Strategic IT Budget Optimization
Making Smarter Choices
Happy Tuesday, Transformation Friends. Another week, another opportunity to go Beyond the Status Quo.
Today’s topic is something I’ve been digging into for my own organization, and I thought it would be useful to share because I know many of you are facing the same challenge: tightening budgets and rising expectations.
So here’s the big question: How do we do more with less and make the right cuts without sacrificing what really matters?
I wrote a white paper researching this question and today’s post summarizes what I found (I’ve also included all of my references at the end of this post):
We’ll look at why this matters now more than ever and explore lessons from the research. In particular, we’ll look at a framework I put together that can help you assess, prioritize, and optimize your IT budget with confidence
Grab your morning coffee, and let’s get started.
Rising Budget Pressures and the Need for Smarter Decisions
The need to “do more with less” has become a daily reality in government. Economic uncertainty, rising tech costs, and growing demand for digital services are stretching IT budgets thin.
In 2021, a KPMG survey found that cost efficiency was a top priority for state Chief Administrative Officers (CAOs). By 2023, Gartner reported that cost optimization had jumped to the third-highest priority for global CIOs. IT leaders are grappling with inflation-eroded budgets, mandates to absorb new workloads without additional funding, and rapidly growing costs in cloud services and cybersecurity.
This raises a thorny question:
How do we balance short-term cost control with long-term value creation?
The answer starts with the RTB vs. CTB model.
What is RTB vs. CTB?
Let’s break it down:
Run-the-Business (RTB): This is your core, day-to-day work—keeping servers running, maintaining applications, supporting users, and applying security patches. It’s often called “keep the lights on” work. Simply put, it’s the cost of delivering services.
Change-the-Business (CTB): These are the initiatives aimed at transforming how you operate: system upgrades, process automation, digital innovations, and modernization efforts.
Many organizations track their RTB/CTB ratio. Industry benchmarks show that 60–70% of IT budgets typically go to RTB. It’s often higher in government, which is a signal that it may be time to rethink the balance.
The Real-World Challenge: Trade-Offs and Tough Choices
Here’s where things get tricky. Every dollar not spent on RTB could enable innovation. But underfund RTB and you risk outages, security breaches, or service disruptions. On the other hand, delay CTB too long and you pile up technical debt, fall behind on modernization, and miss opportunities for better service delivery.
It’s a balancing act.
Stakeholder pressure adds more complexity. Operational teams push for RTB stability, while business sponsors push for CTB progress. Decisions often default to the loudest voices or historical spending patterns without a structured approach.
So, how do we break the cycle? Let’s look at some best practices.
Actionable Recommendations for IT Leaders
The white paper this article is based on offers a full suite of recommendations, but here’s a quick summary tailored for public sector leaders:
Establish Visibility: Create a unified view of all IT spending. Break out RTB and CTB costs, and surface any shadow IT.
Classify and Benchmark: Categorize every dollar and compare against peers to identify outliers.
Prioritize Ruthlessly: Use a scorecard to rank initiatives by value, risk, and alignment. Involve business leaders.
Protect Critical RTB, Optimize the Rest: Shield mission-critical services and streamline the rest.
Zero-Based Mindset: Avoid entitlement-driven budgeting. Require justification for all discretionary spending.
Use Governance Wisely: Portfolio review boards should guide decisions using data, not gut feel.
Optimize Vendor Contracts: Consolidate, renegotiate, and right-size contracts for sustainable savings.
Reinvest Savings into High-Value CTB: Don’t let savings evaporate. Fund your most strategic CTB priorities.
Monitor and Adjust Continuously: Track KPIs and course-correct as needed. Optimization is ongoing.
Foster a Culture of Cost-Conscious Innovation: Celebrate when cost savings lead to better outcomes.
A Framework for Strategic IT Budget Optimization
I’ve developed a framework for strategic budget optimization to support these efforts. The goal is to make informed, value-driven decisions by categorizing IT activities as either RTB or CTB and evaluating them accordingly.
Why separate them? Because operations and innovation serve different purposes and need different approaches when evaluating costs, risks, and value.
For RTB, the focus is on maintaining essential services while finding ways to streamline and reduce costs—without compromising stability.
For CTB, the aim is to prioritize high-impact, strategically aligned initiatives that can be delivered realistically within budget constraints.
Let’s explore each side of the framework in more detail.
Evaluating RTB: Keep it Running, But Smarter
RTB activities are the backbone of IT operations: infrastructure, maintenance, support, and compliance. In government and large enterprises, IT stability underpins critical services.
When evaluating RTB, the goal is twofold:
Protect what’s essential to ensure continuity and avoid operational risks.
Find efficiencies by identifying areas that can be streamlined, automated, or modernized.
This framework evaluates RTB activities through two lenses:
Operational Necessity – Is this service critical and non-negotiable?
Optimization Opportunity – Is there a more cost-effective way to deliver it?
