Financial Budgeting for a Solution

One common question that teams often ask is about budgeting: how do we develop a budget for the solution we are considering? The main focus of this discussion is budget forecasting, as you will frequently be asked about the costs associated with your recommendations. It's essential to provide a realistic budget for any initiative.

In many cases, you may lack sufficient information about the financial resources available from cost savings. Additionally, you might not have prior experience with budgeting in this context. However, you can gain insights by exploring various case studies across different industries to see what similar projects look like, including their costs. Doing thorough research before a competition will also help you understand the market better, particularly the cost landscape for medium-sized versus large companies.

When crafting your budget, it's important to differentiate between one-time and ongoing costs. You want to ensure that the budget is realistic and proportional to the size of the company you are addressing. Your presentation should engage your audience, demonstrating that it is significant enough for them to find the investment worth considering.

For instance, consider a medium-sized airline that is transitioning to online ticketing and requires $100 million to execute this change. You will need to determine how to generate that $100 million. If the airline can save $100 per ticket, it would need to sell 1 million tickets to cover this expense.

Assuming an average aeroplane carries 100 passengers, the airline would need approximately 10,000 full flights of ticket sales from online purchases. Additionally, examine the company’s routes, operational numbers, and assess whether those figures align realistically with the airline's capacity to support a $100 million investment.

Focusing on five routes with 10 flights each day is a starting point. You might find that spreading this initiative across more routes could make it easier to reach the necessary revenue.

Typically, about 3% of a company’s total budget is allocated to IT. In this case, since the airline has a revenue of $6 billion, this suggests it has about $100 million available to spend on IT infrastructure. You could consider whether some of this budget can be redirected towards the project, noting that it represents 55% of their annual IT budget. It’s also worth exploring if the airline has specific funds earmarked for projects that could yield cost savings in the future.

To summarise, take the time to work through these questions step by step, allowing you to substantiate your budget with concrete reasoning and articulate that this amount is justified, without appearing financially irresponsible in your spending choices.