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

April 19, 2012 | Comments: 0 | Views: 179

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

Traditionally, the spending plans 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 spending plans 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 spending plans.

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 spending plan 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 spending plan 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 spending plan that is as short as a single month may be required.

Fixed vs Rolling

We are all used to a fixed budget. Once again, a fixed spending plan 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 request, it gets approved, and that's pretty much it for the rest of the year.

A rolling budget is completely different. A rolling spending plan starts out the same way that a fixed spending plan 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 it, it's time to create a new spending plan 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

Your Source For Real World IT Management Skills™

Dr. Jim Anderson understands what it is like to both work in an IT department as an employee as well as a manager. Dr. Anderson is willing to share with you his 20+ years of experience in order to explain how to attract, motivate, and retain top IT staff.

If you want to follow Dr. Anderson on Twitter, he can be found at:

Source: EzineArticles
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