Program Budget and ROI

1. Versions
2. Introduction and terminology
3. Guidelines to create Budget Estimate for a Program
3.1. 2.1 Estimate the expenses and savings
3.2. 2.2 Capitalization
3.3. 2.3 Amortization
3.4. 2.4 Depreciation
4. Process
5. Artifacts

1. Versions
# Created By Date Approvers

1.0 Saurabhi Vadalkar 08/2022 Sean Chan ; David Smith Reviewed and Approved

2. Introduction and terminology

This page is created with an intention to familiarize Program Managers with common finance terminology , provide
overview of the budgeting process for a program, share templates and guidelines to create a crisp and holistic
budget.

Given below are generic definitions of commonly used terms.

Term Definition Example

OpEx Costs incurred through normal business operations Comp & Ben, Professional Services, HW/SW
(Oper Maintenance, SAAS license fees, T&E, Training
ating
Expe
nse)

Cape Funds used to acquire, upgrade, and maintain Buildings, equipment, technology
x physical assets
(Capi Cost of labor (internal/external) for SW projects
tal can be capitalized over the useful life of the asset,
Expe depending on application development stage
nditur
e)

Capit Capitalization is an accounting method in which a If consulting expenses are $100 K for a project
alizati cost is included in the value of an asset and paid one time and Cap rate is 90%. Then $90K
on expensed over the useful life of that asset, rather will be capitalized and depreciates over the useful
than being expensed in the period the cost was life of 3 years.
originally incurred

Net Gross Operating Expenses- Capitalized Operating If $200K is gross OpEx (for PS, SAAS etc) and out
OpEx Expenses of that $50 gets capitalized. Then Net OpEx would
be $150 K
 TCO Total cost of ownership (TCO) is an estimation of TCO= Net OpEx + Capital Expenses
(Total the expenses associated with purchasing,
Cost deploying, using and retiring a product or piece of
of equipment.
owne
rship)

Accru A placeholder to recognize expenses in the Expenses must be recognized in the period during
al appropriate time period which services are delivered/goods received
regardless of when the invoice is paid . Receiving
process in iProcurement used to systematically
book accruals

Amor The act of “spreading” the cost of a service over Salesforce license terms Jan-Dec 2020 for $120K
tisation the time frame of an engagement or period of time total; Amortize the cost over 12 months @ $10K a
the service is provided month

Depr The value of the assets gets depleted due to An indirect and explicit cost that a company incurs
eciati constant use for business purposes. every year while using a fixed asset such as
on equipment, machinery, or expensive tools.

Usefu The useful life of an asset is an accounting For eg: Useful life of HW is taken as 60 months;
l life estimate of the number of years it is likely to perpetual software license is taken as 7 year etc
remain in service for the purpose of cost-effective
revenue generation.

ROI- A calculation of the monetary value of an For eg: total project cost =$1000 and total savings
Retur investment versus its cost. (Total project savings- is $2000; ROI= 50%
n on Total project cost)/Total Project Cost
Inves
tment

3. Guidelines to create Budget Estimate for a Program

3.1. 2.1 Estimate the expenses and savings
With inputs from Project Owner and Business Stakeholders, collect estimates for the Operating and Capital
expenses listed below for a five year period and then fill out the Section 1 of Budget and ROI Template. Estimate
the total revenue and tangible benefits and fill out the Section 2 in the template. The ROI, Payback year and TCO
will automatically get calculated in the sheet. Expenses should be estimated with diligence based on guidelines to
minimize the deviation of actual expenses from estimates.

In general the Budget and ROI sheet is use to track IT budgets. But for cases where business transfers the budget
to IT cost centers, PM must track all IT spend in the spreadsheet.

However, for the BYOB (bring your own budget) expenses which are funded by the business stakeholders, we may
not have adequate details of expenses and accounting treatment . Recommendation is to enter BYOB details in
the sheet on best effort basis.

Budget and ROI Sheet Planview field

Operating Expense Inputs:

General External Consultants (i.e. IBM on Project Account: OpEx Consulting
Consulting Pillar) - If consultants are performing
(On Prem development work, % can be Cap'd
or Saas)

Contractor External contractors that Akamai hires for Account: OpEx Contractors
s (On the program implementation. (i.e. Testers,
Prem or Operations etc), % can be Cap'd
Saas)-
Capitalized

Contractor External contractors that Akamai hires for Account: OpEx Contractors
s (On the program which are non Cap'd eg:
Prem or Change Manager
Saas)-
Non
Capitalized

