Who will control the IT budget?

Will business units gain control over the bulk of discretionary IT spending this year, forcing IT departments to meet milestones before they get new project funding?

That was one of seven predictions Gartner Inc. analysts made this week at the company’s Symposium ITxpo conference here. Although some attendees said they have already seen that trend emerge, others don’t expect it to play out in their organizations, at least not in the short-term.

“I’m already seeing some of that occur in our organization and it’s helpful” to the IT department when it happens, said Craig Betts, director of enterprise resource planning and distribution technology at Sierra Pacific Resources in Reno, Nev. Although IT spending control has only shifted to a few business divisions at Sierra Pacific, Betts said it has helped the IT operation by moving responsibility for creating and overseeing project requirements to the business.

“When we own everything, I have to handle the budget, and if the business units aren’t aligned with IT, they hand everything over to us,” said Betts. When that occurs, his group takes ownership of requirements planning — and without necessary input from business peers to keep those requirements on track, “it’s a shot in the dark,” he said.

Carl Schulz said a growing number of companies have redirected discretionary IT spending controls to business units. But in his position as a service manager at Parsippany, N.J.-based IT consulting company Delta Corporate Services Inc., Schulz said he has also seen business-unit leaders “place their own people in an IT organization to oversee spending and manage projects.”

Schulz agreed with the Gartner findings that a major trigger for the shift in IT spending control comes from a lack or confidence by senior executives and business unit leaders in CIOs and IT departments in recent years. That’s partly due to the “irrational exuberance” of runaway dot-com spending within many corporations in the late 1990s, Schulz believes.

The IT spending shift has also begun to occur at Industrie Canada, where Sean Barr is an industry sector officer for the equivalent of the U.S. Federal Communications Commission for southern Alberta, in Calgary. “It’s been good for me and our business unit when it has occurred, because there’s more of a direct path for funding,” he said. “But I can see how this could be a problem for other CIOs.”

Other IT managers say IT project purse strings remain in their grip and have even been returned in some instances. “We started taking back control of some IT spending that was taking place in business units, where [rogue] ‘IT entities’ had cropped up,” said an IT manager for a U.S. military branch who requested anonymity. “In some instances, business units will receive funding for IT projects and direct that to us. When they don’t have the money, sometimes they come to us for help.”

At BNP Paribas, IT has centralized control over IT spending, “and we haven’t seen that [business-unit] shift in our company,” said Robert Carrizzo, vice president of IT at the New York division of the Paris-based financial services firm.

Four years ago, Northwestern Mutual moved to a model where business-unit leaders sit on a corporate planning board that decides on all discretionary IT spending before funding is approved and allocated to the IT department for project execution. The effort, which took hold about two years ago, “has worked out very well for us,” said John Hillmer, director of technology services at the Milwaukee-based insurer.

Although there are incentives for business units to ensure that IT projects are completed within budget, leftover funding goes back to the corporate planning pool, he said.

Safeco Corp. uses a two-phased corporate governance model for IT investments. For instance, if a business leader has an idea for an IT project that hasn’t been completely fleshed out, he can approach the company’s IT steering committee for requirements funding to develop a business case for the project, said Tammy Bare, an IT director at the Seattle-based insurer.

Once the business case is developed, the business leader can ask the steering committee for project funding, said Bare.

Under Safeco’s approach, 80% of the company’s IT budget is controlled by the IT organization, where an IT director responsible for working with a particular business unit handles the project funding for that division.