Finance Budgeting vs. IT Budgeting: Key Differences

The difference between finance budgeting and IT budgeting comes down to their specific goals for their part of the business.?

While the finance budget paints the big picture in terms of the company’s investments and actual costs, the latter is all about managing the investment metrics within IT.?

So, why does it matter? Shouldn’t the IT Budget simply be a subset of the Finance Budget? ? Well, yes and no. There are a few key differences that make it a lot trickier than this simple statement:?

Difference 1: Terminology

Finance budgets look at investments through the lens of Capital Expenses and Operating Expenses. IT Budgets look at investments through the lens of Services they deliver, Projects they manage, and ‘Demands’ made by other parts of the organization.??

It often feels like 2 different currencies for the same information. Think of it almost like a rosetta stone where each Service, Project, or Demand has to be translated into a CapEx cost and an OpEx cost. While the estimated costs may seem simple enough on the front end, priorities change, projects get delayed, and tracking actual costs against budgets becomes challenging – especially when IT is expected to translate CapEx and OpEx outputs back into the spreadsheets they’re using to track budgets.?

IT budgeting, on the other hand, is all about strategizing ways to optimize and save money on IT investments wherever possible. It not only helps improve business efficiency through optimized IT spending but also drives profits in the long term.

Difference 2: Different paths to the same destination

Because Finance manages the budget for the entire organization, they have to keep budgets across various departments/business units in a consistent format. As such, IT teams often translate their “budget vernacular” into “finance vernacular”. While it can be done, it’s often done across several IT budget owners who have to send it to their boss, who makes adjustments, and then it is sent to executives, who send it back down for adjustments. It can often go through multiple iterations, which delays the final execution. In the end, there are hundreds of versions in multiple stages, all of which need to be consolidated into a single spreadsheet. This is then imported by the Finance team. End result - both sides are frustrated, fatigued, and unhappy.???

Difference 3: Benefits

Finance budgeting ensures that your business steps off on the right foot, taking time to manage CAPEX and OPEX effectively. This, in turn, will help keep your business lean and efficient in the long run.

IT budgeting enables IT to support company initiatives. It not only helps provide funds required to keep the IT department running but also helps in identifying and implementing IT initiatives that are critical to other business units. Lastly, it helps businesses update their technology to improve revenues and margins.

Difference 4: Solutions used

Popular finance budgeting solutions include Oracle, SAP BPC, Microsoft Dynamics, Workday, Peoplesoft, Sage, and several others that are built to scale with the business.?

Unfortunately, when it comes to IT budgeting, spreadsheets still remain the most popular solution. The easy accessibility, low cost, and flat learning curve are some of the reasons why IT folks still use them, despite their limited capabilities. Even worse, there is a perception that spreadsheets are ‘free’ (which they are not).

Difference 5: Challenges

One of the biggest challenges in managing IT budgets with spreadsheets is that they make continuous planning nearly impossible. At a minimum, they struggle to review the budget versus actual variance report regularly - or accurately understand what budget has been committed but not spent yet. They also find it daunting to realign the projections for the remaining months and fail to perform “what if'' scenarios to strategize and plan for future growth.?

Similarly, there is a burgeoning gap between the IT team and the finance team when managing IT budgeting. This often happens because the IT team doesn’t understand finance, and the finance team doesn’t understand IT. Both teams consider it a chore to translate it into another language and a pain to reverse engineer it back into something useful.?

IT teams also don’t realize that they can remedy this disconnect by changing their organization’s approach to IT budgeting from merely an annual “one-off” exercise into a meaningful planning and ongoing management process. However, this shift requires that IT leaders work with Finance (and IT Finance) to define IT’s role in achieving the organization’s objectives. Long story short, they must enable IT to become a good steward of the company’s investments.

Conclusion

Running IT budgets on spreadsheets doesn’t allow IT to manage their budget the way they run their business. While their finance counterparts use powerful budgeting solutions, using spreadsheets for collecting IT budgets, forecasts, and actuals, just don’t keep up with the pace of today’s changing business requirements. This is where things go awry; When you use a tool like Excel, there is a clear disconnect between your IT budgeting and finance budgeting. Your finance teams are fed with random and sporadic updates from your Excel files. As a result, they are only able to access outdated financials.

When you replace spreadsheets with ServiceNow, you can enable your IT team to manage their budgeting the way they deliver their services. There will be daily updates from ServiceNow, which will be used by IT, IT Finance, and the Finance team to understand exactly where they are against budgets, forecasts, commits, and actuals and make informed, well-communicated decisions as business needs change.???