Securing GIS Program Budget

By Ross Smith, Andrew Sheahen and Alistair Davidson , PA Consulting
June 22, 2007

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All complex technology programs face the need for a substantial year-on-year capital and operational budget to successfully deliver their expected benefits. GIS programs are no different. GIS managers, however, are not financial experts - they are domain and technology experts. As a result, it is common for GIS program managers to struggle to acquire suitable and sustained budgets for new and ongoing initiatives, especially when the GIS program is in competition with other corporate initiatives for a limited pool of funds.

This article will provide the financial layman, responsible for building a budget, a simple yet robust approach to building a GIS program budget. We will provide a step-by-step approach to building your budget and offer guidelines and insights into what makes a strong and defensible budget forecast. We will explore how to build a defensible multi-year budget forecast from the bottom up.

The approach is broken down into five high-level steps.

Team up with your finance department.
Categorize your program into logical themes.
Define individual project resource cost elements.
Assemble your projects individually from the bottom up.
Identify and apply your operational expenditure (OPEX) and capital expenditure (CAPEX) rules.

1. Teaming with finance
It is not uncommon for organizations to have ambiguous, complex and changing budgeting procedures, templates and guidelines. If this is your experience at your organization, you are not alone.

Complex accounting rules are often at play rather than poor planning on the part of your finance department. This department can be your most powerful ally in the budgeting process, given the often changing budgeting policies. You should team up with your finance department colleagues and engage with them early and often to ensure that the approach you are taking, template you are using (or building), and supporting documentation you are assembling all comply with their expectations.

Demonstrating your willingness to proactively work with the finance staff will go a long way to having them provide their approval before your budget is considered for final approval by the executive body.

You should actively seek to determine:

if there are specific formats or templates required for the budget submission (it would be prudent to ask for specific examples of previous "gold starâ€ budgets)
what documentation will be required to support the budget approval (e.g. business case, strategy, cost/benefit analysis, etc.)
the rules of the approval process (e.g. who has sign-off and at what budget limit does sign-off move higher in the organization)

Knowing these simple items upfront allows you to provide supporting documentation with the budget and to consider capping your budget requests just shy of senior level sign-off. For example, if your direct boss has sign-off authority for $500,000, then you may choose to purposefully limit your budget to $495,000, rather than $505,000 which may require a vice president's or CIO's sign-off.

2. Categorize your program into logical themes
Building a budget is a not just a summary of figures for your finance department. It is a means to structure your planned GIS program activities in a meaningful way that can be easily understood. The more logical your budget is, the more likely it is to be approved without having indiscriminate reductions applied.

The most effective means to do this is to create themes within which you can group your GIS project initiatives. For example, there are:

Infrastructure projects that will require you to budget for hardware (laptops, servers, etc.) and software (GIS, translators, RDBMS, etc.)
Data projects that may involve data capture, conversion, acquisition, etc.
Application build projects which require software developer, analyst and architect resources
Sustainability projects that are required to make sure that there are resources available to modify work practices, business processes, standards, etc. as data and applications are designed and deployed
People related projects which may involve training

This can be fairly difficult during the early stages of program planning as there may be many unknowns with which to contend. It is nonetheless a critical piece of the budget puzzle that needs to be correctly identified.

The key reason for categorizing your individual projects is so that you can justify how they fit into the overall GIS program - that is, how they will collectively deliver the expected benefit to the business. If you haven't built a logical picture of how all your budget components/projects fit together into a cohesive and logical whole then you risk having pieces of it cut, somewhat indiscriminately.

3. Defining cost components
Once you have determined what projects you expect to complete in the coming budget year and you have categorized them into logical themes, you need to build up cost components at a resource level. A cost component is a single unit cost for a resource (e.g. the cost of a single server or the daily rate of an external contractor).

Building up your budget from logical cost components or "building blocks" at a resource level will allow you to logically explain how you arrived at your budget estimates. For example, if you define a project that would deliver a new Web-based application to users, you would likely need the following to build and deliver it:

Hardware - upon which to load the software/data
Software - which would provide the technology to serve maps over the Web
Data - you may need to purchase an external dataset from a vendor (e.g. landbase)
Inside Labor - representing full-time equivalent (FTE) salaried staff who work at your organization
Outside Labor - representing suppliers from outside of your organization

In the example above, you would want to know what each of these resources would typically cost at a component level. How much will a server cost on average? How about disk space or a desktop or Web-server software or an internal business analyst per day or an external programmer per day?

