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Exhibit 17.7 IT Spending as a Percentage of Revenue by Industry
456 The Back Office: Efficient Firm Operations

IT SPENDING PER
END USER ($)

Financial services 137,538

Insurance 34,721

Energy 25,365

Utilities 24,509

Telecommunications 20,002

Information technology 17,489

Banking 16,612

Healthcare 14,187

Manufacturing 13,652

Consumer products 13,510

Pharmaceuticals 13,270

Hospitality and travel 11,406

Chemicals 10,822

Media 10,006

Transportation 9,887
Retail 8,846

Food/beverage 6,884

Electronics 5,998

Metals/natural resources 5,846

Professional services 5,098

Construction and engineering 4,003

Overall 13,968

Exhibit 17.8 Sample Technology Inventory
457
Information Technology

IT EMPLOYEE
PERCENTAGE OF TOTAL

Financial services 19.90

Insurance 11.88

Information technology 7.56

Banking 7.35

Telecommunications 7.34

Media 6.58

Hospitality and travel 5.91

Utilities 5.47

Healthcare 4.53

Pharmaceuticals 4.37

Energy 4.23

Consumer products 3.61

Electronics 3.28

Chemicals 2.84

Retail 2.54
Professional services 2.39

Manufacturing 2.37

Construction and engineering 2.31

Food/beverage 2.16

Metals/natural resources 2.08

Transportation 1.90

Overall 4.63

Exhibit 17.9 Employees in an Organization as a Percentage
of Total Employee Population
458 The Back Office: Efficient Firm Operations

• Any changes to major applications in the past 12 months affecting sup-
port or development
• Current approved IT project inventory and prioritization
• Estimation of current peer spending (see Chapter 3)
• Payroll statistics for the IT department

Following is an overview of the process:

• The budgeting effort is typically kicked off by the finance department
in preparation for the next fiscal year.
• Most often the IT manager will be given the following information to
get started:
”Detailed accounting reports of the prior 12-month IT spending.
”Template spreadsheet with budget categories already included and
calculation complete.
”Estimation of overhead line items to be allocated to the IT de-
partment.
• Complete a first draft”there are two different approaches to build the
budget:
”Zero-based budget (recommended, but more difficult).
”Run-rate budgeting.
”These methods are outlined later in this chapter.
”The first draft should incorporate all known information on service
level agreements and anticipated projects (see Chapters 7 and 15).
• Review the draft with CFO or other direct reporting relationship.
• Produce and present the second draft.
• Incorporate input and produce final draft.
• Final draft goes through approval with IT steering committee and sen-
ior management.
• Once approved, the final draft is sent to the accounting department as
the “final new fiscal year” budget for IT.
• All actions for the subsequent 12 months will be judged against this
final budget.
• At times there will be a quarterly and /or mid-year budget review ses-
sions to adjust the budget to account for new known information.

Timing
The budget cycle usually kicks off between September and November, or
one to four months before the end of company fiscal year. The budget, in
most cases, needs to be finalized in the last month of the fiscal year.
459
Information Technology

Managing to the Budget
The company, its officers, its employees, and its shareholders are relying on
the IT manager to meet his or her budget. If the department overspends the
budget, both the company and its employees may be adversely affected. The
corporate budgeting process and its subsequent success is dependent on all
budget managers managing their share of the overall corporate budget and
performing according to plan.
There are a variety of approaches the IT manager can take to help manage
the budget on an ongoing basis:

• Schedule a regular monthly meeting with the CFO, controller, or finance
analyst to review actual versus budget numbers. During this session,
variances should be investigated, and the IT director should develop a
list of key actions to improve any negative variance. After the meeting,

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