IT is often locked into an inflexible funding model that prohibits it from delivering value to the organization. An Info-Tech survey1 found that 96% of organizations still follow an annual funding decision cycle.

For many organizations, funding amounts are often tied to a specific project so far in advance that the budget number is rendered irrelevant by the time the project launches.

In high-inflation environments, even funds allocated as recently as six months ago don’t afford the flexibility needed to keep pace with changing conditions.

Most CFOs and business leaders readily grasp business value when it’s tangible but find it difficult to appreciate the full cost and value of intangible IT assets, a situation exacerbated by IT leaders not communicating in a language business understands.

Many IT leaders don’t challenge traditional IT funding models because they themselves aren’t aware of the possibilities.

Even though IT has tried to align with the business, adopt agile delivery models, and move to hybrid infrastructure, CIOs are still decision makers where funding is concerned.

Applying one funding model to diverse scenarios is bound to create inflexibility. A flexible funding model should be a framework-driven hybrid aligned to business objectives and nature of business initiatives.

To make the transition to a flexible funding model, IT leaders need to:

• Shed the label of decision taker.
• Master the organization’s existing funding model.
• Align IT’s strategy with the organization’s strategy.
• Communicate the value of IT to their peers.

Incredible advancements in technology over the past three decades have fundamentally reshaped IT’s role in organizations from being perceived merely as a means to an end to a way of reimagining the end itself. While IT has undergone a significant transformation in value delivery by adopting an incremental approach, many organizations still rely on outdated, inflexible funding practices to support their IT initiatives.

These conventional funding models, rooted in asset-heavy industries and a fixed mindset, struggle to keep pace with the rapid changes and inherent unpredictability of technology. Consequently, a pressing need has arisen to identify and adopt a funding model that is both right and flexible in order to support an organization's IT initiatives of delivering strategic value.

This blueprint aims to assist Chief Information Officers and Chief Digital Officers in exploring the various IT funding options available, enabling them to select the one that aligns best with their organization's requirements and facilitating alignment with their stakeholders.

Manish Jain
Principal Research Director
Info-Tech Research Group

IT funding acquired from alternate sources other than the organization’s retained earnings/cashflows.

% of IT costs funded from alternate funding sources approved by organizational policies.

More flexible funding with multiple funding sources.

Make IT business projects jointly sponsored/owned by IT and the business i.e. governed by IT but funded by non-IT departments.

% of OpEx on IT projects coming from non-IT business department’s budget.

X% decrease in IT department’s OpEx.

Funding coverage for all critical IT initiatives.

% of funding required for critical initiatives available.

Increased ability to flexibly reallocate funds based on business conditions.

Increased IT cost awareness amongst business stakeholders.

% of all employees, IT and non-IT, trained on IT cost unit economics (storage, processing, network) and efficiency efforts.

Reduction in unnecessary consumption of IT resources.

Reduced shadow IT projects for better synergy between IT projects.

% of all IT projects in the organization governed by IT teams or jointly with business and IT.

Increase number of IT projects governed by IT teams.

Reduced budget approval iterations.

Number of proposals required before approval.

Time saved for IT and Finance leaders in budget approval.

• No service levels are provided. Pricing of services is not at all considered.
• IT costs are not known. Usage and consumption information is not required.
• No invoicing or communication of costs.
• IT’s role and perceived value are very low in the organization’s strategy.

• Service levels are offered on an ad hoc basis. No pricing of services.
• Overall IT costs are known and breakdowns are estimated. Detailed usage/consumption information is not available.
• Invoicing is either non-existent or done on an ad hoc basis.
• The IT strategy is non-existent, and the funding model is only about budget allocation and tracking.

• Service levels are offered on ad hoc basis. No pricing of services.
• Actual IT costs known. Estimated usage/consumption levels. Departmental breakdowns are available.
• The IT funding model is yet to be aligned with the IT operating model and IT strategy.

• Service levels are defined and provided. IT prices services in IT technical terms.
• Overall IT costs are known. User/department-level consumption data is available.
• Invoices and/or allocation of expenses are generated for business units.
• The IT funding model is aligned with the IT operating model to deliver on the organization’s strategic objectives and key results (OKRs).

• Service levels are defined and provided. IT prices services in terms the business understands and can manage.
• Overall IT costs are known. User/departmental level consumption data is available.
• Invoices and/or allocation of expenses are generated for business units.
• An aligned and flexible funding model is adopted to realize full potential of technology.