You are an IT professional and are considering acquiring a new communications system. You really like the proposal sitting on your desk. You have done a thorough job in translating your company’s communication needs into a solid proposal with numerous benefits to your company. So what is holding up the decision? It may be the funding process.
Here are a few questions you should ask as early as possible in the process of acquiring any IT or communications systems. The answers may move the entire process more quickly and efficiently.
- “How did you fund your current (existing) system?” There are many ways you can answer this question, but in reality there are only 2 real answers: Cash or an External Funding Source. Once you know how you funded the current system, the next question is extremely important.
- “Did this work well for your company?” If the answer is Cash…was the decision to use internal funds to acquire technology assets a good one for your company? Could those funds have been allocated for use in other areas of your business to create more value? Did putting the assets on your balance sheet impact any other financial ratios or measures within your company? If the answer is an External Funding Source…did the decision to use external funding provide you with more flexibility to adapt to changing technological needs within the business? Did the financial structure allow you to budget for additional options that might have been out of the scope of the budget if you used internal funds? Given the pace of technological change many companies find that external funding sources provide protection against obsolescence and give you more options in regards to keeping technology solution current and any additions during the term of the original contract.
Armed with this information it is now time to move forward and think about the new system or equipment that you are considering. The next questions are:
- “How do you plan to fund this project?” The answer to this question will determine if you are ready to make a decision or if you need to consult with other members within your company. If you can answer with either a cash or external funding source answer, you are ready to proceed. If you can’t, you probably need to consult with the “Economic Buyer” within your organization. The economic buyer is usually the CFO, Controller or a key member of your financial management team. He or she will know the answer to the above questions, plus a few more we have outlined below that should be part of your decision process.
- “Is the project budgeted/approved for this year?” In some cases projects that are internally funded require several levels of approval and the money needed to fund the project may not be available during the current year’s budget. Using an external funding source may allow you to implement the project during the current year as it typically requires less up front expense to get the project started.
- “Will this be funded from a CAPEX or Operating Expense budget?”
- “How did your company determine the project budget?” If it was submitted under a CAPEX budget then funding for the entire project would generally need to be approved in advance. If utilizing funds from an operating expense budget then generally only the monthly payment related to the project due would need to be approved. For example…A $1 million project would require approval for the full $1 million under a CAPEX budget…if funding through an external source using Operating expense budget dollars only the monthly payment amount of $20,000 may need approval. As an IT professional it may be easier to manage and maintain a fixed monthly operating expense over a period of years rather than going to senior management for approval of large CAPEX projects as needs arise.
The above questions plus one more will help you to quickly and efficiently make decisions regarding the funding of any new IT project.
- “Who, besides yourself, will determine how to fund your new system?” As an IT professional you are expected to provide technical expertise and to present senior management with the productivity and cost saving impacts of the technology solution you want to implement. However having a basic understanding of the options available to fund the solution and providing your input to the “Economic Buyer” will position you as a knowledgeable business leader who looks beyond just the technical aspects of the decision.
After you have an answer to these seven questions, you will be ready to move forward.
