2. COST ACCOUNTING CONCEPTS FOR IS ORGANIZATIONS › 2.2 Budgeting Concepts › 2.2.1 What is a User Budget?

2.2.1 What is a User Budget?

Most IS organizations today serve a number of largely
independent clients.  These clients may be organizational
units within the IS organization's own parent enterprise or
they may be entirely separate entities.  Regardless of the
relationship, many of these clients feel that IS is better
equipped to assess and project their IS usage than they are.
This dual perception of IS usage being difficult to predict,
and the IS organization possessing greater insight, has
resulted in IS providing substantial input into, and
subsequent reporting of, user budgets.  This entire practice
is called User Budget Management.

A user budget is a formal expression of an individual cost
center's expected IS usage, stated in financial terms.  It is
closely related to the IS organization's capacity plan except
that it encompasses only billable usage, is subdivided by
cost center, and is enumerated in monetary, rather than
resource, units.

The definition of a budget implies that some planning was
involved in its development.  However, in the case of an IS
user budget, relatively little planning may actually have
been done by the user, who is therefore often unwilling to
accept much responsibility if the expectation proves
erroneous.  This can cause problems for IS, who finds itself
not simply a supplier of services, but also limited by an
implied sales "cap."

Ultimately, the size of a particular user's budget depends
upon many things.  Assuming that management allows the budget
to be based solely on usage projections (rather than
arbitrarily limiting it to some level), it will vary directly
with the anticipated volume of work.  However, the actual
expenditures may vary because the unit cost of the work, when
it is performed, differs from that assumed by the projection.
Factors which most often cause variances from budget
projections are unanticipated changes in "technical" resource
consumption.  For resource-based accounting methodologies,
these changes may occur in any billable resource.  For
example, the amount of CPU time required to process a given
transaction or the distribution of data across various levels
of storage (online, offline, archived, etc.) may change.
Transaction-based accounting methodologies are less
susceptible to these types of variances, however the
transaction mix for a particular system, user, etc.  may
change, causing similar budget variances.

Budget variances, however, are the motivation for all budget-
oriented planning and control.  Identifying where a variance
exists and taking steps to eliminate it, either from the
production process or the budget model, is the essence of
financial management.  Having sufficiently detailed budget
information to identify the cause of variances is discussed
in the following section.