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Chapter 7, The IT Budgeting Process

QUESTIONS:

EASY

1) Choose the term below that best completes this sentence:

_______ costs consist of what it costs to ‘keep the lights on’ in IT.

A. Technology
B. Strategic
C. Operations

D. HR

E. None of the above

2) Is this idea true or false:

The IT budgeting processes are multilevel, complex, and frequently occur in parallel.
A. TRUE
B. FALSE

3) Is this idea true or false:

IT plans and budgets need attention more frequently than once a year.

A. True
B. False

4) Is this idea true or false:

The concepts and practices of the corporate fiscal world align with how IT works.
A. True

B. False

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MEDIUM

Type: MR
5) Select all the expenses below in which Fiscal IT budgets (i.e., those prepared for the CFO) are broken
down.

A. capital expenditures

B. HR expenses
C. operating expenses

D. technology expenses

E. None of the above

Type: MR

6) Select all the categories below in which IT managers plan their spending.
A. technology costs
B. operations costs

C. strategic investments
D. HR costs

E. None of the above

7) Spending on initiatives and technology designed to deliver new business value and achieve the
enterprise’s strategic objectives is known as:
A. Technology

B. Strategic investments

C. Operations
D. HR

E. None of the above

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8) Choose the term below that best completes this sentence:

________ is the process of allocating the cost of the services IT provides to others’ budgets.
A. Budgeting
B. Cost allocation

C. Cost management
D. IT Governance

E. None of the above

Type: MR
9) Select all the areas below that are assisted by effective IT budgeting.

A. Alignment
B. Fiscal discipline
C. Governance

D. Strategy implementation
E. None of the above

Type: MR
10) Select all the activities below that are not part of the corporate context within which IT plans and
budgets are created.

A. Set IT spending levels

B. Establish strategic goals

C. Establish the fiscal strategy

D. Establish IT governance

E. None of the above

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Type: MR
11) Select all the items below that are part of the IT budgeting processes.
A. Assess actual spending
B. Estimate business opportunity costs

C. Set the functional budget

D. Set the strategic budget

R. None of the above

12) Choose the phrase below that best completes this sentence:
_________ is a solution to the budgeting problems created by the conflict between the need for
genuinely integrated initiatives and traditionally siloed budgets.

A. Adoption of enterprise funding models

B. Business-based budgeting
C. Decentralized budgeting
D. Federated budgeting

E. None of the above

Type: MR
13) Select all the reasons below that are not a current IT budgeting process problem.

A. It discourages taking responsibility for the performance

B. It is disconnected from business objectives

C. It is slow and expensive

D. It stifles innovation

E. It takes too long

F. None of the above

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Type: MR
14) Select all the activities below that are not within the corporate budgeting process.
A. Align business and IT strategy
B. Establish corporate fiscal policy

C. Establish strategic goals

D. Prioritize IT initiatives

E. Set IT spending levels

F. None of the above

Type: MR

15) Select all the external factors below that can influence the IT budget
A. Affordability
B. Diversification of products and services

C. Growth
D. Number of competitors
E. Product availability

F. None of the above

Type: MR

16) Select all the internal factors below that can influence the IT budget
A. Affordability

B. Diversification of products and services

C. Growth
D. Number of competitors

E. Product availability

F. None of the above

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Type: MR
17) Select all the items below that are best practices for making budgeting easier and effective.
A. Adopt enterprise funding models
B. Adopt rolling budget cycles

C. Appoint an IT finance specialist

D. IT and business department manager collaboration

E. Segmentation: IT creates the innovation budget, the CFO develops the operating budget

F. None of the above

HARD

18) Choose the phrase below that best completes this sentence:
When creating the IT budget, IT managers will separate operations from innovation; they must also
___________ new project development.
A. align maintenance and support with

