With a title like that, many of you are likely thinking that I will be authoring a biographical article about my wife. However, that is not the case. What I would like to discuss are some different styles of spending specifically related to IT Hardware and Software.
In the past, it was common for companies to have a very sporadic spend style. For example, a Company may desire to purchase a new ERP Software system that required updated Hardware, so they would go to their Management / Board of Directors and ask for approval to spend up to $100,000 on the project. The Board (with much deliberation and stress) considered the request and would ask if this was a one-time spend, or if it was going to have recurring annual costs to the Company. It was typical that the response would be that it was a one-time spend item. Then the Company would try to go 3 or 4 years without spending any additional money on IT Hardware or Software. After 4 years, the computers would get slow or breakdown and then another Capital Spend request would be sent to the Board asking for a very material amount of money so that all of the equipment could be replaced. Then the realization set in that the new hardware would not be compatible with the old software so now a software upgrade was necessary which made the spend request even higher. This was greeted with much tension and stress again because of the amount of money being requested.
Due to the weak economy of the last few years, many of our clients have become more budget driven and the above sporadic spend style has fallen out of favor. Most businesses are looking for a more consistent spending style, which is more in line with budgeting concepts. Below would be an example of the transition that we are witnessing:
|Spend Style||2009||2010||2011||2012||2013||TOTAL SPEND|
This new style of spending makes so much more sense, and is much more reflective of the way almost ALL of the other expenses of a Company are managed. For example, if the Sporadic way of investing made financial sense, why dont we just pay all of our expenses for the next 4 years with a check today? Another benefit of the balanced spend style is that in many companies, a financial threshold is established for items that require Board approval. If that amount is $50,000 for the fictitious Company described above, then no one will ever have to approach the Board again and ask for money.
We are working with many of our clients to develop formalized Technology Roadmaps that manage the spend process for the future can we help your Company do the same?