This scoring categorizes RTB activities to guide actions and focus resources where they’re needed most.
Evaluating CTB: Transform with Purpose
Under tight budgets, not every CTB project makes the cut. The priority is to fund strategically aligned, high-impact, and feasible initiatives and to defer or cancel those that won’t deliver meaningful value.
Crucially, CTB initiatives should be closely tied to RTB insights. Effective CTB work:
Strengthens critical RTB functions to ensure continuity.
Targets RTB areas ripe for optimization, unlocking savings and reducing risk.
When CTB aligns with operational needs, transformation becomes tangible and value-driven.
Here’s how the evaluation breaks down:
Each CTB activity should be linked to the RTB functions it supports. This connection helps prioritize wisely and avoid wasting efforts on low-impact initiatives.
It's also common to apply weighting factors to evaluation criteria depending on current priorities. For example, during budget pressures, Time-to-Value may be more important. When funding is available, Business Impact might take precedence.
CTB activities, like RTB, are categorized to drive smarter decision-making and ensure alignment with strategic goals:
Wrap-Up
Strategic IT budget optimization is about making smarter, intentional choices that align with your mission and future goals.
Public sector leaders can protect what matters most by separating RTB and CTB activities and evaluating each with tailored criteria while still driving meaningful change.
Can you answer these simple questions:
How much of your current IT spend goes to RTB vs. CTB?
What RTB activities are critical, and how optimizable are they?
Which CTB initiatives offer the highest value per dollar spent?
Until next time, stay curious and I’ll see you Beyond the Status Quo.
References
Ardoq, 2024. IT Cost Optimization: A Guide to Best Practices. [Online]
Available at: https://www.ardoq.com/knowledge-hub/it-cost-optimization
Axelos, 2020. Portfolio management: ITIL 4 Practice Guide. [Online]
Available at: https://www.axelos.com/resource-hub/practice/portfolio-management-itil-4-practice-guide
BCG, 2023. How the US Government Can Reduce IT Costs. [Online]
Available at: https://www.bcg.com/publications/2023/how-us-government-can-reduce-it-costs
Criterion Global, 2024. 3 Zero-Based Budgeting Examples that Define Success and Failure. [Online]
Available at: https://criterionglobal.com/3-zero-based-budgeting-examples-that-define-success-and-failure
Data Center Dynamics, 2022. US government consolidation efforts closed 6,000 'data centers,' saved $5.8bn, Senators say. [Online]
Available at: https://www.datacenterdynamics.com/en/news/us-government-consolidation-efforts-closed-6000-data-centers-saved-58bn-senators-say
Deloitte, 2015. Zero-based budgeting. [Online]
Available at: https://www.deloitte.com/an/en/services/consulting/perspectives/gx-zero-based-budgeting.html
Ernst & Young, 2023. Five areas of focus for IT cost optimization. [Online]
Available at: https://www.ey.com/en_us/insights/financial-services/five-areas-of-focus-for-it-cost-optimization
Gartner, 2017. Align IT Functions With Business Strategy Using the Run-Grow-Transform Model. [Online]
Available at: https://www.gartner.com/smarterwithgartner/align-it-functions-with-business-strategy-using-the-run-grow-transform-model
Gartner, 2023. 9 CIO Trends in 2023. [Online]
Available at: https://www.evanta.com/resources/cio/blog/9-cio-trends-in-2023
KPMG, 2022. Driving cost optimization and efficiency: Recommendations for State Chief Administrator. [Online]
Available at: https://kpmg.com/kpmg-us/content/dam/kpmg/pdf/2022/driving-cost-optimization-efficiency.pdf
Laserfiche, n.d. Using ‘Run-Grow-Transform’ to Change Your Business. [Online]
Available at: https://www.laserfiche.com/resources/blog/using-run-grow-transform-to-change-your-business/
Nicus Software, 2020. [Case Study] State of Arizona Reinvests $16.6 Million Running Government at the Speed of Business. [Online]
Available at: https://www.nicus.com/resource/case-study-state-of-arizona-reinvests-16-6-million-running-government-at-the-speed-of-business/
Nieto-Rodriguez, A., JóNsson, B. S. & Videriksen, F., 2021. Running versus Changing the Business. [Online]
Available at: https://query.prod.cms.rt.microsoft.com/cms/api/am/binary/RW1fzEf
OliverWyman, 2024. Leadership Strategies To Sustainably Manage Your IT Spend. [Online]
Available at: https://www.oliverwyman.com/our-expertise/insights/2024/sep/successfully-manage-it-spend-in-business.html
Potter, K., Solanki, S. & McGee, K., 2016. Run, Grow and Transform the Business IT Spending: Approaches to Categorization and Interpretation. Gartner Research.
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Available at: https://www.hhs.gov/web/governance/digital-strategy/it-policy-archive/hhs-data-center-optimization-multi-year-plan-2023-2026.html