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Uncovering Common Pitfalls in Your 2017 IT Budget

Dataprise Academy Series │ October 6, 2016

Snapshot• Leading managed services provider• Founded in 1995, privately held• National coverage from our

Washington, DC area headquarters• Design, develop, and execute flexible,

tailored solutions

Core coverage from New York to Georgia

Consultant network in 30+ major U.S. cities

NATIONWIDE COVERAGE275+ Technical and Support Professionals

Recognition• Microsoft’s U.S. SMB Champions Club Mid-Atlantic

Cloud Partner of the Year (2016)• Top 20 U.S. Managed Service Provider by MSPMentor

(2010-2016)• Washington SmartCEO Corporate Culture Award for

fostering a collaborative workplace (2015)• Microsoft’s U.S. SMB Champions Club Mid-Atlantic

Influencer Partner of the Year (2015)• Dell’s PartnerDirect Southeast Partner of the Year (2014)• Dell SonicWALL’s Security “Better Together” Partner of

the Year (2014)

IntroductionRyan Miller – Sr. Manager of Strategic Consulting• 20+ years in outsourced IT and strategic

consulting• Primarily in mid-market and enterprise space• Australian state and federal governments,

defense, energy, oil and gas, mining, financial services, and education

• Apologies for the accent

Topic Agenda• Budget Basics: Rough overview• Current Trends: Highlight a few trends in IT spending• Pitfalls: Considerations in budgeting

Interactive and Open Session

Budget Basics: Process

• Adjustscopeandpriorities

• Findfurthercost-reductionopportunities

• Reducecontingencies

• Prioritizeprojectswithbusinessunits

• Negotiatewithexecutives toclosethegapbetween therequestedamountandtheapprovedamount

• Constraints• Capitalvs.operating• Discretionaryvs.non-discretionary

• Effective rationale

• Budgetingscope• Cost-savingopportunities

• Changestocurrentcosts

• Costofprojectedchanges

• Volumechanges• Droppedactivities• New initiatives• Contingencies• Costincreases

• Expensestodate• Year-end forecasts• Pricingchanges

1CalculateCurrentCosts

23

45

DetermineRequiredChanges

DevelopEstimates

6CreateandSubmitBudget

Proposal

Negotiate

DealwithFinalApprovals

GatherRequirements CreateProposal FinalizeBudget

Budget Basics: Expense CategoryOften viewed as one big mass, an IT budget is comprised of many components:

• Capital Expense (CapEx): Part of the organization’s capital budget• Operating Expense (OpEx): Expenditures related to operations and

usually include subscriptions (e.g., hosting, cloud), maintenance, or support

• Project: Typically tied to a discrete effort • May or may not need to be capitalized

• May be required or discretionary

• Often a more flexible part of the IT budget

Budget Basics: MethodologiesMethod Description Benefits Constraints

Incremental Based on previous year • Simple, quick to develop

• Does not account for structural costs• Discourages new ideas and fundamental

changes• Permits low value activities or projects to

proceed unchallenged

Zero-based Built from scratch• Forces management to review

entire cost base• Highlights cost drivers and

controls weaknesses

• Time consuming• Wastes time re-justifying costs• Best used for audit and review and not

budget

Top-down Senior management dictates spending limits

• Sets enterprise-wide parameters so that everyone is on the same page

• Absence of spending justification• Spending is only good when business is

good• Allows the executive to be lazy –

separates cost reality from business expectations

Bottom-up Begins with needs from the end users in the enterprise

• Requires users to be involved and committed to the process

• Takes into account operational needs through analysis

• Time consuming• Communications may become jumbled or

lost in translation between IT and business• No view of potential synergies• Will result in a budget request that far

exceeds what the organization can afford

Budget Basics: Expense Decision• Identify expenses essential to delivering daily operations – these non-

discretionary expenses will be ongoing in the upcoming year• Look for ways to reduce non-discretionary costs without affecting normal

operations• Delay or remove discretionary activities as required based on business needs

Non-DiscretionaryActivities

DiscretionaryActivities

ApprovedBudget

Budget Basics: Benchmarking

ExpenseBudget,74%Capital

Budget,26%

NewHardware,

61%

NewSoftware,

39%

• Benchmarks are not a substitute for building a budget; there are too many significant variances among organizations

• Benchmarks can help determine if and where the current or proposed IT budget is in line with general trends

• If you do not have historical data compiled, use benchmark values as a guide when building the budget proposal

Current Trends• Budgeting and tech spending is mixed:

