The document provides background information on Donny Shimamoto and discusses his experience in IT budgeting for not-for-profit organizations. It covers the anatomy of an IT budget including types, categories, and classes of expenditures. It also discusses IT asset lifecycles and how to tie IT risks to hardware refresh cycles. The document explains software licensing models and the benefits of managed service providers.

1. INTRAPRISETECHKNOWLOGIES LLC
IT Budgeting for
Not-for-Profit Organizations
PACER Center Webinar
June 9, 2011
Presented by
Donny C. Shimamoto, CPA.CITP

2. Donny C. Shimamoto, CPA.CITP
Background & Experience
Alumni of PricewaterhouseCoopers LLP
– Strategic Technology Group
– Financial Audit and IT Audit
– Washington Consulting Practice
Founder of IntrapriseTechKnowlogies LLC
– Organizational Development advisor with a focus on
Business Intelligence and Performance Management
– Business Process Improvement with emphasis on internal
controls and technology risk management
– IT Outsourcing for small and middle market organizations
Notable Not-for-profit Clients
– Hawaii Community Foundation, Catholic Charities Hawaii,
Moiliili Community Center, American Institute of CPAs

3. Donny C. Shimamoto, CPA.CITP
Involvement, Awards, and Recognition
American Institute of Certified Public Accountants
– Governing Council (2010+)
– Assurance Services Executive Committee (2009+)
– Co-Chair, Business Intelligence Workgroup (2009+)
– IT Executive Committee (2006-2009, 2011+)
Association of IT Professionals
– Honolulu: Board (2008), Treasurer (2009, 2011), President (2010)
– National: Chair – Governance Task Force (2009), Member - Strategic
Planning Committee (2009), Facilitator – AITP Professionalism Advisory
Council (2010)
Awards & Recognition
– Presidents Award
2010, Hawaii Society of Certified Public Accountants
– Top “40 Under 40” Accounting Professionals in the US
2007 & 2009, CPA Technology Advisor Magazine
– Top High Tech Leaders in Hawaii
3 2004, Pacific Technology Foundation & Technology News Network

4. Audience Polls – Demographics
Organization Role in Organization
Type/Size – Lead Executive
– CPA Firm Managing Partner
– Small Business CEO/President/Owner
– Middle Market – CFO/Controller
– Large Corporations – CIO / IT Director
– Government – Auditor or Consultant
Choose one from each set of
Part of Organization
options that best matches
– Accounting/Finance how you view your
– Information Technology organization and your role at
– Audit or Consulting work.

5. IT Budgeting for Not-for-Profit Organizations
Anatomy of an IT Budget
– Types, Categories, and Classes of Expenditures
IT Asset Lifecycle Planning
– Tying IT Risk to Hardware Refresh Cycles
– Software Licensing Explained
– Understanding Managed Service Providers
– Adding some Cloud into the Budget
Different takes on the IT Budget
– Using the “reserve method” of IT Budgeting
– Tying the IT Budget to Business Strategy
– Competitive Analysis Questions

6. IT Budgeting for Not-for-Profit Organizations
Challenges with IT Budgeting
– Personnel knowledge challenges
Accounting doesn’t understand IT;
IT doesn’t understand Accounting
– IT costs incurred at varying times and recur in multi-year
patterns
Not just personnel and non-personnel costs
May not be the same from year to year
– Unable to distinguish mandatory and discretionary IT costs
Often all intermingled and inseparable
– Single year focus can result in higher long term cost
Many IT decisions have multi-year impacts, but many IT
budgets focus on only one year at a time
Let’s deconstruct the anatomy of an IT Budget to see how we
can address the above issues

7. Anatomy of an IT Budget – Types of Exp
Types of Expenditures
– Personnel
Salaries & Benefits – employees and associated costs
– Non-Personnel
Hardware – equipment and other fixed assets,
installation costs, maintenance contracts, warranties
Software – licenses and support contracts
Subscriptions – could be associated with hardware,
software, training, cloud computing and managed
service providers
Services – advisors, consultants, service providers,
auditors, legal counsel
Once you identify the Type of Expenditure then ask
the right questions to better understand the cost

8. Anatomy of an IT Budget – Personnel
Personnel Budget Questions
– Are there any anticipated changes to salaries?
– Are there any anticipated change to benefits/benefits
eligibility?
– Are there any licenses/certifications to
add/maintain/end?
Do any of those have training associated with them?
Do any of them have exam or license renewals?
– Are there any terminations / layoffs planned?
Which positions and when?
– Are there any new hires anticipated?
Is this a full-time or part-time position?
What benefits would the person be eligible for?
Is there any training that needs to be budgeted for?

