At one end every penny spent on IT has to be justified and is closely watched. On the other, technology is supposed to deliver miraculous results in overall cost savings in operations and business process optimization while juggling with ever changing business priorities. In such complex scenario, how do we budget for IT effectively and what spending patterns prevail?

Contributors

• • Gary Beach, Group Publisher, CXO Media, Inc.
  • Dr. Howard A. Rubin, Senior Gartner Advisor, Professor Emeritus of Computer Science at Hunter College, the City University of New York, former Nolan Norton Research Fellow
  • Barbara Gomolski, Research Vice President, Gartner

Transcript

Sanjog Aul [00:00:00]:
Good morning folks and welcome to the show. It needs careful planning and flawless execution to make technology work for us but how many times do we succeed? On this show we invite business leaders and subject matter experts with extensive experience in technology management. The intent here is to learn from their experience and discuss better ways to manage technology. To learn more about the show, please visit talkshow.avval.com that is talkshow. A-V-V-A-L.com. Today’s topic is IT Budgeting And Spending Patterns. Our guests for today’s show are Gary Beach, Howard Rubin, and Barbara Gomolski. Gary brings 28 years of information technology publishing experience and knowledge to his role as a Group Publisher of CXO Media, Publisher of CIO and CSO Magazine. He has testified before both the US House and Senate and is frequently quoted by major media organizations such as CNN, USA Today, the New York Times, San Francisco Carnegie, and San Jose Mercury News.

Sanjog Aul [00:00:58]:
As CIO Magazine’s resident expert on the CIO magazine techsol, he has provided commentary to a number of media outlets including Reuters, BusinessWeek, the Associated Press, and CNBC. Gary has served on the United States Department of Commerce National IT Workforce Committee and headed a special United Nations multinational team that assists in developing countries to deal successfully with the UI2K issue. Gary served on the board of directors of Netday, another nonprofit focused on technology issues in America’s K12 classrooms. Prior to joining CXO Media, Gary was President of two international Data Group publications, Computer World and Network World. Howard is a Senior Vice President and a former board member of Medic Group, Inc and is a former Nolan Norton Research Fellow. He was a member of the Global Information Economy working group of U.S. state Department’s Advisory Committee on International Economic Policy.

Sanjog Aul [00:01:53]:
Howard is internationally recognized for his work in the area of IT measurement, techno business strategy, global software economics, the business value of technology, and performance measurement and benchmarking. In 2001, CIO Magazine recognized him as one of the top innovation gurus. In 1997, Industry Week named him as one of the top 50 R&D Stars to watch. An individual whose achievements are shaping the future of our industrial culture in America Technology Policy. Barbara is the Research Vice President with Gartner. She is responsible for Gartner’s annual IT spending in the Staffing and Spending Survey and works extensively with clients on issues of budgeting and benchmarking IT spending. She also writes a monthly column for Computer World. Prior to joining Gartner, Barbara was a Research Director at Gartner Institute, a Gartner owned company that developed vendor neutral IT certifications Good morning and welcome to the show.

Barbara Gomolski [00:02:47]:
Morning.

Barbara Gomolski [00:02:48]:
Hi.

Sanjog Aul [00:02:50]:
So is summer in here or are we just into spring or how cold in there?

Howard Rubin [00:02:54]:
The snow is melting here in Boston. So New York is standing great today.

Barbara Gomolski [00:02:59]:
Then everything California until it’s a late summer.

Howard Rubin [00:03:04]:
Okay, yeah.

Sanjog Aul [00:03:05]:
Great. Now let’s look at the very fact where we are with the technology expanding, we are literally under the gun at all times to make sure that we watch every penny that is spent and we have a very very accurate budgeting, so that if we at all go over budget, then again some people get fired. You know, this IT budgeting exercise, we always had been doing it for a couple of decades now. Is this still an art or it has converted into a science?

Howard Rubin [00:03:35]:
Let me take a crack at that, Gary Beecher. I think it’s both. But we’re at a tipping point, so to speak, where the last several years we were talking about the weather. IT spending and budgeting is coming out of a cold winter and coming into the spring. But what we’re seeing is Gio’s are migrating from being what Ralph Devenge at GM calls intelligent IP caretakers to being innovative business brokers. And I suggest that if we’re the budgeting will pick up. And the biggest issue in terms of art or science, I think it’s more of an art because Gio’s are smack in the middle of a tug of war between CFOs who continue to say do more with less and line of business executive who are saying do more more quickly. This is Howard.

Howard Rubin [00:04:26]:
What I like is to comment on this when we’re talking about the, the need for accurate budgeting. Just some basic data. The average company in the United states spending near $14,000 per employee on technology. And although people like look at IT spending as a percent of reven revenue. But of course to look at his operating expense, about one out of seven expense dollars on average, I’m sorry, one out of money expense dollars on average are being spent on information technology. So the fragility of budget overruns in terms of getting into profit and margin and all this stuff is absolutely critical now. And what companies are doing to ensure near accurate budgeting is something quite simple. It used to be that IT budgeting would be like infomercial on television where people would just set it and forget it and you come back a year later and hope you’re on budget.