• 42% remain the same, 12% decrease, 46% Increase

• Internal spend analysis: • 81% business analyzing internal spend vs. outsourcing to some degree

• Technology end-of-life (EOL) is expected to strongly influence investments in 2017

• Moving CapEx to OpEX • Utility computing, cloud services (e.g., SaaS, PaaS), and subscription services

Current Trends• More focus on COTS applications:

• Reduction in customized applications and open source

• Extending physical asset life:• Warning – this is a fine line between cost saving and increasing risk

• BYOD – from mobility to BYOE (Bring Your Own Everything):• Cost reductions are false economy – soft cost analyzed plus risk understanding

• Increases in IT security spending:• Stronger posture towards leaning forward on IT security

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Common Pitfalls

Cloud Costs: Migration• 94% of organizations are at least discussing cloud options

• The ‘Cloud’ is not a silver bullet.

• The value presented is often greater than the cost providing flexibility, scalability, data security etc.

• Understanding that costs shift, they don’t disappear

• Planning Considerations• Labor Costs – Don’t underestimate – approximately 50% of

migration cost

• Architecture – There maybe changes to accommodate cloud migration

• Migration downtime- understand the impacts to operations

Cloud Costs: Considerations• Over-provisioning or under-provisioning• Server sprawl (spin-up and forget)• Understand the variable costs (e.g. Storage)• Support skills / troubleshooting

• New skills may be required by support teams / adjustments to support contracts

Sourcing StrategyUnderstand what is the best choice for you organization• Insourcing: Complete internal sourcing• Outsourcing: Partial or full service outsource• Multi-Sourcing: Multiple vendors, internal and

external

Sourcing: Insourcing• Often, only direct costs are considered • Cost to cover skill and knowledge gaps should be included

• Providers engaged to fill gap – include these for support vs. project

• Add contingency for burst activity as resourcing levels are fairly static• Difficult to dial-up quickly in unplanned heavy workload periods

• Support vs. projects add contingency for supplemental support• Difficult balance – BAU support generally suffers

• Training/Education• Direct (e.g., courses, exams)

• Indirect costs (e.g., productivity, time away)

Sourcing: Outsourcing• Structure contracts based on outcomes

• Moving to fixed rate or device/user based model stabilizes cost predictability

• Choose the right service level (SLA)• Right-sizing the service level can impact your total cost of support

• Plan for transition costs beyond the provider• Not a passive exercise; it will take internal resources and effort

• Internal process changes• Understand the impact to your internal operation as a result of outsourcing

Sourcing: Multi-Sourcing • Managing the relationships

• Overhead in managing the relationship with and between vendors

• Avoid overlap of service responsibility• You could be paying 2 vendors for same outcome

• Productivity lags and efficiency decline• Handoff and intersect in vendors responsibility can have indirect cost implications

• Reduce vendor numbers where appropriate• Consolidation of service responsibility will enable cost savings

• Balance against risk appetite, spreading risk across vendors has cost impacts

Infosec• On average, cybersecurity is the

most increased budget item in the last 3 years

• In 2015, the average cost per lost or stolen record was $217

• A small health club with 450 customer records ($97K)

Vendor Cost Management• Stagger long-term contracts to smooth cost burdens

• Used in larger multisource environments, but can scale

• Co-terming maintenance / licensing per vendor• Benchmark costs

• Often relationship pricing set at beginning can be improved (e.g. Licensing)

• Compare costs of competitors offering same functionality (i.e Cisco ASA vs Sonicwall)

• Complacency in vendor can lead to inflated costs, be vigilant

• Set cadence for commercial review in longer term agreements

Budget Cycle• Prepare early• Engage key business stakeholders• History can help, but understand future state• Look at long term costs / commitments

• 3-year licensing / maintenance - discount vs. flexibility

• What lands in this year’s budget that didn’t last year

• Split long term projects into manageable slices

Prepare the

Budget

Approve the

Budget

Execute the

Budget

Evaluate the

Budget

Budget Cycle: Multi-Year • Budgets are generally set for one fiscal year• Ensure that management is aware of the multi-year implications of any

projects or contracts that span into future fiscal years• Where funding is uncertain, break projects into shorter independent phases

Budget Directive: Cut Costs• Shift business unit initiatives to their budgets• Discretionary items should be negotiable (delay or delete)• Communicate the impact on non-discretionary items

• Performance and service quality impacts

• Understand the drivers for cost cutting • Cost may be maintained if performance / value can be increased

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Thank You For Attending!