9. Anatomy of an IT Budget – Hardware
Hardware Budget Questions
– What hardware is at end-of-life?
– How long will new hardware last?
– Are there any maintenance or support contracts needed?
– Are there any subscriptions associated with the
hardware?
– Which costs have to be capitalized?
Additional Hardware Questions
– Do we have enough computers for planned new hires?
– Are there any other departmental plans that will require
hardware?
– Are there any IT projects that may impact current
hardware?

10. Anatomy of an IT Budget – Software
Software Budget Questions
– Are there any software licenses that need to be renewed?
– What period is the software license valid for?
– Are there any subscriptions associated with the software?
– Are there any installation costs?
– Which costs have to be capitalized?
Additional Software Questions
– Do we have enough software licenses for planned new
hires?
– Are there any other departmental plans that will require
software?
– Are there any IT projects that may impact current
software?

11. Anatomy of an IT Budget – Services
Services Budget Questions
– Is the service level adequate for our coming needs?
– Are the services provided still needed?
– Are there additional services needed?
– Has our volume of services changed? Impact to price?
– Does the service have a required period associated with it?
Additional Services Questions
– Are there any other departmental plans that will require
services?
– Are there any IT projects that may impact current services?
– Have services associated with projects been isolated from
operational costs?

12. Anatomy of an IT Budget – Subscriptions
Subscriptions Budget Questions
– What is the level of usage of the subscription?
– Should we renew at a different subscription level?
– Does the subscription have a required period associated
with it?
– Are there any installation costs?
– Which costs have to be capitalized?
Additional Subscriptions Questions
– Do we have enough subscriptions for planned new hires?
– Should we consider converting any software to
subscriptions?
– Have all subscriptions associated with hardware and
software been included in the budget?

13. Anatomy of an IT Budget – Types of Exp
Types of Expenditures
– Personnel
Salaries & Benefits – employees and associated costs
– Non-Personnel
Hardware – equipment and other fixed assets, installation
costs, maintenance contracts, warranties
Software – licenses and support contracts
Subscriptions – could be associated with hardware, software,
training, cloud computing and managed service providers
Services – advisors, consultants, service providers, auditors,
legal counsel
Remember to focus on the coming year and also on
future periods that may impact purchase decisions

14. Anatomy of an IT Budget – Categories
Categories of Expenditures – Defined
– Capital – expenditures that will need to be considered as
part of the capital budget (usually needs to be
capitalized)
Hardware and large software license purchases usually here
Significant repairs, parts replacements, upgrades
– Operating – expenditures that are related to operations
Subscriptions, maintenance, support for HW/SW usually
here
– Project – expenditures that are tied to a discreet effort
May or may not need to be capitalized
May be required or discretionary expenditures
Organizations should consider allocating personnel costs
among these categories to better understand how IT
personnel resources are being deployed

15. Anatomy of an IT Budget – Categories
Categories of Expenditures – Considerations
– Capital – expenditures that will need to be considered as
part of the capital budget (usually needs to be capitalized)
Has a greater cash flow impact, but may also be eligible for
financing from vendors or banks
Consider impact to the financial statements
– Operating – expenditures that are related to operations
Usually “required” expenditures related to day-to-day ops
Usually somewhat of a fixed cost; focus usually to minimize
– Project – expenditures that are tied to a discreet effort
May have associated capital or operating expenditures
Usually discretionary, but not executing may have impacts
Timing may be adjusted for cash flow
Proper categorization can help to analyze impact to cash flow
and financial statements