Howard Rubin [00:05:10]:
So now what best in class companies are doing, they’re using tool sets and portfolio management to optimize their budget. They’re revisiting business cases on a monthly or quarterly basis and they’re watching their budget override. So they’re no longer managing projects on being on time and on cost and on scope. They’re managing projects being on time, on cost and on value. So with the fragility of economics of business today and revenue fluctuations and a whole bunch of global forces, we’re finding practices coming into allow companies to much more closely monitor their budget, understand their technology cost of good and managing projects from both a budget and value perspective. So they don’t want to cash in and get out. It’s a much more portfolio oriented approach.

Barbara Gomolski [00:05:50]:
Yeah, I agree with that. I’m seeing that as well. And I think it’s arguable how useful the IT budget is really. It’s a necessary thing that we have to do. But many the iOS will tell you that as the year unfolds, changes are made to accommodate opportunities or changes in the business climate change. And I think in a lot of ways the budgeting process has failed CIO because it really doesn’t provide them with a way to anticipate demand for IT service. It really isn’t a reflection of what necessarily is the cost of specific IT services. It’s more of an exercise that we have to go through to keep the accountants happy, if you will.

Barbara Gomolski [00:06:32]:
But how useful it is as a tool for a CIO in terms of managing costs, in terms of understanding cost of service, in terms of measuring cost and benefit of IT service is really questionable. I don’t think it’s going away. But I think that people realize that it is one input into the decision making process. It is not the only avenue or the only channel that we use. We have many other efforts going on to look at things like activity based costing around key IT services to do things like portfolio management, which are really adjunct, if you will, to the traditional budget.

Howard Rubin [00:07:09]:
I think, Howard, I think we’re eight. I agree, totally agree with Barbara. Where we’re entering is more of an age of dynamicism where people understand they need to control, but they need to take opportunity so that tension imbalance is there. So it requires close monitoring, investment management and a whole bunch of new disciplines. The budget constraints should not stop a company from moving forward if an opportunity arises. And that’s where the smart CIO and business leader understand today. But many businesses seem to be doing that. Picking up on Barbara’s point, we reported just today in our CIO Magazine Tech Poll that 76% of physicists are reporting a significant application backlog.

Howard Rubin [00:07:46]:
Two years ago that was 27% last year was 62%. Now it’s up into the mid-70s. And these are things that have to be done that are being pushed aside as with riveted focus on budgeting and spend continues. I would say that the manifestation of the lack of the practice is to manage the budget because when companies were squeezed to reduce it spending, one way they did that is they stopped doing things that they should have done, they postponed doing work, and now that’s what we’re seeing today.

Sanjog Aul [00:08:17]:
Howard, you mentioned that people are focusing more on the dollars and also the value delivered and they’re not focusing that much on the scope and everything. But don’t you think the value delivered and the cost and everything comes back to where you actually scoped out a project and then you worked on that and if everything went well, then you know you will be automatically getting the results that you were looking for?

Howard Rubin [00:08:39]:
Oh, for sure. And what I said is that it’s historic if you would manage projects on time, budget and scope. So if a project was running late, they’d ask for more dollars or more people or more time and they would not visit the impact of that on the business case. So in a new best practice model, before you ask for money, before you ask for people, before you change the scope, you check if it hasn’t perturbed the business value of what’s going on. That’s what I meant. So the old even project management paradigm didn’t work because it wasn’t outcome focused. And now we’re seeing this whole field of outcome management emerging and being interlaced with project management.

Sanjog Aul [00:09:11]:
Do you think like budgeting? When we talk about and we think people’s budget fails and it actually put in practice and people start spending over the year, why is this so unpredictable? The fact remains is that you decided upfront that this is what we want to go after and your business needs, they might change, but then you can always set priorities that you have to stick to the gun and say this is what we will do this year. And if you put those things in place, what exactly causes something like this to deviate? How come spending goes up or almost every time it’s an overrun? I’ve never seen a budget thing that we spent less than the budget.

Barbara Gomolski [00:09:47]:
I’ll take that one. My view on it is because the business requirements often train during the course of this project. If you look at a project that may be designed to be year long and there’s a couple of issues that I see that are really common. One is that the requirements that are captured are not really the requirements that the business has. In other words, the business doesn’t articulate their requirements correctly or there’s some miscommunication between the business and it about the requirements. That and the fact that over a period of time, whether it’s six months or a year, different conditions might change, leadership in the company might change. All of the above may happen and often what happens is the system that is delivered turns out that’s not the system that everybody wants at the time when it’s delivered. So I think one of the one of my observations is that a lot of these issues center around the communication between IP and the beer test being real important obviously to get those requirements correct in the beginning.

