3 Different Types Of Budgets That IT Managers Need To Know About

by drjim on April 19, 2012

Image Credit When it comes to budgets, one size does not fit all…

When it comes to budgets, one size does not fit all…

The one management task that most IT managers fear the most is the process of creating a new budget for their team. One of the reasons that I believe that this critical task is feared so much is simply because most IT managers don’t realize that there are many different types of budgets that they can create. Once you know the 3 main types of budgets that exist, picking one to create becomes much easier.

Short vs Long Term Budgets

Traditionally, the budgets that most IT managers create for their team are 12-month budgets that lay out the money that their team is going to need during the next year. This is the way that budgets have been traditionally done.

However, it is slowly being realized by many businesses that new types of budgets are called for. There is a need for both short-term and long-term budgets.

Long term budgets cover a time period that is longer than the traditional 12 months. The reason that your IT team may need a long term budget would be if the project (or projects) that you’ll be working on will take longer than 12 months to complete. By creating a longer-term budget you’ll be able to request the funds that you’ll need in order to complete your IT project.

On the other hand, if your company is in the middle of a budget crunch – perhaps it’s a startup, perhaps times are just tough, then a traditional 12-month budget just won’t do. Instead, a budget that is as short as a single month may be required.

Fixed vs Rolling Budgets

We are all used to a fixed budget. Once again, a fixed budget generally covers a 12 month period that makes up a single year. We run around at the beginning of the year and try to determine how much funding our team will need. We submit a budget, it gets approved, and that’s pretty much it for the rest of the year.

A rolling budget is completely different. A rolling budget starts out the same way that a fixed budget does. However, a rolling budget always covers the same amount of time (let’s say 12 months). That means that once you’re a month into a rolling budget, it’s time to create a new budget that extends one more month out.

As you can see this allows a rolling budget to quickly adapt to changes in the environment that your IT team is operating in. However, you’re going to end up spending a lot more time working on budgets.

Incremental vs Zero-Based Budgeting

We all know that that prices go up over time. What this means when you are creating a budget for your IT team is that next year’s budget will probably be incrementally larger than this year’s budget. This type of incremental budget can be easy to pull together – just increase how much you are asking for in each area.

Zero-based budgeting on the other hand takes a completely different approach. When you are creating a zero-based budget, you start the budgeting process with no pre-existing budget. Instead, you start from nothing and construct the budget that you think that your IT team is going to need for the year ahead.

Zero-based budgeting is a great idea for firms that want to shake things up. It prevents IT managers from automatically boosting the amount of money that they request each year by some fixed amount. However, the downside is that zero-based budgeting requires a great deal of time on the part of the IT manager. Creating a whole new budget from the ground up is a major task.

What All Of This Means For You

Creating a budget for their team is a critical part of the leadership that it takes in order to be an IT manager. What all too many IT managers don’t realize is that there are many different types of budgets that they can create in order to fund the activities of their IT dream team.

The length of time that a budget covers can distinguish a short term budget from a long term budget. How long a budget will last is another differentiating factor. Fixed budgets cover a fixed amount of time while rolling budgets are constantly updated. Finally, when you create your next budget you may choose to do it in a incremental fashion or starting all over using a zero-based approach.

No matter how you choose to create your next budget, simply knowing that there are multiple types of budgets can be a big help. Every IT team is different and the different types of budgets can help you match your budget to the needs of your team.

- Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Management Skills™

Question For You: How much time do you think that you should allocate to creating a zero-based budget for your team?

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What We’ll Be Talking About Next Time

If an IT Manager picks up the paper, it seems like hackers are everywhere and getting into everything. Dare I say these modern day cyber pirates seem almost unstoppable? If it turns out that there is no way to keep hackers from breaking into the systems that your IT dream team is creating, then should a IT Manager really spend a lot of time and money trying to keep them out?

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