Amended Riordan Manufacturing IT Budget
The executive board for Riordan has tasked Information Technology with reducing their overall budget by two percent, while providing an increase of four percent to hardware line item, software line item, and outside IT support services. There are many lines within the budget that can be cut immediately to provide the necessary budget cuts, but it is important to make sure that none of the services being provided to staff will suffer with the adjustment to the budget. This paper will discuss the current budget, the increased made to the requested line items and the overall budget decrease. The paper will also justify the changes made to the budget.
Riordan’s current IT budget consists of $1,567,750 being spent on salaries, benefits and bonuses. Another $333,500 is being spent on Operating costs. The total IT budget is $1,901,300. In order to meet the expected two percent decrease, IT will need to cut $38,026 from their budget. The hardware line item has a total budget of $8,500 and the four percent increase totals an additional $340. The software portion of the budget has a total of $45,000 when you include the line items for software licenses and maintenance. The four percent increase for this line item will cost Riordan an additional $1,800. The outside IT support services has a budget of $93,600 when you included the contracts and the leased lines line items. The increase for this portion of the budget totals $3,744. The total amount needed to increase each of the requested line items by four percent is $5,884.
WHERE TO CUT BUDGET
After increasing the specified line items as requested by the executive board, the IT department is left with the need to cut nearly $39,000 to meet the two percent budget reduction. This would bring the total IT budget down from $1.91 million to 1.87 million. The first places to look for reductions are any miscellaneous projects or non-essential spending within the budget. The first line item to reduce would be the entertainment portion. Currently, the IT department is spending $1,400 for entertainment.
I would adjust the budget and allow $200 to be spent every four months, which will total up to $600 dollars a year. While I understand the need to entertain or reward the IT department for a job well done, it is not necessary to entertain them nearly every month of the year. Quarterly job well done or entertainment is enough to keep team members motivated, but not enough to become an expectation. By reducing the amount of entertainment, the IT department will recognize a cost savings of $800. This leaves a balance of $38,200 in order to meet the reduction goal.
The next place I would check for reduction is in the travel budget. Now I do understand that Riordan has three locations worldwide and sometimes it may be necessary to travel to a location, but there is no need to travel every month of the year. Travel could occur twice a year, February and June. The rest of the months would be cut out.
The IT department can set up Skype accounts, or WebEx accounts to allow the managers to communicate about projects and to take care of the issues that were normally handled with the travel budget. Skype allows users to communicate face to face while the WebEx account allows the users to see each other’s screen and collaborate. The travel budget would go from $22,000 to $7,000. This is a cost savings of $15,000 and now only leaves a balance of $23,200 that must be reduced from the budget.
The last place where I would adjust the budget would be the special projects line item. This line item has $150,000 allocated to it, but no specific projects tied to it. I would reduce the budget to $126,800 which would take care of the remaining shortfall to reduce the overall budget by two percent. This final reduction will take the total IT budget to $1,862,300.
I was able to reduce the IT budget without losing staff. This allows Riordan to continue with the plans to move the China location to Shanghai. The new budget also allows for the IT Department to continue their hardware purchases, software licenses and IT support services. The new budget is as follows:
The highlighted sections include the reductions made to meet the requested two percent decrease.
SUMMARY OF CHANGES
To meet the requested two percent budget reduction, there were three line items that were reduced. The first group was the travel line item. This line item was reduced to $7,000 and was reduced because staff members can have video conferences using Skype and can collaborate via WebEx on projects. While some travel is necessary and reflected with a budget of $7,000 some work can be completed from their local offices and thereby eliminating the monthly trips between the three locations.
The next reduction made was to the entertainment line item of the budget. While there is a need to keep the staff happy by providing entertainment or rewards for a good job, the rewards can be better received by making them an expectation. I don’t see a benefit in completely removing the entertainment budget, but there was a benefit in reducing the amount spent on entertainment/rewards. The budget was reduced to allow for entertainment/rewards quarterly. This can motivate employees to work harder to be one of those chosen to receive a reward every quarter. The entertainment budget was reduced to a total of $600.
The last change made was a reduction to the special projects line item. The special projects line item was reduced to $126,800. The reason for the reduction was there were no special projects tied to the line item. Because there were no special projects tied to the line item, it is easier for IT to adjust to the reduction before planning any special projects.
The IT department was tasked with increasing the following line items by four percent: software, hardware and IT support services. But the overall budget also had to be decreased by two percent. This was done by first increasing the requested line items and then decreasing the budget to the requested levels. It was only necessary to reduce three line items, the entertainment section, travel section and special projects. The reduction of these three line items do not have a huge impact on the IT department but allows the department to meet the budget reduction request.