Barbara Gomolski [00:10:50]:
Rudolph Pro to be realistic about the fact that we are in a changing world and that business changes all the time and that we don’t stand still. So it’s something we asked for a year ago. If we deliver it today, it may not be exactly what we need at the time. I think it’s a real challenge in a development environment to really get that right. And I think unfortunately, even though it’s not it’s fault for say oftentimes it winds up wearing the burden or the blame because if this isn’t what the business wants, then it must be because it didn’t deliver the right stuff or didn’t do it well.

Howard Rubin [00:11:25]:
Let’s pick up on that again from Barbara’s point. In this week’s issue of Computer World, a analyst at CSC in London, Dave Michela, he went out and asked 400 CIOs or CXOs what the greatest obstacle, biggest barrier to your company’s use of it. There was no about budgetary carry issues but nonetheless I think it resonates with Farber just mentioned the 80% are in two categories. The number one being the inability of business to change in order to take advantage of the new IT capabilities. So the Michael Hammer approach of business process reengineering back in the 90s and second right behind it was the business people inability to understand what can and can’t be done with it. So those are two big issues, beginning and end, as Barbara was mentioning and certainly reprocessing your processes to take advantage of it is not being done to its full extent.

Barbara Gomolski [00:12:30]:
Good.

Sanjog Aul [00:12:31]:
Albert?

Howard Rubin [00:12:32]:
Yeah, I would say that this budget balancing act we’re looking at the things that Gary and Barber just brought up. I think really what we’re facing is a little different view. The idea of budget deviation is not necessarily a bad thing as long as it’s controlled and factored into a full business model. So as Barber said, if things change throughout the year, you have to be able to dynamically adjust the budget and take care of opportunities. So the overruns are a bad thing. A budget going up is not necessarily a bad thing if it’s taking advantage of an opportunity. So it goes back to something I said before. We’re finding that 90% of people managing projects just by time and cost, about 80% of organizations don’t know their unit costs and things that Barbara referred to earlier.

Howard Rubin [00:13:11]:
So it’s just a matter of maturity and treating IT economics as a core backbone discipline in an organization. And we’re seeing that function being transitioned to CFOs and a new breed of IT CFO to get that blood in place. And we just ran a roundtable DE Orca and IT CFOs and these are the exact issues that were coming up.

Sanjog Aul [00:13:31]:
Let’s take a quick break right back after these messages and further understand a little bit about what the actual trends are. We are are looking at of course that many times, in fact most of the times we see that there is a budget overrun and we see the spending hours almost always is more than what you budgeted for. But what is the kind of deviation that we are looking and some facts and figures would help us and then followed by looking at the downward pressure that IT budget always faces and then we look at what exactly is going to be how is it unnecessary or rather unconditional budget containment is going to help an organization because you are just trying to save your penny, but it’ll be pennywise found foolish in a situation. So let’s discuss this more when we come back from the break, so please stay tuned.

Sanjog Aul [00:17:12]:
Welcome back to the show from listeners who just tuned in today’s topic is it budgeting and spending patterns. And our guests for today’s show are Gary Beets, Howard Rubin and Barbara Gomolski. Gary is a group publisher of CXO Media, publisher of CIO and CSO Magazine. Howard is the senior vice president and former board member of Metagrobe Inc. And as a former Nolan Norton Research fellow. And Barbara is the research vice president with Gartner. Before the break we touched the topic of the budget all which is experiencing its overrun and we use that as baseline on which you would actually go ahead and measure the actual spending which inevitably more than what you would budget for. So why just look at some facts or statistics of what have you seen in your research in terms of how much deviation do you usually see and then followed by set of things that we can look at is what is so pressing on somebody to, or an organization to just keep doing an unconditional budget containment.

Sanjog Aul [00:18:06]:
How is that going to help any organization? So please share your thoughts.

Barbara Gomolski [00:18:11]:
I’ll take that one. First of all, I think that what we have seen is that during some of the lean years of IT spending that we’ve had recently, we have not always seen companies outspending their budget. In fact, in many cases they’ve underspent their plan. So it’s a phenomenon where there’s been a reluctance even to spend the budgeted amount. And sometimes in many cases they’ve wound up, they wound up understanding. So it’s not a given that they will outspend or even spend what they’ve planned. That is one thing to point out to your second question about what is the kind of ongoing clearing, if you will, of the IP budget mean it’s discarding? I will say because I do a lot of work with clients where a CIO has been basically handed a mandate and sometimes often an arbitrary number that says we need to get to this level of IT span. And it seems very arbitrary.

Barbara Gomolski [00:19:09]:
There is a, my, my point of view on this is that your strategy, your business strategy to dictate your level of investment in it, not some arbitrary number that you pick out based on a study or what you think an industry average might be. So I think it’s just very scary to think that there are organization that feeds their level of IT investment in that fashion. But it happened a lot and maybe more frequently than people might think. There’s a disconnect, if you will, between the business strategy and the level of IT investment, when in fact the two should be very, very closely linked.