16. Anatomy of an IT Budget – Classes
Classes of Expenditures (Adapted from Gartner)
– Run – keep the organization running
Most Operating expenditures fall here
Project expenditures related to support and maintenance of
the IT infrastructure also fall here
– Grow – projects and initiatives that seek to improve
organizational efficiencies and effectiveness
Many Project expenditures fall here, particularly when they
are related to business improvement activities
Many Capital expenditures fall here
– Transform – providing new capabilities/products/services
Also thought of as ‘Research & Development”
Some Project and Capital expenditures fall here
When trying to “tweak” the IT budget, Run usually should be kept,
Grow and Transform should be prioritized

17. Anatomy of an IT Budget – Classes
Classes of Expenditures – Analyzing your budget
Your
IT Budget Entity A Entity B Entity C
Org?
Run 80% 60% 50% ??
Grow 20% 30% 30% ??
Transform 0% 10% 20% ??
None of these spending patterns are “wrong”.
They just represent different types of IT roles/investment.

18. IT Asset Lifecycle Planning
What is an “IT Asset Lifecycle”?
– IT Assets follow a general “life” pattern
From Acquisition (“birth”) to Disposal/Discontinuance(“death”)
– IT Assets have different timelines for their life cycles
Hardware – 3-5 years
Software – depends on license agreement
Subscriptions – monthly to annually, depends on agreement
Services – depends on contract
Understanding the IT Asset Lifecycle helps to
– Identify the total cost of an IT Asset over its life
– Identify points in time with option to change cost structure
– Identify future impact of current decisions
– Ensure the IT budget decisions balance short term and
long term value

19. IT Asset Lifecycle Planning – Hardware
Acquire Maintain
Replace Dispose
Repurpose
Acquisition costs usually capitalized
Costs in other phases usually expensed
Option to Repurpose usually forgotten/skipped

20. Tying IT Risk to Hardware Refresh Cycles
How often an organizations refreshes its hardware
depends on its level of risk tolerance
– Different IT Assets have varying risk of failure as they age
– Consider the criticality of the IT Asset to operations
– Consider the ease of replacement in the event of failure
Risk of Virtual
Laptop Desktop Servers Firewall
Failure Terminal
Low <2 yrs <3 yrs <6 yrs <3 yrs <4 yrs
Moderate 2-3 yrs 3-5 yrs 6-8 yrs 3-4 yrs 4-6 yrs
High 4+ yrs 5+ yrs 8+ yrs 4+ yrs 6+ yrs
Ease of
Moderate Moderate Easy Hard Moderate
Replacement

21. Tying IT Risk to Hardware Refresh Cycles
Acquire Maintain
Replace Dispose
Repurpose
Consider repurposing servers and workstations into
a lower risk role (e.g. login/DNS/file/print server,
etc.) when they reach a Moderate risk of failure

22. IT Asset Lifecycle Planning – Software
Acquire Maintain
Replace / Renew
Dispose
/ Upgrade
Acquire/Replace costs may be capitalized
Maintain/Renew/Dispose costs usually expensed
Upgrade costs might be capitalized
Replace/Renew/Upgrade is a key decision point
usually tied to the software license agreement

23. Software Licensing Explained
Types of License Programs
– Outright Purchase
“retail” software license – one time cost
– Defined Period
One time cost; Only valid for a defined period
– Defined Period + Subscription
Usually large one time cost, plus subscription
– annually usually 15-20% or original purchase price
Only valid for a defined period, subscription = renewal
– Subscription
May have one-time activation cost
Usually has regularly recurring payments (annually/monthly)
Usually has a defined period with renewal option
Upgrades usually included / available

24. Software Licensing Explained
Types of License Programs – Impact to Budget
– Outright Purchase
One time expenditure in year of acquisition
– Defined Period
One time expenditure in year of acquisition
Potential renewal cost at end of period
– Defined Period + Subscription
One time expenditure in year of acquisition
Recurring subscription cost in subsequent years
– Subscription
May have one-time expenditure in year of acquisition
Recurring subscription cost in subsequent years
When analyzing a purchase decision be sure to
look at the costs in out years / total cost