B. allocate maintenance and support from

C. prioritize maintenance, support, and

D. separate maintenance and support from

E. None of the above

Type: MT

19) Match each word below with a lettered blank in the following sentence:
An IT budget is both an (A) tool for (B) how money will be spent and a (C) tool for helping (D) leaders
understand how IT expenses (E) to business value
a. Management = C

b. Governance = None

c. controlling = B
d. contribute = E

e. business = D

f. accounting = A

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20) Type: MT
Match each budgeting concept below with its definition
a. Capital Expenditure = A large expense that is spread over several years

b. Cost Allocation = The process of distributing IT costs to others’ budgets

c. Fiscal IT Budget = The CFO’s spending plan

d. Functional IT Budget = The IT manager’s spending plan

e. Operating Expense = An annual cost of running the business

f. Strategic Investment = The annual cost of initiatives to deliver new business value

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CRITICAL THINKING

Type: E
21) You joined your organization two months ago as its CIO, and you need to provide next year’s IT
budget in 90-days. You have two goals: support your IT strategy and have the budget reflect a net
expense that is as low as possible. Describe how the budget can achieve the first goal and the budgeting
approach that you will use to accomplish the second goal.

NOTES:

The essay should discuss the ideas below from the chapter.
A- Supporting the IT strategy:
a - Connects the business strategy and plans with the enabling IT plans
b - Forces a conversation between IT and the business
c - Provides the business context and link between IT expenses and business performance
d - Provides signals about how IT supports the overall strategy and delivers business value
e - Change the business’s focus from IT as a cost center to IT as a resource to help achieve
strategic goals
B- Low net expense
a - Capitalization:
i. Limited by tax policies and organization policies
ii. Corporate Financial Strategy determines what can be capitalized (set by CFO)
b - Cost Allocation: the process of allocating the cost of the services IT provides to others’
budgets.
i. IT can be viewed as a corporate expense, business unit expense, or a
combination
ii. Operating expenses are usually allocated to business units’ operating budget
iii. Strategic expenses are usually allocated based on which business unit will
benefit from the investment.
iv. Multi-business unit participation can result in artificial budget allocations and
dysfunctional behavior.
v. Can lead to operational inefficiencies

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Type: E
22) Last year, the IT leadership team struggled to create the annual budget. The CIO has tasked you with
working with the IT leaders to recommend improvements to the IT budgeting process. Provide three
improvements. Explain the issue each improvement addresses and the rationale for the suggested
improvement.
NOTES:

The essay should discuss the ideas below from the chapter.

The six practices to improve the budgeting process are below.

A- Appoint an IT finance specialist: Financial specialists can help IT managers understand their costs
and drivers in new ways. Within operations, they can assist with cost and value analysis of
services and infrastructure and manage the translation process between the functional IT
budget and the fiscal IT budget.
B- Use budgeting tools and methodologies: Budgeting tools and methods enable analyzing budget
data for many different stakeholders. There are gaps in the budgeting process when these tools
and techniques are not used.
C- Separate operations from innovation: Most IT managers mentally separate operations from
innovation. However, maintenance and support are often mixed up with new project
development, especially when IT organizations are aligned with and funded by the business
units.
D- Adopt enterprise funding models: It is unusual to find organizations that provide corporate
funding for enterprisewide strategic IT initiatives; however, this is needed. The conflict between
the need for genuinely integrated initiatives and traditionally siloed budgets frequently stymies
innovation, frustrates behavior designed for the common good, and discourages accountability
for results.
E- Adopt rolling budget cycles: IT plans and budgets need attention more frequently than once a
year. A quarterly review and update of an eighteen-month rolling plan appears to be a more
effective way of budgeting, especially for new project development.
F- Make budgeting Agile: Transition the existing budgeting process to one that is more iterative-
based and Agile-based. The budgeting process uses rolling budget cycles and budget
conditionality (i.e., attaching resources to success criteria).

ANSWERS:
1. C
2. A
3. A
4. B
5. A, C
6. B, C
7. B
8. B
9. B, D

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10. D
11. A, C
12. A
13. F
14. A, D
15. B, D
16. A, C
17. A, B, C
18. D

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