Howard Rubin [00:19:45]:
And this is Howard, I might take you a bit off topic, but the plight of the CIO managing IT budget. As Barbara said before, it’s natural for change to occur in projects. So most CIOs are being asked with some limit being fed, hold a budget, bring it down or just let it crawl out a little bit at the same time underneath it, they’re in a world where projects normally will change requirements and just naturally have 15 to 17% overruns in part of the dynamic. So every CIO that has either a flat or mildly growing budget, creeping budget is always fighting the tide of this undercurrents of the way things work. As Barbara said, it’s really not about IP budget per se alone, about how the IT budget moves with business. And most companies unfortunately look at IT spend in terms of operating expense or revenue. And what they really should be looking at is a class of agility metrics of how with revenue change IT spending changes and how with change in operating expense they should be changing their it. They should be looking at the linkage between change in business performance and change in IT and trying to see if they need a IT economic structure that has massive scalability that can trend up or come down, whether they have good scalability, good compressibility and whole bunch of other factors.

Howard Rubin [00:20:53]:
So looking at IT budget as a number not to go beyond is absolutely a view which can cripple a business today because there are times you should be investing time, they should be pulling back and you should be moving with the business whether that’s in terms of profitability needs, whether it’s the revenue growth and a whole bunch of other things. Though it’s the model used by most organizations. It’s like looking at the wrong gauge on a dashboard of a car where she’s just watching your speed and not watching your fuel consumption. Eventually you’ll stop. And there are a whole bunch of dynamics that are just missing today. And for budgeting is an overrun is more than just having a number. It’s failing to manage the linkage between what the business needs for its performance or the government agency needs for its performance versus what you’re doing with technology. And that analogy Howard used about the dashboard is an interesting one because so many Gio’s ie intersect with have their eyes on the dashboard.

Howard Rubin [00:21:46]:
They send, they measure, they send, they measure, they send, they measure and they don’t have their eyes looking up through the windshield of the horizon on the opportunity. It’s not a matter of businesses having the ability to invest in it. It’s more a matter of their willingness to. And we clearly believe that we will not break out of this incremental cycle of IT spend until the age of fear comes back into the corner office.

Sanjog Aul [00:22:17]:
So much of the stuff, some of.

Howard Rubin [00:22:19]:
The unwind spending certainly in the late 90s was spending based on fear. Fear that we weren’t how are you and I we worked on the Y2K issue or spending in the fear factor of E commerce. You didn’t want to let your competition get ahead of you. So when it comes to some CIOs they’re looking at two two tipping point issues. One being if a competitor is able to produce a service that is going to put them at a competitive disadvantage that will increase the spend level or I believe we’re going to see it’s now in the fifth year after Y2K, I believe we’re going to see more and more computer system failures. We saw one up here in Boston yesterday. Verizon’s cell phone service went down for seven hours. Who knows why? But we certainly are still in that incremental stage.

Howard Rubin [00:23:08]:
And until people start looking at the horizon and look at the power of it like a duplicative business, we’re going to remain in this small step fashion.

Barbara Gomolski [00:23:20]:
Yeah, I was going to comment on the fear point that Gary made because I actually think I agree with that very much. And if you look at some of the initiatives that are going on around compliance, such as Carbine’s Oxley efforts, in a lot of ways that’s actually been fueling a lot of the work we’re seeing, the new development or the new work thing around it. In fact, I had one CIO tell me that he was leveraging, if you will, the executive fear level around compliance to push some of his initiatives through. Because when he would tell them, hey, this is something we need to do, it’s great for the business, they would say, no, we’ll do it next year. But if he said we better do this because it’s a compliance issue, okay, let’s go ahead and do it.

Howard Rubin [00:24:01]:
Yes.

Barbara Gomolski [00:24:01]:
So at least onto something there, I think there has to be a certain fire that says, hey, we really need to do this. And right now the compliance issue is very much top of mind with the executive. Unfortunately, that’s not one that we associate with a tremendous amount of innovation typically, but it has, has generated some activity. Interesting.

Sanjog Aul [00:24:24]:
So, let me go into an area which is, which I find to be sometimes interesting, is that while we all talk about due diligence that’s performed about every IT investment and there’s so many strategies out there, but guess what? I’ve seen so many sacred cloud situations, or somebody going to a seminar or reading an article, or maybe looking at their competitors joining a bandwagon of a given technology, everybody goes after it and then we see things not working out, or maybe there was a lukewarm result. What we were thinking there was going to be really a lot of good value in driven, like in dev, delivered by that technology. But it doesn’t happen that way. And then we forget about it. People do a post mortem, they move on. So the fact remains is that we are so much, we have spent so much time in the IT world and I, I just wonder why is it so immature still that people still go for the hype?

Howard Rubin [00:25:19]:
Howard? I would say the reason they go through the hype. I guess right now one of the big words around there is transparency. They were going through the hype of the technology because people weren’t able to really grapple very well with what the value of the technology is. At the end of the day, the technology itself, it doesn’t really matter the kind of value they’re producing. And what we’re finding is that leading edge companies are no longer even looking at their IT mending in terms of what we’re spending on infrastructure development or maintenance. They’re recasting number one, what they’re doing in business driver terms. So we’re spending money to increase revenue, protect revenue, avoid cost, to reduce cost compliance and so on. So they have value facing buckets.

