In the CIO IT Budget Breakdowns: Forrester Research Brief Findings, there is a great deal of information that should be used as planning assumptions to build an effective go-to-market plan.
CIOs must continually balance the need for operational excellence with the needs of the business to increase revenue, profitability, satisfaction and productivity – all the while reducing expenses and risk.
As a rule of thumb, Forrester states that 2.7% of revenue is generally spent on technology (varying a bit by industry.) Of total planned technology spend in 2015, 29% is expected to be spent on new technology initiatives and projects — meaning 71% of budgets will be spent on managing or maintaining existing IT investments.
CIO IT Budget Breakdowns
In Forrester’s Brief: Budgets and Spending, when a question was asked about the breakdown of IT operating and capital budgets, the results were:
- Full-time Equivalents 24%
- Hardware Infrastructure 16%
- Software 14%
- Contractors 10%
- Telco 11%
- Third Party IT Consulting Services 7%
- IT Outsourcing Services 7%
- As-a-service 8%
In addition, the Forrester Brief provided insight into the following CIO IT Budget Breakdowns:
What Does a CIO Look for in a Technology Solution?
Everything the line of business is looking for, plus:
- Thought leadership and guidance on data management, analytics, mobility, IoT, security, risk, compliance and governance
- A secure, reliable, extensible cloud platform to enable an agile IT department to facilitate great IT/Business alignment
- Standard, commodity technology that allow variable staffing strategies
- Technology simplification and consolidation
- Reduction in technology risk
- Proposal to outline clear business case and value-add for technology investments
- Clear implementation plans and ROI estimates
- Vendor to have deep understanding in security compliance and risk management
- A vendor with a track record of success, in similar lines of business, with similarly sized clients
IT Purchase Decisions are Based on Five Primary Criteria
- Functionality 35%
- What is the extent of the functionality?
- Ideally, customization is not required
- Future proofing or the ability to meet future needs is a concern
- Ease of configuration
- Ease of maintenance
- Easy upgrade process
- Technology 20%
- Baseline platform must be solid
- Ease of integrating with existing and new technology
- Implementation process needs to be minimal
- Vendor 10%
- Domain expertise, stability, support
- Track record
- Thought Leadership
- Costs 5%
- Terms and Conditions
- Internal staff required for Implementation
Also, when Forrester asked the question, “How do you expect your spending on the following software categories to change in 2015 compared with 2014?” the top three responses were:
- Business intelligence and real-time customer and business analytics 49%
- Mobile applications and mobile middleware 50%
- Platform software 36%
Spending on IT Consulting & Outsourcing Services
- Customer experience software 44%
- Systems integration and project work 44%
- Applications management and outsourcing 38%
It’s important to remember that IT budgets are not only found in the CIO’s organization (note that the VP IT’s budget is part of the CIO’s budget unless there is no CIO in the organization). The Chief Security Officer, Chief Risk Officer, Chief Analytics Officer and the Lines of Business may have IT budgets that are not part of the CIO’s budget.
Finally, Forrester found that in many industries, functions that were typically part of the IT function (IT does roll up to the CIO) are now reporting into the Line of Business (LOB). Forrester posed this question in the CIO IT budget breakdown survey, “What percentage of the following traditional IT roles report directly into non-IT business organizations?” The following responses were gathered:
- 16% of Project Managers now report to LOB
- 16% of Program Managers now report to LOB
- 15% of IT Security Experts now report to LOB
- 13% of Business Analysts now report to LOB
- 13% Web Designers now report to LOB
- 13% Web Developers now report to LOB
- 12% of User Interface Designers now report to LOB
Net: CIO IT Budget Breakdowns
When it comes to CIO IT budgets there are four most likely scenarios that fund projects or initiative. First, the line item was accounted for in the prior years budget process and that requires some advance planning. Two, the project is not budgeted but it crowds out another line item of the approved budget because of the perceived value of the project (zero sum based budgeting). Three, the project is not budgeted but it has strong internal support and a “pass the hat” approach is adopted to accumulate the necessary budget from several groups. Lastly, the initiative is so fundamental and core to a business that the business case is presented and approved, as an exception, by the CEO or Board.
While the CIO does not fund every technology purchase nor do they make the final decision on every IT purchase in a company, they do control a vast majority of IT spend and can either stall or stop technology purchases that are funded elsewhere in the company.