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Understanding and Evaluating IT Budgets and Funding
The average firm spends over two-thirds of the IT budget on maintaining the present infrastructure and architecture. The IT budget in turn makes up between thirty to fifty percent of the capital expenditure of a firm annually. An appreciation of how IT expenditure is best translated into effective future firm value would enhance an understanding of funding for new IT investments and operations. In an era where IT infrastructure is ubiquitous, a sound approach to IT budgeting is essential. This paper proposes a framework, extending Weill & Ross (2009) in a multi-dimensional context, which it is argued supports this end.
Four models for budgeting and funding for IT in firms exist in the professional literature. These are: Charge Based (CB), Lord and Master (LM), Revenue Percentage (RP) and Absolute Outsourcing (AO) models. CB is a model where the internal IT unit is treated as a service provider and paid for services implemented. In LM, a firm’s IT unit has absolute control over implementation and execution of IT services. RP is where the IT unit competes for budgets in the form of a percentage of the organisation’s overall profits. In AO IT is outsourced.
The paper proceeds by evaluating these models to develop a framework to assist IT budget and funding. Evaluation is delivered using IT capability constructs by Aral and Weill (2007) and the Innovation Ambition Matrix by Nagji and Tuff (2012). The framework will help firms to determine if they need to change their IT related financial environment.
Publication titleProceedings of the 8th World Congress on Engineering Asset Management and 3rd International Conference on Utility Management & Safety
Place of publicationHong Kong
Event title8th World Congress on Engineering Asset Management and 3rd International Conference on Utility Management & Safety
Event VenueHong Kong
Date of Event (Start Date)2013-10-30
Date of Event (End Date)2013-11-01