Howard Rubin [00:25:55]:
And with that visibility, being able to connect what you do later, run the business or things you’re doing to grow the business, the outcome facing terms, all you’re doing is shaping technology without a contact. So in the 90s we saw that run rampant as companies became technology day traders and we just shaped what other people were doing and moving into strange markets and things. What you’re seeing today with the maturity of IT and again talking about the issue, maybe there are artificial budget gaps, but what we’re seeing is, and some of those gaps do make sense, that people have to adapt their technology into their club to goods and how they make money. So the whole model has to be there. But we’re starting to see is companies really managing. This is a tipping point for investment management beyond portfolio management. They’re looking at everything they have in terms of a value facing category, what outcome it produces. And they’re focusing on the outcome then balancing based on the strategic value is.

Howard Rubin [00:26:45]:
Right now we’re trying to grow revenue or protect revenue. We try to become low cost producer what the business strategy and they’re using tools like you guys do and P have and other things for portfolio optimization dynamically to really manage the thing as an investment portfolio. We’re talking about companies, the big guy spending 8, $10 billion a year on technology. In small companies, $100 million, company spending 5 or $6 million. This is significant stuff. And they have to manage it as an active investment. And that’s the turnaround that’s out there. And that’s what’s really happening at the edge of this field in terms of spending time in the IT world focusing on that.

Howard Rubin [00:27:21]:
They spent so much time in the provision ecosystem of vendors, consultants and the media. And what we clearly see is that smart vendors are going to mina visits, executives and customers to find out what’s the best way to leverage it.

Sanjog Aul [00:27:39]:
Let’s take a quick break listeners, and we’ll be right back after these messages and we will continue discussing the specific topic of why we are not able to plan better and not just go for the heist. So please be tuned.

Sanjog Aul [00:31:20]:
Welcome back to the show, folks. For listeners who just tuned in, today’s topic is IT budgeting in many matters. Our guest for today’s show are Gary Beach, Howard Rubin and Barbara Komolski. Gary is a group publisher of CXO Media, publisher of CIO and CXO magazines. Howard is a senior vice president and former board member of Meta Group, Inc. And who is the former Nolan Norton Research Fellow. And Barbara is the research vice president with Gartner. Before the break, we briefly discussed about different technologies and a lot of reliance on the hype for you to be able to do budgeting.

Sanjog Aul [00:31:49]:
And we heard some interesting thoughts moving forward. Let’s pick up an interesting thought here. Is that IT portfolio management and IT asset management, these are the two new things or ever they they have been around but like they are gaining momentum right now in terms of more emphasis than dollars are being spent on that. And this seems like a killer duo that would help any organization to budget for IT effectively and going forward, even spend in a controlled fashion. While these boundaries are not clearly defined on what where does IT portfolio management stop and IT asset management starts? Some people say IT asset management is a subset of IT portfolio management. So so once we have a handle on this, it seems that budgeting and spending would automatically will be more controllable and it’ll not be as fuzzy. So please share your thoughts.

Barbara Gomolski [00:32:38]:
I’ll start off first. I want to make a point or an objection about portfolio management and I think it’s a good process. I think one of the things that I see a lot of companies doing now is really focusing on using that framework as a way to prioritize future initiative. Right. We have a lot of opportunities. Which one should we take? Where should we put our IT investment dollars? That’s valuable. But if you think about the cost model for it, most of the cost comes in what we already own, right? What we’ve already built and we’re still paying for and managing and maintaining. So my recommendation or my observation about that is that framework really needs to be expanded and I think that’s what we’re getting at here with talking about asset management in the context of portfolio management.

Barbara Gomolski [00:33:23]:
Another outdoor agent about asset management as it relates to the whole idea of managing IP costs. I think there’s a disconnect in terms of what we think of as traditional asset management, which is where’s the asset, who’s the owner? All that good stuff, but perhaps not the kind of information that would help her make decisions.

Howard Rubin [00:33:43]:
Why?

Barbara Gomolski [00:33:43]:
What’s the actual cost associated with owning that asset? What’s the utilization rate on that asset and am I getting an appropriate cost? Damages, in other words, is it worth keeping? So I think there’s a lot of potential in looking at these two headwinds, if you will. I think that there’s probably a gray area though where maybe a lot of companies either lack the data or lack the skills around looking at this information in a way that will really allow them to make some decisions right now. I think one of the things in a lot of our multinational clients is that they just don’t have the information they need to say, look at some of these assets, whether they be software systems or hardware, it doesn’t matter and say is there something we want to keep? Do we want to retire it? Do we want to enhance it? How do we know? We just don’t know.

Howard Rubin [00:34:32]:
And this is Howard. I think Barbara really hit and I think portfolio management and asset management have moved in there and we went back a couple years ago, maybe 8% of companies are using these techniques and now it’s probably up to two thirds or almost 80% of companies have this. But number one, it’s been wildly misinterpreted. People doing like portfolio management directly doing project portfolio management. They’re just sitting on the investments, on the project side of things, on their new investments. While maybe 50% to 60% of spending should be on the year’s thing asset. So these two combinations are needed there. But to make Eddie Gary, I think you used the word IT ecosystem or something like that.

