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All business organizations must carefully manage its capital and variable (operating) expenses for all its initiatives. When an organization allocates capital and commits to a projected operating cost structure, it is making an investment in the business. With an investment, comes an expectation from business owners and leaders of a positive financial, regulatory and/or satisfaction oriented return.
Capital Budget
All organizations have a limited amount of capital with which to initially invest into a project. This investment represents the initial cost of architecting, developing and deploying a solution into the organization. Often, a project must compete with other initiatives for the same basket of funds. Management allocates these funds based on a portfolio of solutions which has the highest probability of yielding the highest return on initial investment.
Operating Budget
However, capital cost represents a very minor proportion of total cost a solution creates for its organization. Operating costs often represent as much as 80% of the total incurred costs to an organization. This is significant. Operating costs are often represented by the ongoing increase in labor, technology, services, regulatory compliance and support opportunity costs associated with a new solution. It is important for a new solution to carefully examine its impact of the operating cost an organization. Money spent supporting existing systems is investment not available to new potentially competitive initiatives. When the operating cost of existing systems prevents the business in investing in newer more competitive solutions (often called IT operating friction threshold), the competitive capability of the business greatly diminishes. This greatly impacts an organization’s ability to adapt to new customer demands or worse, spirals the organization out of business.
Perspective Capture Questions: Financial Environment Area
a) What is the current financial environment and structures of business organization?
| Alternative Impact Questions: Financial Environment Area
a) How do (or could) current or alternative architectural decisions affect the business’s financial environment (budgets, purchasing models and processes, etc…)? | Proposed Impact Questions: Financial Environment Area
a) How could proposed architectural decisions affect the business’s financial environment (budgets, purchasing models and processes, etc…)? |
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