How to set up a budget and buy new information technology

The traditional approach to procurement technology can be specified as follows (with minor changes):

1. Create a Budget

2. Create a claim list

3. View technical progress

4. Get Technical Suggestions

5. Buy from the lowest bidder if they meet the essential requirements

What's wrong with this photo? Let yourself drill deeper with "Create a Budget."

Usually, the budget is based on what the organization believes will spend on its new technology. This is a completely wrong starting point. The company first purchased to determine what strategic and tactical benefits they want the new technical colleges to buy to deliver. They should determine in advance how they expect their new investment in technology will help them increase performance, reduce inventory and other investment requirements, and keep line or reduce operating costs. These goals should be measured and they should be wise. For example, the agency could say:

DANGER – Investment in CRM will help us share our markets in such a way that we can make targeted win-win deals to our current customers, but also give us the opportunity to offer new Customers who will increase our market share. In total, we expect these two effects to have increased by USD 4 million over two years, estimated at USD 260,000 net profit before tax (NPBT).

REDUCING INVENTORIES / INVESTMENT DEMANDS – Investment in improved warehouse, inventory management and inventory supply (supply chain) technology enables us to reduce total inventory with estimated 2.5 million US dollars in two years. By reducing inventions, this will ease the pressure on new warehouse requirements and the production of aerospace. Thus, reducing the requirements for new investment investments also. The developer of $ 2.5 million decline in inventory should save the company an estimated $ 72,000 in running costs at one and $ 136,000 in operating expenses in the year two after going live.

Keep line of operating costs. – Improved accuracy and outstanding transparency provided by the new Enterprise Resource Planning (ERP) system should reduce staffing requirements when revenue increases. Our estimated benefit would be 4.2 FTEs in full-time studies over the next two years, an average FTE cost of $ 78,000 a year for a total estimated benefit of $ 3.28 million in two years.

Summary of Net Estimated Benefits Over Two Years:

Increased $ 260,000

Declining Investment / Investments $ 208,000

Reduced Operating Expenses $ 3.280.000

TOTAL Estimated Cost (2 Years) $ 3,748 .000

] After completing this type of analysis, the agency has now evaluated what it hopes to achieve from its investment in the new technical colleges. More than it is managers in a much better position to determine the "requirements". The claimant will no longer be 300 or more mostly pointless items obtained from current users who do little more than recurring items like "Must be able to print a check." Instead, the team is ready to focus on a relatively small amount of things that technology companies could show to those who will really help them achieve the company's goals to improve significantly. At the same time, team managers are prepared to set up a significant budget based on realistic expectations and a forecast of return on investment.


Business owners, managers and managers who expect to purchase information technology are best done by setting a budget based on the options and then they will probably be disappointed to buy from the lowest bidder. This is especially true if their budget amounts to nothing more than guessing what they think their "new system" should cost. If they have not set a strategic goal for their investment in new technology, their procurement tests will be lacking in focus and it's all too likely that their earned technology will not be fully integrated with their corporate plans. In addition, using a traditional approach means that it is unlikely – not more likely – that new technology will not return the investment yield that stakeholders wanted.

(c) 2008 – Richard D. Cushing


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