Howard Rubin [00:35:09]:
We’re looking at a system in a business where technology exists at the discretion of a business. So in fact what we’re looking at companies, the most advanced companies have taken portfolio management. They’re looking at overall investment management, which covers their existing assets, which can be hardware people, all sorts of resources. They’re building downwards of product catalogs, of activity based costs until they understand their unit cost structure. But more palpably for the existing assets and new investments, they’re moving out to the business and demand management. So we’re seeing a new era out there through IT investment management which deals with the portfolio of existing assets and new assets. Assets are everything from systems to hardware to people. Their cost structure is understood and their value structure is understood.

Howard Rubin [00:35:50]:
But the key to getting IT overall cost and value structure in a business is understanding the demand and working on both sides of the equation here and actually getting the business to understand the dynamics of IT economics so businesses can start to really make better decisions which overall can impact the overall cost structure. So I see a world today where we have asset management in one pocket. Some people consider that as a subset of IT portfolio management. And that’s arguable whichever way we look at it. But you need that under control. The portfolio management discipline has been mutated in different companies that they’re doing it because they’re managing projects or something. It’s all hodgepodge of stuff where the ultimate discipline is this investment management coupled to demand management. And that’s what the IT ecosystem and that the management is about.

Howard Rubin [00:36:34]:
And IT has full business development. So this whole thing has to more that although the words are widespread and everybody says they’re doing it, they’re just really not doing it right. And this is a final thought on that topic that when you listen to CIOs talk about asset management or portfolio management, the word that always comes up is the B word. Visit. He had the business I think Howard, you mentioned it earlier, IP economic. And this is a. You never learn things when times are good. They say it’s you only learn things when times are bad.

Howard Rubin [00:37:04]:
And in 2000, Chief Information Officers were telling us that they were going to get budget increases of 16% in 2001. And by May of 2001, which is four months before 911 that spend level had dropped to about three and a half percent going forward for the next year. And the reason why is because chief information officers that got to understand the business of it. So there’s a balance here between asset management, some would suggest would be more inward looking in terms of what you own and it’s how to say how much IT costs and portfolio management matching it to the business. There’s a healthy balance there. But the operative word which I think has been a good thing and will continue to be a good thing as we go forward is it will be run as a business.

Sanjog Aul [00:37:52]:
So let’s look at an angle where we talking about we saw a sudden drop and then, and then the IT spending. First we had of course the bull, then we had a sudden drop last couple of years and now we are Trying to recover. Either they’re going to be this recovery in the same incremental fashion, unless otherwise we’d be another Internet or similar disruptive technology and or a set of business changes. What seems to be the case?

Howard Rubin [00:38:20]:
This is Howard. I think we’re seeing. I think we see the case as a new way of looking at things. It’s like someone saying this summer the United States will be warmer than usual. This will be a warmer winter. But you’re sitting where Gary is up in the northeast. He’s under 8ft of snow and trying to figure out how the hell is the one thing it’s warmer than usual. What we’re really seeing in it as people manage it more like a business, as they get more of the investment disciplines.

Howard Rubin [00:38:42]:
I don’t see big trends. Maybe there’s a flow trend. We see a little bit of recovery. Spending from our view is flat to 3% up. But what it’s about now is their IT spending microclimates. If you take an industry, you take a company and an industry and a geography and if they’re opportunistic, things they’ll need and they will pump the money into if they get the business case right. And if their competitors aren’t spending, maybe it’s a time for them to spend. So it’s hard to have a generalized trend.

Howard Rubin [00:39:08]:
Maybe there’s more money trickling out in technology, but there are places of intense spending with places of no spending, with places where money being taken away. And if you watch what companies have been through, like Gary described in a survey, when companies had to decrease their IT spending, first thing they did is they took out the variable expense to people to fire the people, and they squeezed their infrastructure, which was the next thing, and then they would try to outsource and they would go off the door. These are reactive models. So what’s happening is in terms of trends right now, it’s hard to say. Here is a big trend toward X, Y and Z. There’s no killer technology that anyone gravitating to or doubtful that can likely happen again. So we see these spending microclimates and you can’t look at the whole picture. You’re going to have to look at the weather in Tampa versus LA versus Danglor, Maine or somewhere else in the world and take a US entry and really see what’s going on and what you need for those conditions.

Sanjog Aul [00:39:58]:
So let’s look at the fact that the budgeting and spending both have been the integral part of the way you manage it. Have there been any specific best practices that have emerged out of the exercise that has been done across the board literally by reorganization nation in the world. Let’s actually take a quick break. We’ll be right back after these messages and then we can tackle this topic.

