Budgeting for a Digital Transformation

In the early stages of digital transformation it is particularly daunting to identify clear budgets which can deliver on the digital innovation initiatives. There are constraints of the traditional IT budgeting model which can prove challenging if the organisation is not conscious of the pitfalls. Here is a list of issues and considerations when seeking to fund and support digital innovation initiatives pursuant to the strategy.

  • Digital innovation is the key to delivering on the digital business strategy, and by its nature, this an ongoing journey impacted by changing opportunities and risks. Unlike a large monolithic solution development or technology project, the budgeting of digital innovation needs to be seen as an ongoing process of finding funding for many digital initiatives, some of which may fail.
  • By its nature a digital initiative touches many parts of the organisation, requiring constructive collaboration and communication. While budgets in department silos are important for singular accountability, for digital transformation success this approach can be detrimental. Orchestration of budgets for digital initiatives should be the domain of the digital transformation executive leadership.
  • IT has to make a contribution to the digital initiatives, not by simply working all hours or negotiating harder with its “run the business” providers but by finding efficiencies and optimisations in the digital foundations, through real-world comparisons of costs and performance, improving reliability through process discipline, tools for better service management and elastic infrastructure.
  • Digital initiatives are particularly tough when it comes to defining and validating the project vision against the digital strategy and with the key stakeholders. A suggested way forward is to prefix the project with validation of expectation through prototyping or a Proof of Concept (POC) to demonstrate and gain concurrence.
  • Innovation budgets to support core digital transformation projects, to run prototypes and POCs to test new ideas which can inform broader funding commitment. This may well be funded by efficiency savings from the digital foundations.
  • Focus on defining digital projects in terms of business outcomes, rather than features and functionality. While this requires baselining the present state and contrasting it at various stages in the deployment of the digital initiative, it is critical to evince business value to continue to win favour with the digital strategy owners and key stakeholders.
  • Operational processes for project managing digital initiatives may be agile, but vendor contracts tend to be based on principles of “run the business”. This can limit the ability to respond to changing needs, and discourage collaboration and innovation. New vendor engagement and management models need to be devised, which are supportive of innovation and collaboration.
  • Headroom for changes can be particularly critical in digital initiatives which are subjected to rapid pace of external or internal change. Tight budgets, long review cycles and no evidence of value can impede project continuation and success.
  • Digital innovation helps when it is deployed and adopted. It is wise to consider associated project costs like IT infrastructure, data migration, interfaces, compliance, security, on-boarding costs for internal or vendor staff, costs of process change, user training, and so on.

While this list of issues and cautions may be long, IT budgeting and funding is never easy, particularly when digital innovation breaks the mould from traditional entrenched management models.

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