MINICASE: Budgeting at Performance Boards Inc.
As the chief information officer (CIO) at Performance Boards Inc., you chair the information technology (IT) steering committee. Performance Boards has recently been acquired by Big Sporting Manufacturer Inc. and is currently operating independently as a wholly owned subsidiary. During the yearly IT budgeting process, or the “ultimate fighting championship,” as you call it, you are the unwilling center of attention—the arbiter of all disputes. It’s that time of year again, as shown by the calls you are receiving from other managers you hardly hear from all year.
Every July, the budgeting process starts with a call for projects. Every functional area responds with a rank-ordered list of initiatives that need funding and their supporting business cases. Once the steering committee reviews the preliminary proposals, each executive sponsor presents the case for his or her proposed projects. Armed with this information, the steering committee deliberates and chooses the projects to be presented to the executive team for inclusion in the overall budget. Typically, whatever the steering committee proposes, the executive team approves. The executive team’s main concern is overall IT spending. Bjorn Dunkerbeck, the founder and chief executive officer (CEO) of Performance Boards, is adamant that the firm should be in line with the manufacturing industry benchmark of 3.3% of revenue as a yearly IT budget.
This year, the third year of declining revenues for the firm, the ultimate fighting championship is shaping up as an all-time great—not a good thing for you! You had set aside 64% of the budget for the IS function to control, in accord with industry allocation benchmarks. Your group needs the money for security, disaster recovery, general maintenance, infrastructure management, and administrative expenses. Yet because of the tightening budgets, for the first time in your tenure as CIO, you are being questioned and required to justify the allocation to the IS function.
At this point, the human resource project and the inventory management projects seem most likely to get green-lighted. The vice president (VP) of human resources has been asking for an upgrade to the benefits package management application for three years now. His business case shows both productivity improvements and higher retention of employees. The chief operating officer (COO) presented the business case for the manufacturing group. He has shown a substantial return on investment (ROI) associated with the proposed supply chain and just-in-time inventory management initiatives.
As you review the current informal ranking of projects, you can’t help but think that you need to find a way not to alienate the functional managers and project sponsors. The last thing you need is for the IS function to be perceived as a roadblock to the success of the other functional areas and ultimately of Performance Boards Inc. as a whole.
Discussion Questions
1. What should you do next? What are some of the options at your disposal to ensure that you do not alienate your colleagues?
2. Are there any structural problems with the budgeting process at Performance Boards Inc.? What improvements would you suggest for next year—if any?