Howard Rubin [00:40:27]:
More and more people are starting their day with informative, focused business talk Talk Experts Today’s Business Issues Voice America business@voiceamerican.com Looking for ways to improve your IT department? Then visit www.avval.com today. Evol is a professional services firm with a mission to help companies align IT with their business objectives through strategy, technology, brand inclusion and services. Our commitment is to ensure bottom line improvement as a result of services rendered by us. Whether it’s an IT needs assessment, strategy development for related implementation, we back it up by our unconditional positive ROI guaranteed. And find out how Evolve can help your company. Visit www.evolve.com or call 1-800-947-2832 of all making it work and look better. Www.avval.com visit today win with effective marketing win with proper positioning and branding. Win with Dick McDonald on his show Win Win Marketing for Buyers and Sellers every Wednesday at 11:00am Pacific Time.

Howard Rubin [00:41:41]:
On the show we will discuss the challenges and common mistakes made in today’s industry while providing you insight on what you can do to avoid these pitfalls. Get ahead with Effective Marketing in today’s world. Listen to Win Win Marketing for Sellers and buyers of Jake McDonald appeared every Wednesday at 11am Pacific Time here on the bottom line of businessamericanradio.com the truth is that most Americans are truly misinformed about health related issues. Do you know what your doctor is really charging you for? For the truth on what’s really going on, Tune in to Life Lessons with Dr. Lawrence James Jr. Every Thursday at 11am Pacific Time. On the show, Dr. Lawrence James Jr.

Howard Rubin [00:42:18]:
Will discuss Everyday social and political issues that affect you. So won’t you please join Dr. Lawrence James Jr. For life lessons every Thursday at 11am Pacific Time on the Bottom Line in Business Voice America Business Are you feeling slammed and suckered in today’s stock market? If so, then you need to tune in to Profitable Investing with Jordan Kimmel every Thursday at 8:00am Pacific Time. Jordan Kimmel will train you in what you can do to beat up the big boys on Wall street as well as share his secrets to success so that you can buy and sell like a profit pumping pro. Grab the bull market by the horns and listen to Profitable Investing with Jordan Kimmel every Thursday at 8:00am Pacific Time right here on the Bottom Line of Business Talk Voice America Business the Bottom line in Business Talk Voice America Business. We now return to Managing Technology the Right Way. If you have a question or comment, call poll free at 1-866-23378.

Howard Rubin [00:43:24]:
Big one now back to the show. Your son, Joe Gall.

Sanjog Aul [00:43:28]:
Welcome back to the show, folks. For listeners who just tuned in, today’s topic is it budgeting and spending patterns. Our guests for today’s show are Gary Beach, Howard Rubin and Barbara Gramulski. Gary is a group publisher of CXO Media, publisher of CIO and CSO magazines. Howard is the senior vice president and a former board member of Meta Group, Inc. And is a former Nolan Nautilus Research fellow. And Barbara is the research vice president with Gartner. Before the break, we just discussed the question about best practices that might have emerged over the years as we have been budgeting and spending on it.

Sanjog Aul [00:44:00]:
So please share your thoughts.

Barbara Gomolski [00:44:04]:
I’ll take that one. I think that some of the things that I see people doing that I think are helping them to get a better sense of the demand for service is to look at their portfolio, if you will, of what they provide as an IH organization in terms of a fleet or set of services and to really try to understand the cost associated with those services. I think that the traditional budgeting process, like we talked about before, where you’re looking at cost in terms of the buckets around hardware and software and staffings, are really very helpful in terms of understanding the future and what might be coming down the pipe for IT demand. I think it’s important for CIOs to really get close to the business and understand what’s happening in their company or their organization. This is going to have a big impact on their own strategy and ultimately their cost. And so when I talk to CIOs, a lot of times I’ll say, what do you think is going to be happening in the business in the next year or so? And sometimes the answer is we don’t really have a set business strategy that we can work off of or we don’t know the answer to that question with a lot of confidence in case before like that, then it comes down to talking with these people who are running the business. They have goals, they have mandates. What are those and how? And then to think about how might that impact the demand for IT service.

Barbara Gomolski [00:45:26]:
I think that’s really something that a lot of people don’t do. They tend to look at last year’s budget and say what kind of increase do we anticipate in each of these areas based on vendors and based on hiring patterns and things like that, which is fine, but that doesn’t really capture the change aspect. What might change within the company, you have to do both. You have to look at your cost categories and how they might change due to the market, et cetera. But you also have to really be watching what’s going on inside the organization and try to anticipate and have a contingency if you will, for a significant change in the way that people consume the IT service.

Howard Rubin [00:46:03]:
This is Howard we’re achieved a two sided approach on the cost efficiency side of the IT budget, which is to minimize the cost you spend on IT while maximizing the result from an internal perspective. So companies are driving back like Barbara said, and they’re looking at their unit costs for delivering products and services and building service catalogs and they’re getting smarter in terms of benchmarking those both against competitors and benchmarking them across get the open market. So they’re opportunistic and on a monthly or quarterly basis they understand their costs. They’re looking for opportunities to do better job on cloth, whether through external service provider internally. So it’s almost like arbitrage on the commodity services. On the other side though, they’re reaching out to the budget to better understand impact of IT and the IT like a business like Gary speaks about. And they’re bringing things way out on the business side to technology cost of goods. So they know if they’re in the oil industry that $9 a barrel is the cost of technology to deliver that barrel of oil.

