@ The Data Center Budget:
BUDGET PLANNING
The budget planning process includes the following functions:
• Establishing objectives
• Defining strategies
• Defining policies
• Identifying sequences of events to achieve objectives
• Defining the organization for implementing the plan
• Assuring a review of the budget and an evaluation of feedback Like many control processes in business and industry, budget planning for the data center should be a loop process. Figure 6-1 illustrates a closed-loop model for budget planning.
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Figure 6-1. Closed-Loop Model for Data Center Budget Planning The fundamental purpose of budgeting is to assist management in effec-tively fulfilling two basic functions-planning and control. The following checklist can assist DCOMs in evaluating their own budget planning process:
• Does it force early consideration of the basic policies of the corporation and the data center?
• Does it provide definite identification of responsibility for the func-tions?
• Does it compel all members of management, from the top down, to participate in the establishment of goals?
• Does it compel management to coordinate data center plans with the plans of other departments?
• Does it force management to clearly identify the resources needed to accomplish the expected results?
• Does it require adequate historical accounting data?
• Does it require management to plan for the most economical use of resources (e.g., manpower, computing)?
• Does it instill at all levels of management a habit of timely, careful, and adequate consideration of all factors before making important deci-sions?
• Does it help reduce the cost of running the data center?
• Does it provide data center management with a clear-cut definition of plans, freeing time for more creative thinking?
• Does it help communicate basic policies and objectives to the lower levels of data center management?
• Does it help pinpoint inefficiencies and low-productivity areas?
• Does it provide a framework for checking progress or hindrances to progress?
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DATA CENTER OPERATIONS MANAGEMENT• Does it promote confidence in the ability of data center management to make various business decisions?
The previous checklist may seem elementary; however, many data center managers cannot answer all of these questions in the affirmative.
Budgeting Techniques
For many organizations and data centers, the budgeting process is more an art than a science. Although budgeting for certain cost elements is still some-what like gazing into a crystal ball, managers should not be misled into believing that this is the only method available. As increasing emphasis is placed on the budgeting process in many organizations, techniques are being developed to minimize the element of guesswork. More econometric models, forecasting services, and economic indicators are being published to assist executives in budgeting. A computer-generated budgeting system, however, is still beyond current capabilities.
Although many variations exist, most budgeting processes fall into one of three categories:
• Incremental budgeting (projections)
• Zero base budgeting
• Baseline budgeting
Incremental Budgeting. In this, the most widely used budgeting method, all cost elements are evaluated with consideration for inflation and changes in corporate and/or data center objectives. For example, if no change is expected in the output of the data center systems group, the systems group's salaries and wages are adjusted for inflation only; actual salaries and wages for the previous period are multiplied by the anticipated average increase in salaries (e.g., 7 percent).
Although this technique is the easiest to use because of its simplicity, it may prove to be the least accurate technique in our quickly changing econ-omy. For example, if a data center budget for the upcoming year has been fixed using an anticipated 12 to 15 percent increase in utility rates, manage-ment may be totally unprepared for the 80 to 100 percent increase brought about by such unforeseen circumstances as an oil embargo or economic boy-cott. Such sharp increases in the cost of one of the cost elements may make it very difficult to manage the entire data center budget. The incremental method of budgeting makes it harder to identify the areas of greatest and least concern to management and provides little information to aid in performing budget cuts in other areas of the data center to compensate for sudden in-creases in one area.
Zero Base Budgeting. Zero base budgeting (ZBB) assists management in identifying budget areas and expenses and in determining their relative impor-tance in meeting the overall objectives of the data center. Pioneered at Texas Instruments Corporation, zero base budgeting is a simple concept that reverts to management basics. It requires each manager to divide his annual budget
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into small, understandable components called decision packages. In each package the manager outlines what he wants to do, how he proposes to do it, alternative methods of doing it, how much it will cost, how it will benefit the organization, and what the consequences will be if it is not done. These packages are evaluated in the light oflong-range-plan objectives, ranked, and approved to the level of affordability.
Thus, a decision package defines a discrete activity, function, or operation for management evaluation and comparison with other activities.
Since the purpose of a data center is usually to provide services to other departments, these departments will be required to participate with data center management in preparing decision packages. Therefore, a total commitment by the entire corporation and data center management is essential to the success of zero base budgeting.
Baseline Budgeting. Baseline budgeting offers a good compromise to data centers in which total commitment to zero base budgeting is not desired and yet a more formalized budgeting process than incremental budgeting is needed. In this budgeting system, certain baseline budget levels are taken for granted each year, and alterations to these baselines are proposed in the form of small decision packages. For example, the baseline for the data center service level will be determined, and changes in that level will be proposed, along with their impact on the budget. This process is often used by data center managers to justify changes in hardware configuration.
Since an established baseline is usually accepted automatically as a mini-mum level of service, this method of budgeting inherently restricts a thought-ful, objective evaluation of that minimum level. This method is also less effective in a cost reduction program where even minimum levels must be questioned.
Data Center Budget Development
The data center budget development process will vary depending on the type of budgeting system prescribed by the organization. Accurate accounting data on recent cost performance must be available to data center management to aid in their decision making.
When preparing the budget, managers should consider the impact of many factors on each cost element. The following list includes factors external to the organization, with specific examples that might have an effect on cost elements:
• Sociopolitical environment -Impact of privacy legislation -OPEC decisions
-Population migration towards Southwest
• Technology state of the art -Distributed processing
-Availability of IBM-compatible mainframes
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DATA CENTER OPERATIONS MANAGEMENT-Increased competition for DP personnel -Scarcity of paper
Internal factors may also affect cost elements, including:
• Volume changes
-Increased or decreased processing -Increased use of telecommunications
• Application changes
-Introduction of distributed data entry
~ Planned online purchasing system
• Make or buy decisions (trade-off analysis) -Maintenance by in-house staff
-Forms printed internally
In addition to these factors, it is essential to gather the statistics that will be needed as a base for most of the decisions. Many of the statistics are used throughout the year for budget control or performance measurement.
The following list includes some of these statistics:
• Employee turnover rate by job classification
• Employee vacation/sick-leave patterns
• Overtime
• Training and development efforts
• Impact of salary administration efforts
• System development versus maintenance versus fix-up time data
• Effect of various productivity tools
• CPU and peripheral times
• Throughput totals
• System response time (e.g., job turnaround time, online response time)
• Number of users and average use time
• Data storage volumes (in all mediums)
• Input volumes
• Output. volumes
• System failures-causes and remedies
• Software failures-causes and remedies
• Vendor response time for trouble calls
• Software purchases
• Use of various consumable supplies
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• Downtime analysis
• Utility usage
• Telephone/telex use and effectiveness of services
If the accounting system does not provide timely, usable, and accurate statis-tics, no budgeting system can provide a manager with enough information to serve as a basis for decision making.