We recommend simply making a list of all the cost components that you expect to apply to your projects and then seek unit costs for each of them. You can do this by working with your vendors (list prices for hardware/software, rate cards for external labor) and asking your finance department for internal labor cost rates or standard procurement lists maintained by your organization.

4. Assemble your projects individually from the bottom up
Now that you have categorized your projects into themes and identified the individual cost components, you can construct each project by assembling unit costs from the bottom up. You also need to define the quantity of each cost component you will need, the date you will start using it, and the duration over which you intend to use it.

There are generally three different ways that you will use resources from a budget perspective. You will purchase it:

outright on a given day - considered a point purchase (e.g. purchase a server from a hardware vendor)
based on resource usage at a given daily rate - often referred to as Time & Materials or T&M (e.g. engaging an external contractor starting on a given date for a fixed duration)
based on a fixed price - this means you will start incurring cost on a given date but will receive invoices over a given duration

If you consider our previous example for the Web-based application, let's assume that you will need:

Hardware: two (2) servers on April 1st for $32,000 each
Software: one (1) server license purchased April 1st for $10,000
Datasets: one (1) landbase dataset license for $15,000 on April 15th
Inside Labor: one (1) business analyst at an internal cost of $250 per day, starting April 1st for four weeks, two days a week
Outside Labor: two (2) programmers at a cost of $500 per day, starting April 15th for six weeks full-time

(Click for larger image)

Based on the above information, you know that you will need a total budget of $121,000, with expenditure starting on April 1st and ending six weeks later on May 27th. Total forecasted expenditure in the month of April is $101,000 and for May it will be $20,000. This is important for your budget as your finance department will want your expenditure outlook.

By taking this approach you can determine for each of your projects what you forecast to spend and when you forecast to spend it based on a logical construction of your budget.

5. Identify and Apply OPEX/CAPEX Rules
Now that you have constructed your budget forecast it is critical to ensure that you have correctly allocated each budget element to either a capital or operational budget. As a general rule of thumb, you will want to assign as much of your budget to a capital category as possible.

Carefully applying some basic rules to project CAPEX assignment can result in an easily justifiable and defensible budget split. Start by trying to answer whether the project is:

a one-off effort (i.e. not regular day-to-day business as usual activity)?
transformational to the business (i.e. provides new capability not possible with existing data in its current form)?
going to result in a new consolidated dataset (i.e. built from a collection of disparate legacy data platforms/sources}?
likely to add value to existing data assets (e.g. through cleansing, alignment, standardization, or through improving granularity of existing data)?

Answering yes to one or more of these questions would form the base justification for CAPEX categorization. We recommend you work closely with your finance department to determine which of your projects can be capitalized.

Conclusion
We have found that when following the five steps outlined here you can effectively develop a GIS program budget aligned with the requirements of those providing sign-off.

The approach outlined will resonate well with both finance and senior executives involved in approving budgets, as it demonstrates your capacity to financially plan your program in a robust manner.

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GIS Managers as 'Financial Experts' (#1) by Greg Babinski, King County GIS Center
Date: June 28, 2007 16:24 PM

Ross Smith, Andrew Sheahen, and Alistair Dividson present a useful high-level strategic approach (their five steps outlined in ‘Securing GIS Program Budget’, Directions Magazine, June 22, 2007) for GIS managers to develop their program budget, as well many insights into budget process tactics (get to know your finance/budget staff, be aware of budget sign-off limits, etc.).

I disagree though with their statement that 'GIS Managers....are not financial experts.' The 'Workforce Development Model for Geospatial Technology' developed by Gaudet, Annulis, and Carr (see: http://www.geowdc.com/research/wdm4gt.pdf, p. 47) clearly identifies 'Budget and Financial Management' as a key requirement for an effective GIS Manager. I would say that poor GIS managers are not financial experts, but successful managers are.

The manager of any workgroup (not just GIS) needs to be not only a subject matter expert in their own field, but also knowledgeable about HR, public policy, safety, interpersonal relations, marketing, ethics, IT, and budgeting and finance. Indeed, the many MBA programs that provide an IT focus have recently been joined by the University of Redlands, which now offers an MBA with an emphasis in GIS (see: http://www.redlands.edu/x2910.xml).