Managed Post Go live we may outsource the daily Could be mapped to ‘Account: OpEx / Computer
Services operations of complex applications. Services’ (refers to “technical support and helpdesk
services”), or to ‘Account: OpEx-Maintenance &
Repairs – Software’ There isn’t a category that is a
perfect match

SaaS Implementation of SaaS (integration Account: OpEx- Consulting

Implement between our systems and the SaaS
ation Platform)

SaaS Software as a Service (OpEx spread Account: Opex-Dues, License, & Registration Fees
Subscripti /amortized over subscription term) -
on Akamai does not own licenses, have to
renew after each term

Change Manages adoption for user community Add to consulting, contractor, training categories as
Managem from old environment to new environment suitable.
ent

Technical Training provided from consultants to Account: OpEx- Training

Training internal Akamai IT Staff (to provide on-
going maintenance/upkeep)

Computer Computer SW Expense - Computer Account: OpEx-Computer Software

SW Software (All Other SW expenses relating
Expense to IT Project)

Team Required travel expense for IT team Account: OpEx - Travel

Travel associated with IT Project (i.e. required
travel from Bangalore to Cambridge)

Project Good to add 10-15% of Gross OpEx as Account: OpEx Contingency

Contingen project contingency
cy

Annual On-going expense for maintenance and Account: OpEx - Maintenance & Repairs - Hardware
Maintenan support for licenses (only for CapEx ?
ce on licenses, N/A for SaaS)
CapEx
(~22%)
 Increment These are the FTEs hired by Akamai for Account: Labor (please note that PV has both
al IT the program. We should segregate the US incremental and internal labor)
Resources and International resources, can be Cap'd
or Non Cap'd. For eg Ops need not be
capitalized

Capital Expense Inputs:

Software On Premises licenses (Akamai purchases Account: Capex - Software

Licenses licenses)
(Perpetual)

Hardware IT equipment (i.e. Racks/Servers) Account: Capex - Equipment

Other Items:

Useful Life Useful life for SW CAP Projects is 3 years

(36 months); exceptions to this policy must
be vetted through the IT Business Partner

Go Live Quarter in which the project goes live and

Quarter all CIP (Capital in Process) balances on
project start depreciating over useful life

Revenue If IT Project implementation drives revenue Account: Benefits- Increased Sales (Revenue)
growth, specify in which bucket and state
detailed assumptions in "Benefit Account: Benefits- Gross Margin (Revenue)
Assumptions" Tab

Cost Cost Reduction: When there is a reduction Account: Benefits- Cost Reduction
reduction that causes future spending to fall below
/avoidance the level of current spending Account: Benefits- Cost Avoidance

3.2. 2.2 Capitalization

Capitalization refers to the process of expensing the costs of attaining an asset over the useful life of the
asset, rather than the period the expense was incurred.

The Consulting, Contractors and Incremental resource costs can be capitalized. The budget template will
automatically show the capitalized value and calculate the Net OpEx.

3.3. 2.3 Amortization

The SAAS implementation (consulting and contractor) costs, SAAS licenses and Maintenance costs should be
amortized over the period of contract and entered in the sheet. For eg: if we pay $600K once for SAAS license for
three year term, it should be amortized at the rate of $50 K per quarter in the sheet for three years.

3.4. 2.4 Depreciation

All the Capital expenses direct or calculated should be depreciated over the useful life (eg-36 months) post go live
quarter.

For eg: if the Total Capex for 5 years is $1200K and project goes live after 1.5 years. Then the $1200 will
depreciate over 3 years after the go live quarter ($1200/ 36*3= $100 K per quarter)
4. Process
For programs with IT Budgets >$200K, guidance is to create the Budget and ROI sheet shared in section above
during the Intake and Concept phase (G0- pre G1). Once the Budget estimate is approved (Program Owner IT Exec
SponsorBusiness Sponsor in case of BYOB), it can be entered in Planview before the G1 Gate. After G1, the
Budget and ROI spreadsheet should be updated and keep it in sync with PV at all times. For programs <$200K,
budget can be directly entered in Planview during the concept phase and updated before each gate.

PV lifecycle requires approval from the Finance before each Gate. IT PM should review Budget with Project
Owner, IT Exec Sponsor, Business and Finance (Dave Smith is current POC) before each Gate. Any incremental
change in budget (may or may not be via Change Request) should be reviewed with Project Owner and IT Exec
Sponsor. For Complex Programs with $$ million budgets, advisable to keep Budget and ROI sheet updated and
also take a snapshot each quarter.

5. Artifacts
Budget and ROI Template with Sample Data

Budget and ROI- XANT project example

Budget and ROI Training session slides 9/22/2022

Budget and ROI Training session Recording 9/22/2022