by L. Gary Boomer

Why budget for technology? This sounds like a simple question, yet most firms and businesses try to make it very complex and confusing.

Most technology people don't help this situation with their technical jargon, either. The simple answer to the question of why firms should budget for technology is "focus."

Some projects should be fully funded while others should not be funded at all. In most firms, the important projects - where there is the high potential of a huge return - are only given partial funding and commitment from the partners in a firm.

For example, every firm is talking today about document management and using less paper. This is a project with huge potential, but one where many firms haven’t reached a consensus on what they want to accomplish.

Almost everyone has a perception of document management, but not everyone has the commitment and discipline to succeed at it. People tend to take a narrow approach, such as audit work papers or tax documents, when the real benefits come when you take a holistic approach and integrate the entire firm.

Most firms still don’t know what they are spending on technology and the majority of the partners in all firms don’t have accurate information. In my firm’s work in establishing a new "circle" of very large CPA firms, it took three meetings before we could obtain comparative and meaningful numbers.

While some firms accurately estimated their spending, others initially grossly underestimated, and the policies for capitalization of hardware and software purchases varied significantly. Accountants play games when it comes to accounting for technology.

It also became apparent that many small firms with good management and strong technology strategies are ahead of the larger firms. if managed properly, technology can be a great equalizer and a competitive advantage.

Most firms have become diversified in their service offerings. Partners tend to involve themselves in client services rather than the management of the firm, which is a good approach, provided that the firm is managed by a chief executive and like a corporation.

However, most firms still are not managed in this way, even though statistics prove that

this is a more profitable approach than management as a partnership. One might wonder whether anyone is really managing when it comes to technology in the majority of firms. The management that is taking place tends focus on costs rather than technology.

By only managing costs, firms drive themselves into a spiral of low returns on investment and increasing frustration. They see little change in the bottom line because they have not made the commitment to change their processes and procedures.

They often don’t have the right people, software or hardware to accomplish their goals. A close associate describes most firms as having invested in 1GHz typewriters. They want to continue doing things the same way they have for the past 20 years.

Budgeting for technology is one of the first steps and an important one in getting to a higher level. Accountants understand numbers better than they understand concepts and strategy - or at least they tend to be more comfortable with numbers. Therefore, it’s necessary in most firms to present budget information for management to build a consensus among the partner group as they develop a technology strategy.

Some of the key indicators that should come from the budgeting process are:

  • Revenue per full-time equivalent (based on 2,080 hours);
  • Technology investment as a percentage of revenue;
  • Percent of total time chargeable (management of human resources); and,
  • Technology investment per full-time equivalent.

Once these benchmarks are established, you can track progress and improvement.It is also difficult to price services and ensure profitability if you do not have an accurate accounting of the cost of services, which includes personnel, overhead and technology.
You should use your existing practice management systems as a cost accounting system rather than as a pricing system. Most systems have this capability, yet few, if any, firms use it.

Also, be careful not to view technology as overhead. Technology is a strategic asset - another key to differentiating success!

The following investments should be included in a firm technology budget:

  • Server and storage;
  • Infrastructure, such as cabling & wireless connections;
  • Computers, printers and copiers;
  • Internet, intranet and extranet;
  • Data communications;
  • Document management;
  • Application and operating software;
  • Outsourcing and consulting;
  • Research materials;
  • Training (end users and IT professionals);
  • Labor and fringe benefits; and,
  • Depreciation (if you are capitalizing parts of your investment).

The more a firm that stays within a well-conceived budget, the greater its opportunity for growth and success.Do not think of a budget as a tool to determine how much each area of the firm gets when it comes to technology (or any resource for that matter). Think of it as a tool to fully fund your high priorities and don’t fund the others.
This is where the partnership form of management has severe problems. Too many firms tend to avoid the process rather than face the tough decisions.

Too often a significant amount of time and emotional capital is expended on funding - or the justification of funding - low priorities. In this case, firms’ "stop doing" lists may be as important as their "to do" lists.

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