The five steps recommended by the article may work for some jurisdictions where adequate funding for all programs is not an issue (wherever those might be) and where all GIS funding come from a single source. However, for most local agencies I believe this in not the case, which requires additional management expertise.

Most GIS budgets have to compete for a share of the limited funds available and in practice they put their funding together from a variety of departments within their jurisdiction (typically public works, planning, permitting, etc.). So the sixth step I would add to the list is marketing the GIS program components to the potential business users across the jurisdiction (and note that ‘Marketing’ is another key GIS competency identified in the Geospatial Workforce Development Model).

Marketing is a difficult but important step that involves convincing decision makers in each funding department of the business benefit to their workgroup of the GIS program. Be prepared to answer tough questions from department managers like ‘…if I help fund your GIS program I will need to cut an FTE (or eliminate a dump truck, or cut a police car, or defer a sewer replacement)…what is the business benefit to me of your GIS program?’ Taxpayers will be expecting managers to ask these same questions, so you need to be ready to answer them effectively. If you have done your homework though and can include this funding buy-off from the departments that you serve, your budget process will more likely be successful.

And don’t forget to market GIS services to your budget and finance group too. Offer to do a mid-year briefing to them on the status of your GIS program. Make sure you are providing them with a CIP project location map for them to include with the budget that they are developing. These steps will help educate budget and finance staff about GIS while you are learning about the finance and budgeting requirements identified in Step 1.

The King County GIS Center utilizes a budget development approach that includes defining individual program services and calculating the individual and cumulative cost elements for each service, similar to the authors’ recommendations. We have identified 28 distinct Enterprise GIS services and the annual costs for each. We take the process a step further though by defining the individual workgroups within our jurisdiction that benefit from or actively utilize each individual service. Based on an objective cost allocation methodology, the costs for the 28 services are allocated to 35 workgroups within our county. Developed over a number of years, this system provides accurate cost data that allows us to communicate effectively with business unit managers, to obtain budget buy-off, and to deliver back-up cost and funding data to our budget office in a format that supports their countywide budget development and approval process.

For more information about King County GIS funding, budgeting, and rate setting, see: http://www.metrokc.gov/gis/kb/Content/KCGISCenter_Finances.htm (this page includes links to our current budget and financial plan).

This is an important but often overlooked topic and I hope that Directions returns to it frequently. The annual URISA conference is a useful source of management sessions that often cover this topic. Also, in 2007 the Washington GIS Conference included a City & County GIS Manager panel discussion session on funding GIS programs, which could be duplicated easily by other local GIS professional groups to promote knowledge about this important topic.

Greg Babinski
Finance & Marketing Manager
King County GIS Center
Greg.babinski@kingcounty.gov
www.kingcounty.gov/gis

Securing Budget (#2) by Ross Smith, PA Consulting Group
Date: July 12, 2007 18:10 PM

Greg makes some good observations – thanks for taking the time to build on the concepts and ideas already presented.

In regard to the fact that "GIS Managers...are not financial experts" we have made a generalization - but one that we have found to hold true. We fully agree that there is a need for GIS managers to be financially savvy. The intent of this short article was to help take a little step toward becoming more confident about budgets and all the intimidating terms that go with them. But as you correctly point out, the simple steps we have presented will not work in all situations.

You may also be interested to read the article "Demonstrating and Measuring GIS Benefits with an ROI-driven Framework" at http://www.directionsmag.com/article.php?article_id=2403

This article provides a little more context to this article, as it is only a very small piece of what is required to build, acquire and wisely spend a GIS related budget.

The only point of disagreement I have pertains to marketing. It is our experience that trying to ‘sell the benefits’ of GIS to other departments can be an up-hill battle. Many GIS groups embark on a “build it and they will come” type approach only to find that no one shows up – or more often – no on ponies up any monies for enhancing or maintaining the GIS applications or data. Instead, we recommend that you seek to understand their business issues/challenges departments face, as you will then be in a better position to propose potential GIS-based solutions that would overcome/achieve what they require. In other words, get them onboard first…and make sure they have ‘skin’ in the game.

And if you are asked “what is the business benefit to me of YOUR GIS program” then I would suggest that you’re finished before you start. The key here is ownership. If people think it is “YOUR GIS program” (and indeed if you do!) then you have failed to build consensus, foster ownership and build a collective view of how GIS enabled applications support the organization. If you truly have an Enterprise GIS then it is the organization that owns it - not one group.

Regards
Ross Smith (ross.smith@paconsulting.com)

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