25. Software Licensing Explained
Microsoft License Programs
– OEM = provided with purchased equipment
Only valid for that equipment (can’t be moved/transferred)
Can’t transfer to virtualized environment
No previous version rights
– Retail = purchased from a “store”
Can be moved/transferred between equipment
Can transfer into virtualized environment
No previous version rights
– Open License = purchased from a “retailer”
Can be moved/transferred between equipment
Can transfer into virtualized environment
Rights to use previous versions with Software Assurance
Has a license period, may be treated like a subscription

26. Software Licensing Explained
Microsoft Open License
– Open Business
Two-year periods, pay upfront
Software Assurance optional
– Open Value / Open Value Subscription
Three-year periods (one-year allowed for subscription)
Pay upfront or pay annually (subscription)
Must include Software Assurance
Can purchase Online Subscriptions, but must pay annually
Microsoft Online Subscriptions
– Priced monthly, pay monthly
– Different plan levels with different costs
– Annual contracts, increases allowed each month,
decreases only at annual renewal point

27. IT Asset Lifecycle Planning – Subscriptions
Acquire Maintain
Replace / Renew
Discontinue
/ Upgrade
All costs usually expensed
Replace/Renew/Upgrade is a key decision point usually
tied to the subscription agreement
Increases in subscriptions usually allowed at any time
Decreases in subscription usually only at Renew point

28. IT Asset Lifecycle Planning – Services
Acquire Maintain
Replace /
Discontinue
Renew
Capitalized/expensed depending on type of work done
Lifecycle depends on contract (or lack thereof) with
service provider
Managed Service Provider contracts often behave like
Subscriptions; may have software associated with it

29. Understanding Managed Service Providers
Managed Services is the practice of transferring day-to-day
related management responsibility as a strategic method for
improved effective and efficient operations inclusive of
Production Support and lifecycle build / maintenance
activities.
A Managed Services Provider (MSP), is typically an IT services
provider, who manages and assumes responsibility for
providing a defined set of services to their clients either
proactively or as they (not the client) determine that the
services are needed.
– Most MSPs bill an upfront setup or Transition and an
ongoing flat or near-fixed monthly fee, which benefits
their clients by providing them with predictable IT
support costs.
Source: Wikipedia, http://en.wikipedia.org/wiki/Managed_services

30. Understanding Managed Service Providers
Benefits of a Managed Service Provider (MSP)
– MSP specialize in the services provided
– MSP incorporate best practices into their service model
– Services automatically provided as needed within scope
E.g., when there is a problem applying a system patch, MSP
will automatically go in and fix it; without additional cost
Considerations when using an MSP
– Usually requires that you conform to their model/software
Works well for standardized environments
– When IT staff are employed by organization
Usually shifts non-value-added tasks to MSP
May not decrease staffing cost, but allows staff to focus on
more value-added activities

31. Understanding Managed Service Providers
Impact of an MSP to the IT Budget
– Usually employed to have increased predictability in
service costs
– Usually one-time setup cost and then recurring monthly
payments
Cost driven by number of supported devices
May have software licenses included in cost
May offer reduced cost of hourly services with higher cost
plans
Higher cost plans normally include more managed services
– Usually higher recurring cost
But total cost can be less depending on level of incidences
Total cost may be higher if there is variability in the
environment

32. Understanding Managed Service Providers
Impact of an MSP to the IT Budget
– Review the MSP contract to determine
How much flexibility you have for
increases/decreases
Renewal points and option points
MSPs aren’t right for everyone
– Must do good cost analysis to validate savings
– They sometimes require a leap of faith

33. Adding Some Cloud to the Budget
Cloud Computing / Software-as-a-Service (SaaS)
– Reduces the need for equipment purchases
Vendor is responsible for equipment / infrastructure
– Reduces up-front implementation costs
Don’t need to include setup/config of hardware
Don’t need to incur full platform install/setup
Sometimes client setup is included with subscription fee
– Reduces on-going support & maintenance costs
Vendor is usually responsible for system operations,
patches, backups, business continuity, software upgrades
– Reduces cost of Replacement phase
Don’t need to worry about hardware lifecycle risks
Don’t need to incur costs of upgrade/replacement

34. Adding Some Cloud to the Budget
Impacts of Cloud / SaaS to the Budget / Cash Flow
– Usually reduces overall cost of acquisition
Implementation costs usually expensed
– Usually follows subscription lifecycle model
Many vendors allow monthly payments
Many vendors offer discount for annual payment up-front
Budget / Cash Flow Considerations
– No “asset” created, so usually not eligible for financing
– What is the impact to funding if cost is spread over time
instead of up-front?
– What is the impact to the financial statements if expensed?
– Does a conversion to a cloud/SaaS solution reduce costs in
other areas?

