TechConnect Curriculum IT Budgets that Don't Bite: A Template for IT Budgeting Presented by: Kathleen Sherwin Director, Programs & External Affairs TechFoundation

TechConnect Curriculum Abstract Since technology began to find its way into nonprofits in the 1980’s, budgeting for IT has been a problem. Many nonprofits still have no distinct IT budget or budgeting process, let alone separate capital, operations, and support budgets. This presentation argues that preparation of an IT budget is a critical step both toward controlling IT costs and increasing the usefulness of IT systems. Through the use of standards, templates, and industry experience, nonprofits can develop IT budgets with relative ease, and should.

TechConnect Curriculum Purpose of Presentation The purpose of this presentation is to encourage nonprofit managers to develop and follow IT budgeting strategies and practices, resulting in more effective systems and better control of costs. By presenting IT budgeting as a process and using budget templates, attendees should be able to initiate this process in their own organizations.

TechConnect Curriculum Goals/Objectives Attendees will: Know and apply Total Cost of Ownership & IT Life Cycle concepts in their agencies Learn the 6 steps to developing an IT budget Have spending standards against which to compare their budgets

TechConnect Curriculum Strategic Technology Vision Before you begin your budgeting process, you will need a Strategic Technology Vision, including: How technology will support your mission Management buy-in List of each manager’s priorities Assessment of current IT systems and support

TechConnect Curriculum The Vision Team IT Staff Program Staff ED/Board

TechConnect Curriculum Hard and Soft Costs HARD Hardware Software Professional services Personnel Training Telecommunications Supplies & Incidentals Environment Maintenance Cost SOFT User time – using User time - fixing Helper time Management time Inefficiencies

TechConnect Curriculum Budget Line Items A. Hardware B. Software C. Professional services D. Personnel E. Training F. Telecommunications G. Supplies & Incidentals H. Environment

TechConnect Curriculum Budget Columns Hardware Software Services Labor Training Telecommunication Supplies & Incidentals Environment ItemMaint.NewTotal PC’s Servers Hubs/Switches Routers/F’wall Peripherals Other

TechConnect Curriculum Five Concepts Underlying IT Budgeting A. Projection from current expenses B. Total Cost of Ownership (TCO) C. IT Life Cycle D. Benchmarking against peer organizations E. Mission-driven, top-down planning

TechConnect Curriculum Projection from Current Expenses What is it? Start with current costs, add inflation, add/subtract anticipated projects Pros: easy to understand and do, easy to calculate, generally pretty accurate, generally a straight-line cost increase Cons: no room for new solutions, no measure of effectiveness, easy to hide costs, no challenge for income, sometimes miss opportunity to recognize cost savings

TechConnect Curriculum Projection from Current Expenses For example: We spent $1,000 per month for phone lines and service for 50 staffers, so we need to budget $1,100 per month next year to support 55 staffers.

TechConnect Curriculum Total Cost of Ownership What is it? TCO accounts for all aspects of providing information technology, including purchasing, operations, training, maintenance, support and network services over the expected lifetime of the system. Pros: few hidden costs, encourages multi-year planning, can be made to reflect individual agencies Cons: many numbers are guessed or assumed, often not connected to mission, means many things to many people, easy to double-count or underestimate costs

TechConnect Curriculum Total Cost of Ownership For example: We need to create a new networked office for 5 people. Assuming a 4 year economic life, we need to budget the following: ItemYear 1Year 2Year 3Year 4 System Consultant$1, Cost of hardware/software$7, Hardware updgrades Networking$ Training$ Support$1, ,000 Maintenance/Repair Total10,5001,3002,0504,200 $18,050 = TCO

TechConnect Curriculum Life Cycle What is it? Every system goes through purchase, installation, maintenance, enhancement, and decommissioning, and should have corresponding costs Pros: budgeted costs vary according to what you specifically plan to do Cons: still a lot of guesswork, need a lot of history to develop estimation basis, not connected to mission

TechConnect Curriculum Life Cycle For example: We try for 3 year replacement, but we bought a bunch of computers under a grant 3-1/2 years ago. We need to replace all of those old machines now, which are more than 1/3 of our total machines. We need to buy 11 plus 2 for new people, a total of 13 machines.

TechConnect Curriculum Benchmarking What is it? Compare the systems you have to your peers’ systems and use their experience as a basis for budgeting Pros: based in reality, can provide many insights Cons: easy to overlook differences between agencies, hard to get information

TechConnect Curriculum Benchmarking For example: Our peer agencies spend about $600 per year per employee on PC hardware; we have 100 employees, budget $10,000 for PC hardware.

TechConnect Curriculum Mission-driven What is it? The classic top-down approach. Decide what you need to achieve, find out how technology supports the goals, budget to the goals. Pros: easiest to justify, makes technology an integral part of agency work Cons: very hard to translate goals into technology, distant from reality

TechConnect Curriculum Mission-driven For example: Words for Nerds run successful, popular programs, but needs to increase advocacy and awareness. We are adding 2 staff members for that purpose. We need to do all we do now plus have 2 more people, which is why we’re adding 2 computers.

TechConnect Curriculum Baseline Costs 1. Determine current actual costs and cost allocations 2. Compute your agency’s TCO 3. Compute your agency’s cost for each year of life cycle

TechConnect Curriculum The Six Steps 1. Develop baseline 2. Develop technology vision statement, decide on new project for coming year 3. Project based on baseline & projects 4. Compare results with your Total Cost of Ownership (TCO) 5. Compare results with Lifecycle plan 6. Compare results with peer agencies

TechConnect Curriculum Hardware Detail ItemMaint.NewTotal PC’s Servers Hubs/Switches Routers/Firewall Peripherals Other

TechConnect Curriculum Software Detail ItemMaint.NewTotal Licenses Maint. Agreements Applications Other

TechConnect Curriculum Services Detail ItemMaint.NewTotal Service contracts Consultants Web developer Applic. Developer Tech support fees Offsite storage costs Other

TechConnect Curriculum Labor Detail ItemMaint.NewTotal Payroll Fringe Stipends Temps/Coverage Other

TechConnect Curriculum Training Detail ItemMaint.NewTotal Books, CD’s, publs Conferences Classes In-house classes On the job Other

TechConnect Curriculum Telecommunications Detail ItemMaint.NewTotal Data lines Internet access Hosting fees Cells, PDAs, WiFi etc. Other

TechConnect Curriculum Supplies Detail ItemMaint.NewTotal Cables, tapes, etc. Ink & toner Paper & stock Other

TechConnect Curriculum Environment Detail ItemMaint.NewTotal Share of rent Climate control Security Utilities Other

TechConnect Curriculum The Six Steps (reprise) 1. Develop baseline 2. Develop technology vision statement, decide on new project for coming year 3. Project based on baseline & projects 4. Compare results with your TCO 5. Compare results with Lifecycle plan 6. Compare results with peer agencies

TechConnect Curriculum Resources TCO worksheets and information – school based: Similar ideas, different tools - An online curriculum - The economist’s point of view: From a nonprofit point of view: 978&CFTOKEN= &CFTOKEN= A life-cycle article: Another corporate point of view:

TechConnect Curriculum Contact Information Kathleen Sherwin Director, Programs & External Affairs TechFoundation