Howard Rubin [00:46:55]:
An Automobile that’s about $400 a car at healthcare, $54 per page and date. But they understand the technology costs are good in the context of a business function. They understand the technology cost of goods goes up. Better to be driving down the business cost of goods so the margin increases or driving up market share and they have to do that in concert with what the business goals are notion of business drivers. So best practice now end to end in business term, what are the key business drivers? How does IT line up against it? What does it do to the marginal profitability of the model of the company and its goals and driving it down on the bay side, understanding their assets, their unit fund and being market opportunistic and receiving external beta feeds in terms of benchmarks against competitors and open market pricing and marking the market. So it’s full wonderful continuum of stuff coupled with demand management. And briefly I’m going to Match Barbara, comment on two words she mentioned that I would think in terms of best practices. One is demand.

Howard Rubin [00:47:52]:
Mars GIOs I know are the ones who are out there able to gauge the level of demand not only from their line of business executives that they work with daily, but from their partners and suppliers and customers outside their firm. And secondly, probably the most profound issue in terms of best practices is in the future presenting their budget not as an asset, not as a portfolio, but as a service. These are big issues. Understanding the demand so they can prioritize what needs to be done and then budgeting for it as a service as we go forward.

Sanjog Aul [00:48:23]:
Yes, we have a caller. Hey Tom. Hello. Hello.

Howard Rubin [00:48:31]:
Hi, Tom Conkle, RF Systems Group.

Sanjog Aul [00:48:33]:
Could you speak a little louder please?

Howard Rubin [00:48:35]:
Sure. I’m Kunkel with RSV Systems Group.

Sanjog Aul [00:48:38]:
Uh huh.

Howard Rubin [00:48:38]:
My question is this. With many IP assets that are de installed they’re typically stockpiled or stored as opposed to being remarketed because organizations cannot afford to take the depreciation hit. Thus the asset failure erodes in the cloud. While the asset might have value on the street, will Carbine’s Oxley mandate that IT assets be valued and depreciated more realistically? That is a three year depreciation cycle which might be more realistic when you consider the firm like the value of such assets. This is Howard. I can’t definitely answer with regard to what Sar Biden’s actually impact will be, but what I found now in working with the ITCFO world is they’re finding that there are between firm variances. They had a roundtable going on between firm variances on, on how they’re treating things with pretty wide variances on not to the assets appreciation but in terms of software and capitalization and stuff like that. In fact that does have a big P and L impact.

Howard Rubin [00:49:33]:
So the best I can say not being a Sarbanes expert is that the questions you raised now are coming to top of mind. And the interesting thing in the context of the show today is that the IT financial function is rising and important somewhat under this compliance pressure.

Barbara Gomolski [00:49:50]:
Yeah, I can echo that. And basically what I’ve observed in the last couple of years is that there is a more of a standard standardization around depreciation and it’s become more likely that it’s going to be like in the three to five year range. Whereas east defined isolated cases where you know they’d be writing stuff off over 10 years or more. You still see that occasionally and there is still some variability. But I find that it’s a lot more standardized and I think part of that is the infusion of the finance expertise into the IHE organization. So I don’t think it’s necessarily a mandated thing by compliance per se. I think it’s more of a desire to, as you, as the callers intimated, be more realistic about the actual life of these assets and not allow these extremely long write down periods for saying plus.

Howard Rubin [00:50:43]:
It’s also not in terms of the write down aspect, but the call brings up an issue tangentially on what could be affectionately termed tech jump. There’s unbelievable amount. If you just took the amount of PCs that became obsolete in 2004 and lined them up one next to each other, line would stretch from Boston to San Francisco and back again twice. You got to figure out a way to to get rid of all this stuff.

Sanjog Aul [00:51:11]:
On behalf of the show and our listeners, I’d like to thank you, Gary, Howard and Barb for hearing your insights in terms of what can be done by the organizations to take care of their IT budgeting and Penny we all know that the technology leadership is challenged today with ever increasing expectation from Heidi to deliver value and at the same time costs to be lowered. First of all, we should see if this approach actually is going to benefit the organization. And like any other business investment, unnecessary due diligence is needed and budget is to be set aside. Now gone are the days when we used to have budgeting, which was based on what we’ve seen a seminar read in a technology magazine, and necessary due diligence again is needed to actually need in that technology. And also without closing closely watching the actual spending, we would render the whole budgeting exercise. Could the business world changing at this work speed? Is there a silver bullet? Actually, no. What budgeting and spending approaches work with.

Howard Rubin [00:52:15]:
You or for you?

Sanjog Aul [00:52:16]:
Share with us@talkshow.participate. and again, it’s talk show.participate.com thank you again for listening to Managing Technology the Right Way. This is Sanjog Aul, your talk show host till next Friday. Take care and God Bless.

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