How to Sidestep the Perils of Budgeting for Digital Transformation

Many of our clients are making digital transformation happen by accessing various government funding programs. Those programs want to see detailed financial information, including a “project budget.” How do you create a realistic budget for digital transformation when you know you’re headed on a journey that won’t be a predictable “project”? Here are some guidelines for creating a detailed but flexible set of numbers to persuade funders and keep your team on track.

When you embark on a journey of digital transformation, you have a destination in mind, but the route you take to get there may have many twists and turns. That means your budget will need to accommodate detours and changes in direction.

How do you create cost estimates for the unpredictable? And how do you manage a budget that will probably need to be revised almost as soon as you’ve finished your spreadsheet?

The first step is to recognize that a digital transformation budget is never finished. For most projects, including IT installations, your aim is to control the numbers. For digital transformation initiatives, however, your aim is to move with the numbers.

Budgeting sequence with numbers

This isn’t as scary as it sounds. One of the reasons your budget will change is that your digital investments should start to pay off early on. Traditional IT projects require a large upfront investment, and then returns are realized over a long period of time, perhaps years. But digital transformation initiatives typically start with a smaller pool of funds, and that investment leads to quick wins.

This immediate gratification is a budget manager’s dream. It means that your project becomes partially self-funding as you reap quick returns and then reinvest them into your plan for modernizing your business.

Taking this adaptive approach requires a shift in mindset: you must be willing to let go of the notion that your budget has been chiselled in stone and embrace the idea of an evolving game plan. Otherwise, you run the risk of overrunning your initial estimates and producing underwhelming results, not to mention high levels of frustration.

Tips for Moving with the Numbers

Here are seven tips to help you and your team work with the financial flow of digital transformation rather than against it.

  1. Identify all the variables. Make sure you consider everyone who will be involved in the digital transformation journey, what the strategic outcomes will be, and where the funding will come from. Keep in mind that government funders may require greater detail in a budget than you would normally include in a plan for internal use.

2. Determine scope. For smaller projects involving just a few moving parts and a short timeline, budget planning can be relatively straightforward. But as transformation projects grow larger and more complex, their budgets become more unpredictable. Before you create your budget, then, make sure you understand the scope of your transformation. For individual projects spanning more than a few weeks, build into your planning regular financial check-ins so you can make updates as needed.

3. Stay flexible. This is where mindset makes such a difference. Remember that budget planning is a best-guess game, and when things change, be ready to flex your plan without getting bent out of shape. Even if you’re not using an agile project management approach, think agile.Keeping your mind open to change will help you brainstorm creative ways to adapt and meet your strategic goals.

4. Install safety nets. For a conventional IT project, a budget cushion may be a nice-to-have. For digital transformation, it’s a must-have. Assume there will be unknown or hidden costs along the road to success, and keep a contingency fund on hand to deal with them. At a minimum, this should be 10% of your overall budget—but the more unknowns your project involves, the greater a cushion you’ll want to create.

5. Find grow-with-you solutions. For a small or medium-sized business, the best digital solutions are those that provide scalable options. You don’t want to pay for features or services beyond your organization’s current level of digital maturity. Look for options that fit your current budgetary constraints and can evolve as your business grows.

6. Collaborate. Digital transformation touches multiple parts of your business, so make sure everyone on your leadership team is on board with the changes and understands the numbers associated with them. As you develop your budget, gather input from across the company so you can accurately estimate costs for technology, installation, consulting, and training.

7. Measure success. How will you know that your project is successful? The usual questions to ask are “Did the project finish on time?” and “Did it finish on budget?” However, when it comes to digital transformation, those questions just don’t help.

You need alternative KPIs (key performance indicators) to let you know how well you’re staying on track, even as the track shifts beneath you. For example, you could establish general financial KPIs for overall spending, hours saved, or revenue gained. It’s also important to establish KPIs related to the specific business improvements you’re trying to make. For instance, you might establish KPIs related to customer satisfaction, customer retention, or inventory surplus.

Creating a Budget for Government Funding

If you’re seeking government funding to modernize your business, pay close attention to the application instructions. Make sure you present your numbers in the exact format the funder requires, and don’t skimp on detail.

Some government funding programs will require more than one budget for a digital transformation plan: an operating budget and a project budget. Your operating budget shows the anticipated income and expenses for your entire company; the project budget shows the costs for the specific activities the funding would cover.

The key is to tie the two budgets together so you can show how funding the project will improve performance and profitability across your organization. The financial data you provide should align with and support the story you tell through the verbal part of the application.

Stack of coins with handshake

For example, let’s say you’re CEO of an oyster fishery based in New Brunswick. You want to modernize your business so your customers can place orders online and you can expand your reach to grocery stores outside Atlantic Canada.

You decide to apply for funding from New Brunswick’s Digital Boost 2.0 program. In the narrative part of your application, you make the case that engaging in ecommerce will increase your profits by 30% over the next two years. You support this argument by pointing to industry trends and identifying successes achieved by companies similar to yours.

The financial data you include in your application must validate the business case. The reviewers evaluating your application will want to see compelling financial logic to support your claim that a digital transformation project will help improve your business.

While budgeting for digital transformation always involves uncertainty, you can show that you know your numbers inside out—and that you’re prepared to move with them toward your vision of success.

A detailed digital transformation roadmap, which includes budget guidelines, gives government funding programs confidence in your plans. Find out how iTransform can help you design the roadmap you need to create a more profitable, sustainable business.


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