Hey, fellow Leader 🚀,
I am Artur, and welcome to my weekly newsletter. I am focusing on topics like IT Management, Innovation, and Leadership, with an Entrepreneurial mindset. My goal is to help you navigate the IT corporate landscape. Make better decisions, create awareness, and share real-world stories.
In Medium and Large Companies a political game determines how the organization operates and how things actually get done.
Typically, every September, IT Managers walk into a fun budgeting game.
Each department is expected to present a list of projects and initiatives it wants to make happen for the following year. Business cases are built to sway the decision-maker (typically the CEO or CFO) into approving those initiatives.
That is the game played in plain sight, at least for those with access to the budget conversations and calculations. But there is another game within the game: internal recharges (also known as chargebacks).
Essentially, this is how departments charge one another for providing a service or delivering a piece of work.
These internal recharges are how the real game is played. It is where decision-makers and department heads find creative ways to let initiatives fly under the radar when they lack a dedicated budget.
The Illusion of Free Money
Internal recharges. This is how money truly flows inside the company and who pays what to IT (and other departments).
Budget lines are created, and some departments are expected to pay certain amounts to get the services they require.
However, there are departments that are blessed with the magic of “free money”.
That is, they receive a budget allocated to some tactical or strategic project (typically under the “transformation” umbrella), and the department spends that budget however it sees fit.
The problem begins when that “project” becomes a multi-year endeavor with ongoing efforts. Operational costs are masked as “projects”, and no internal recharge really happens.
If someone from Sales wants a small new tool to perform X, they can ask the IT department to do it. IT will provide a cost estimate, and Sales is expected to pay.
But now imagine if you have another department inside the company with “free money” that can build that software for Sales. The effort is sponsored by a “project” that keeps going year after year, and Sales is not required to transfer any funds. They don’t need to pay.
In reality, this free money is not really free.
This is one of the ways Shadow IT is born: when other departments manage to hire IT skills to produce software that is not under IT governance.
If those tools are not internally recharged, it feels like a free piece of software for Sales. However, the company overall is paying for poor IT oversight.
A lack of internal recharges shows a lack of structure and control over how money is spent inside the company. Assigning budget lines with multi-year renewals on a perpetual basis is not project management. It is a lack of management altogether.
The Way It Should Be Handled
No Vanity Projects
The first one is to be strategic with our budget requests.
There is no gain in asking for budget for vanity or nice-to-have projects. This means that every project and budget request going to the approval pipeline needs to be important.
OpEx Transfer
If IT is asked to onboard a piece of Software created under Shadow IT, it should be officially financed and sponsored.
If someone is doing software for “free”, they will eventually need the capabilities of an IT department for maintenance and support.
A set of funds should be transferred to the IT budget in order to maintain and evolve the solution.
If someone asked for software and didn’t pay for it, the realization to have to sponsor a structure around the software and the costs related to it will be a tough pill to swallow.
This can be “facilitated” by a transfer of funds from the “transformation project” (aka Free Money budget line) into the IT budget.
This is a painful but important step forward.
In some cases, those who decided to go ahead with a new “free” software will face the consequences of their decisions, and now will be asked to properly sponsor the activity.
On the other hand, those who created the software in the first place might be required to reduce the budget to allocate the activity to IT.
Lead By Example
It is also important to have a close relationship with Finance to make sure the IT budget follows company best practices in terms of structure and follow-up.
Not all heads of departments are proficient in Finance. Many are just engineers or have other degrees, and managing a budget has become something they now need to do. It is not difficult to be ahead of the pack if you improve your skills in the area.
By being proficient in the budget exercise, you will have good arguments when faced with other initiatives not well structured.
If your castle is well maintained, it is natural to demand the same level of rigor from other departments. It won’t be alien to anyone if you demand the same control and rigor in the cost structure for shadow IT initiatives, as you do on your own initiatives.
In the end, this is a never-ending pot of internal politics. It is messy, and it is sometimes the root cause of so many internal conflicts.
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Cheers,
Artur
This is a very typical and common situation. Why does it occur? How can we prevent this?