35. IT Asset Lifecycle Planning
Understanding the IT Asset Lifecycle helps
– Identify the total cost of an IT Asset over its life
– Identify points in time with option to change
cost structure
– Identify future impact of current decisions
– Ensure the IT budget decisions balance short
and long term value

36. IT Asset Lifecycle Planning
Create a multi-year IT Budget to analyze total cost
– Note replacement / renewal points and costs
Remember to include any associated services with changes
– Remember to determine if there are disposal costs
(particularly with equipment)
– Balance risk and cost over time
– Consider the use of an MSP for cost management and
better IT staff utilization
– Consider the impact of Cloud Computing to funding, cash
flow, and financial statements

37. Different Takes on the IT Budget
Now you have your IT budget created…
what next?
– After completing the entire budget, go back
and look at the big picture that it shows
– Use multiple versions of the IT budget to do
“what if” scenarios
Compare costs of physical vs. virtual servers
Compare costs of on-premise vs. cloud solutions
– Creating the budget the first time can be a big
endeavor
Maintaining it usually requires less effort

38. Different Takes on the IT Budget
Let’s look at some ways to look at the
budget from different perspectives
– Asking Competitive Analysis Questions
– Using the “reserve” method of IT Budgeting
– Tying the IT Budget to Business Strategy

39. Different Takes on the IT Budget
Asking Competitive Analysis Questions
– Personnel Budget
How does our personnel compensation compare to market?
– Hardware Budget
What is our competition doing—what hardware are they using?
Have we considered virtualization or cloud-based alternatives
to hardware?
– Software Budget
What is our competition doing—what software are they using?
Have we considered cloud-based alternatives to software?
– Services Budget
Have we considered managed service providers?
Have we considered outsourcing non-core IT functions?
– Subscriptions Budget
Have we looked a new subscription offerings/pricing models
to validate that we are optimizing our subscriptions?

40. Different Takes on the IT Budget
Using the “reserve method” of IT Budgeting
– Two Primary Objectives:
Reduce presence of peaks that may greatly impact cash flow
Smooth out IT costs for easier planning / cost allocation
– Take an IT Budget and reallocate the costs over a period of
time
Usually a 3-5 year rolling period
Depends on the pattern of purchases
– Similar to the “reserves” kept by a condo association
Helps to ensure there is enough funding for required capital
projects, with the option to defer
Consider using the same principles as condo assn to
determine if the “reserve” has a high enough balance
Only useful for budget approvals, does not impact actual
expenditures or financial statements

41. Different Takes on the IT Budget
Tying the IT Budget to Business Strategy
– What role does IT play in the organization’s mission?
– Is that role reflected in the final Run-Grow-Transform analysis?
– What changes may be necessary to better align with the business
strategy and overall mission of the organization?
Your
IT Budget Entity A Entity B Entity C
Org?
Run 80% 60% 50% ??
Grow 20% 30% 30% ??
Transform 0% 10% 20% ??

42. Call to Action – IT Budgeting
Executive Directors & Program Managers should
work with their IT Manager or Service Provider to
develop an IT Budget that
– Ensures alignment of IT with business strategy
– Balances both short-term and long-term IT costs
– Balances IT-related risks and costs
– Helps with business planning for cash flow and financial
statements
Separates discretionary from non-discretionary IT costs
– Enables informed decision-making for IT projects
A good IT budget is both a planning and decision-making
tool that can help to maximize the benefits of your IT
investments and enable your organization to better achieve
its mission

43. Thank you for your attention and participation!
Any Questions?
Donny C. Shimamoto, CPA.CITP
donny@intraprisetechknowlogies.com
(808) 735-8324 voice
IntrapriseTechKnowlogies LLC
Technologies and knowledge for synergizing your intraprise
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