BUDGETING

MGT OF ISD (IMS452)

CONTENT

Budgeting Budgeting Process Lease versus Buy: Which one is better Other Budgeting Factors to Consider Strategic Business Priority Factors Priority of Investment in IT

Strategic Systems Traditional Development Decision support Systems Infrastructure Investment Business Process Redesign Maintenance and enhancement of Existing

Systems Purchasing source Trends in ISD Operation

OVERVIEW

Budget is a specific amounts of money to specific departments within a company for a single period of time (fiscal year)

IT Dept usually have one of the largest budgets in the organization

How the manager manage the money and how the department spends it

The Process of Budgeting

Review the previous years’ budget Potential items

Personnel Hardware Software Telecommunication Services Supplies Travel and entertainment Miscellaneous Depreciation Physical Plant Outside Services Overhead

Review the budget draft with Superior Staff

Cont.. The Process of Budgeting

Estimating (or overestimating) the numbers Getting approval and defending the budget During the year: Tracking and revising the

budget from the previous budget reports (budget amount, actual amount, variance against budget) Revising the budget

• Include additional project • Eliminate or reduce costs for cancelled

or scaled down project• Update on other changes • Demonstrate anticipated cost reduction

LEASE versus BUY: which one is better

Lease = renting for a specified period of time

Pros and cons of Leasing

PRO Predictable payments for

easy budget projection and administrations

Allows companies with limited cash flows, lines of credit to obtain expensive equipment

Allows for predictable and planned turnover of equipment that’s regularly replaced

Don’t need to own the equipment

Depreciation and interest on debt may produce potential tax benefits

CONS Extra effort during

purchasing to coordinate activities between leasing company and equipment vendor

Complications arise if equipment is upgraded during the life of the lease: leased / purchased

Additional effort to track inventory precisely when to be returned

Packing and shipping or the returned equipment could be burdensome

It could require extra effort to properly code each lease invoice if equipment are chargeableDecision by the Financial

Departments with input from IT

Other Budgeting Factors to Consider

Growth of your department’s workload IT workload, upcoming activities and projects

Technological change Able to forecast the need to upgrade, obsolescence

and replacement Staff

Turnover staff – recruit and train the new staff Software maintenance

Maintenance agreements Maintenance – ability to get upgrades for the

product Support – ability to get assistance

Hardware maintenance Formal maintenance agreements Time and Material contracts Warranties

Cont… Hardware Maintenance

Factors to consider in Maintenance Agreements Days and hours of coverage required Response time guarantees Plans for spare parts Whether the vendor or its technicians are certified Pricing Financial penalties

Time and Material contracts When you place a service call for a piece of hardware,

the vendor will bill you for the technician’s time and the parts that are needed

STRATEGIC BUSINESS PRIORITY FACTORS

Integration with top management’s strategic agenda

Policy committee and user influence groups

Diversity of Information Technologies

PRIORITY OF INVESTMENT IN IT

Strategic systems Development of systems to support and

influence current strategy Traditional development

Those applications that support transaction processing and information reporting

Decision support systems Those systems that support managerial

decision making (dss,expert system, Executive info system)

Cont ..PRIORITY OF INVESTMENT IN IT

Infrastructure investment Investment in corporate wide technology

(intranet, extranet) Business process redesign

Those applications of IT involving major changes on existing business processess

Maintenance and enhancement of existing system

Purchasing source trends in ISD Operation