Starting a new IT leadership position requires you to learn a huge amount. Make sure you don’t overlook finances.

Internally, you will have a budget to manage the IT spending. You will need to work with your team to stay within that budget. Externally, the IT budget fits into the larger organization’s financial picture.

Let’s look at some ways to come up to speed quickly on financials.

Portions of this article are excerpted from my book, The I.T. Leader’s First Days, available from bookstores everywhere.

You now have budget responsibility for your department. Your organization will have its own terminology, but generically, you will have a department and a set of accounts (buckets) that finance will use to report your department’s spending.

Find your connection into the Finance department. Start with the finance leader. Communicate that you want to learn and do things right. Ask about financial reporting and about forecasting.

Ask the finance contact for spending reports for the last few years. Start with whatever standard reports they issue. This will teach you about the reports you will see in the future and also won’t take any extra time for Finance to produce.

Learn the spending trends for each account. Where is the spending in your department increasing? Decreasing? Flat? I typically created a spreadsheet and entered the spending for the last few years so I could see the trends. It gave me a jump start on understanding the financials and is easy to maintain.

Ask for organization financial reports. Look at the bigger picture. Identify trends in organization revenue and spending.

There are two trends you should start tracking as early as possible:

  • IT spending as a percent of revenue over the last several years.
  • IT spending as a percent of total General & Administrative (G&A) spending over the last couple of years.

I prefer to track these numbers quarterly. Monthly has too much variation and annually isn’t enough detail.

If the organization is growing, you want to grow IT spending at a slower rate than the organization’s growth. Aim for half the growth rate to allow more of the increased revenue to flow to the bottom line. If the organization is shrinking, you need to figure out how to shrink IT’s budget to match the decline, if not more. As you might expect, staying in good communication with your supervisor and the finance department is critical.

Do what is necessary to become good at forecasting. Understand all the components in your financial report and what goes into them. Maintain a list of all outside services, consultants, and cloud services and their future costs. If there is no framework from your organization, I suggest forecasting out fifteen months and updating the forecast each quarter.

Unfortunately, there is a lot of uncertainty when forecasting. What software changes will be needed? What ongoing expenses will there be for the new cloud system you may implement next year? Even harder, the forecast is heavily influenced by what the rest of the organization expects IT to do.

Consider the organization as a moving vehicle. It is moving at a certain speed over a certain terrain. Improving business processes causes the vehicle to go faster. The IT department gets involved with most major business process improvements. The more the organization needs to change its business processes, the more work for IT, and therefore the bigger the IT budget will need to be.

I think of the IT department as the throttle, the gas pedal, for the organization. Want to change the organization faster? Press harder on the throttle. Do more business process improvement. Doing more improvements requires more IT spending (staff, consultants, software, and equipment). Need to cut costs? Let up on the throttle. Do fewer business process improvements which will require less IT spending. Using the throttle metaphor, you can see it is important to understand what the organization wants to do in the future. You will need to adjust the IT budget and forecast accordingly.

The goal in all this is to have a good understanding of the overall organization’s finances and a detailed understanding of the IT department’s financials.

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