.com/
http://www.cio.com/archive/040106/metrics.html
http://www.gartner.com/
http://www.trw.com/whoweare/main/0,1003,1_12_1922%5E3%5E1922%5E1922,00.html

Jay M. Shafritz, Albert C. Hyde, Sandra J. Parkes, Classics of Public Administration, Wadsworth Publisher, 2004.

Planning, Budgeting, and Evaluation Marvin Tanner, Vice President Silicon Networks USA July 15, 2006

‘Planning, budgeting, and evaluation’ is an outdated management tool with marginal success in the 1980’s.

The keystone of managerial control has been planning, budgeting, and evaluation. President Jimmy Carter introduced Zero Based Budgeting as a tool to control governmental spending, which was met with limited success.

Albert C. Hyde in several articles has recommended Zero Based Budgeting from projects originating at Shell Oil in Houston. Programs designed for governmental auditing and control when transplanted from the public sector to the private sector have been met with limited success.

TRW Automotive experimented with a number of metrics in controlling the enterprise. According to Christopher Koch, “Calculating IT spending as a percentage of overall revenue is easy, popular… and misleading.”

The VP and CIO of TRW Automotive, Joe Drouin, claimed the firm was budgeting less for IT than the industry average, in the range of 1.5 to 2 percent.

However, specific budget units were spending many times over the national average with legacy systems and enormous overhead due to aging infrastructure. The firms concept that “inexpensive IT was good IT.”

IT has no GAAP to set principals and there is little correlation between revenue and IT costs. There is a perception that IT is an expense, and not an asset. Without IT, there is no productivity across the rest of the organization.

A more solid methodology would be Albert Hyde’s zero based budgeting, not based on a percentage of revenue. The IT budget is defended on a needs basis, not on a percentage increase basis.

Perhaps Gartners’ Gomoski has the right idea with per user costs for IT amortized over the enterprise to lower costs.

One goal of financial officers is an across the board matrix to be used by all departments. The budget process is a unified attempt to standardize measurements of control.

Does a PDA get charged off to computer technologies or Telecom? Without GAAP type guidelines, the audit process is problematic, and budgeting is not clearly defined.

The planning element requires forecasting for revenue and expenses. As a former programmer on Wall Street, this author is dismayed at the reliance on forecasting; yet the sophistication and tools have not evolved to provide adequate forecasting methodologies.

Expansion of the matrix from a percentage of sales to IT spending per employee, per employee served by IT, or by employee productivity changes the matrix.

The misuse of budgeting is often to protect the status quo of the existing budget. As an extension to Zero Based Budgeting by Albert Hyde, Zero based budgeting focuses on needs based analysis.

Training in “Planning, Budgeting, and Evaluation” is a good foundation for budgeting and audit control. In business planning, the goal is to provide a communication document or plan, to provide discussion elements for the board of directors.

In a survey by the Aberdeen Group, poorly performing IT groups continued to use percentage of revenue, while the top performing IT groups developed alternative budget methodologies.

Forrester’s Orolv states that “IT executives are not good at describing IT work in terms of business terms.” “. . .They describe it in terms of technologies they are supporting.” As a budgetary control mechanism, IT needs to be correlated to revenue growth, not expenses.

References:

Planning, Budgeting, and Evaluation
Marvin Tanner, Vice President
Silicon Networks USA
July 15, 2006

Forrester’s Orolv states that “IT executives are not good at describing IT work in terms of business terms.”
“. . .They describe it in terms of technologies they are supporting.” As a budgetary control mechanism, IT needs to be correlated to revenue growth, not expenses.