Baskerville Drummond: Presenting a business case for increased IT spend
My previous article “Law Firm IT Spend – Getting it Right”, gave an overview of achieving the right level of IT spend by considering typical spending levels, discussing how to capture and analyse your current spend and giving suggestions for dealing with over-spend. But what if the analysis demonstrates that you need to spend more?
This might be due to earlier underinvestment or a new business initiative or strategic decision. There is nothing wrong with such an outcome if it is based on sound analysis. However, the Partnership and senior management will always be wary of increased spending on any business cost, so you will need to present a convincing business case for any proposed increase in IT spend.
Before you even consider asking for an increased budget, you should ensure that you already have senior management confidence that you are using your current resources as effectively and efficiently as possible. Ideally this is something that you have achieved as a part of your day to day role by:
- routinely liaising with management;
- regularly reporting on what your business function does and what it achieves;
- generally being on top of your IT spend by eliminating unnecessary costs (see my previous article).
If this is not your starting point, then you may face an uphill struggle.
Even with the full confidence of senior management, you will need to justify any increased spending requirements and different types of spending can be viewed differently.
Cost of Business
There will be some costs to which you are already committed but which are set to increase. Examples of these are hardware support agreements or software licences that are subject to inflationary increases, or at times the whim of the supplier. For example, Microsoft increasing licence costs by 20% in 2017. Hopefully you will have had advance notice of such increases meaning the budget impact will not come as a surprise. Even if you face such increases, you should look to mitigate them by negotiating with the supplier or looking for alternative solutions.
There will also be some costs that are associated with business-critical aspects of the business such as compliance, disaster recovery/business continuity and IT security. These costs are essentially risk-based. Similar to home insurance, the longer-term cost of not having a solution in place must be weighed against the short-term costs of any appropriate counter-measures. But remember that the solutions must be proportionate to the longer-term risks, considering both the likelihood of the risk and the resulting impact should it occur. The recommendation is to clearly document the costs of the potential business risks. Remember to include issues such as downtime and opportunity costs, regulatory penalties, data theft, theft of intellectual property, loss of business and damage to reputation.
The final type of cost is the most difficult to justify. This is discretionary spend to which you are not yet committed, and which can’t immediately be viewed as business critical. In this case, you must show that the spend will prove itself worthwhile by generating a sufficient business benefit at some point in the future. In other words, the investment must generate a suitable return on investment. This can be achieved in several ways such as saving costs, using resources even more efficiently or expanding market share to name a few. These costs may also be imposed on the IT budget as a result of business decisions/activities which where not known at the time of the budget definition. In this case, it is essential to clearly demonstrate how the additional costs are due to the new business decisions and ensure they are accepted as project rather than ‘business as usual’ costs.
Building the case
The most common calculations for determining the attractiveness of an investment are Return on Investment (ROI) and Total Cost of Ownership (TCO). It is beyond the scope of this article to go into the detailed calculations, but they are not onerous, and your spreadsheet software will be able to assist.
One last idea that may help you create a business case for increased spend is to demonstrate real life examples of where such investment has worked elsewhere. This could take the form of benchmarking, which provides the opportunity to show that other organisations have spent similar amounts – but beware of following the heard without good reason! This could also be achieved through case studies that demonstrate how other organisations have benefitted from similar investment.
If a larger IT budget is required, then don’t just submit a higher figure or ask for a random increase. Instead, demonstrate that you are utilising your current resources wisely and be clear about why the business function requires an increase. A well-reasoned business case based on facts will go much further than an unsubstantiated request.