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Volkswagen of America: IT Projects and Budget Case Study

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Updated: Jul 22nd, 2021

Introduction

The IT department should have its own budget to enable it recover from decades of restructuring. The budgetary allocation is controlled through a process that involves the PMO, ELT, and DBC. The ELT is composed of managers from each business unit. The DBC is composed of eBusiness representatives from each business unit. The PMO occupies the position of the budget controller. Budgets should be controlled by a budget committee. In the VWoA IT department, the projects are determined in a decentralized manner. The IT department enhances the performance of other departments. As a result, the IT department should have its own budget. In this paper, “controls” means determines budgetary allocations. In business discussions, “control” means ensuring that the projects are carried out according to the planned schedule, cost, and quality.

Who controls the budgets from which IT projects are funded at Volkswagen of America?

The budget is controlled through a process that involves a few groups. The groups include the Program Management Office (PMO), the Executive Leadership Team (ELT), GedasUSA, and the Digital Business Council (DBC). The groups determine the projects that should be financed.

The ELT is composed of managers from each business unit. They are involved in ensuring that proposed projects are aligned with the “Next Round of Growth” (NRG) goals. Arranging the goals in their critical order, Austin, Ritchie & Garrett (2005) elaborate that the NRG goals consist of “customer loyalty, new vehicle value, stable business infrastructure, pre-owned vehicle business, optimize the supply flow” (p. 453). The ELT is involved in the process of creating high-level business architecture. It is the process of relating projects to organizational strategy and ability to execute the strategy. The projects are categorized and prioritized after the mapping.

GedasUSA acts like a separate entity. It is not involved in the proposal process. However, it is involved in the high-level business architecture process. It is the process of mapping IT goals to corporate strategy. GedasUSA plays the role of a consultant. It is usually allocated contracts as a third-party entity. It does not determine budgetary allocations (Austin, Ritchie & Garrett, 2005).

The DBC plays a major role in determining budgetary allocations. It is composed of eBusiness representatives from each business unit. It categorizes proposed projects according to NRG goals. It assesses the extent of dependency of the project to one another and their impact to the entire organization. It makes trade-off decisions to rank the projects according to their impact on critical areas. It allows other interest groups to assess their judgment on categorizing and ranking projects. It determines the final list of projects after other groups have re-classified the projects based on NRG goals (Austin, Ritchie & Garrett, 2005).

The PMO occupies the position of the budget controller. Apart from budget control, it initiates and coordinates the process of making project proposals. It sets the first workshop, which brings together the corporate strategy team, Gedas strategy consultants, and the DBC members (Austin, Ritchie & Garrett, 2005). They enlist projects and provide information necessary to map them on corporate strategy. In the early stages, the main function of the PMO is to initiate the selection process from which the DBC plays a major role.

The PMO’s major function is found after budgetary allocations. It carries out the function of budget control. The control process ensures that projects are implemented as planned in terms of time, cost, and quality (Daft, 2012). The PMO carries weekly and monthly reviews on project implementation plans.

It can be concluded that the ELT, the DBC and the PMO play an influential role in project selection. The DBC determines the final list to be financed after involving other groups in ranking the projects. Griffin (2011) discusses that a similar process is used in most organizations. Daft (2012) explains that such a process is known as decentralized planning. The top managers involve middle-level managers in the decision-making process. The ELT and the DBC are similar to the intelligence team made up of cross-functional managers discussed by Daft (2012). The DBC, the ELT and the PMO play overlapping roles in determining budgetary allocations.

Who should control budgets?

Budgets should be controlled by a budget committee. Griffin (2011) describes the use of different groups to determine budgetary allocations at different levels in an organization’s structure. It starts with the heads of functional units forwarding their plans to department heads. The department heads create a single budget for the entire department through consultation. The department heads forward the departmental budget to the division or top office. The top office then involves department heads to determine the monetary allocation for each department (Griffin, 2011).

Daft (2012) explains that organizations use strategic goals at the corporate level, tactical plans at the divisional level, and operational plans at the department level in determining allocation. The plans are aligned with the mission of the organization, which influences its corporate strategy.

Committees should provide oversight in the budgetary allocation process. In the VWoA IT department, the budgetary allocations have been determined in a decentralized manner. Each business unit has a representative in the DBC. Each functional unit has a representative in the ELT. The PMO plays the role of the initiator and budget controller (carries out implementation reviews). Griffin (2011) discusses that the traditional process of budget allocation involved only top managers. Middle-level managers would not be involved in the project selection process as discussed in the VWoA case. Involving middle-level managers has become the commonly used approach (Griffin, 2011). The IT department should continue involving middle-level managers.

Should the IT department have its own budget?

The IT department already has its own budget. The IT department should have its own budget. Griffin (2011) explains that every department should have its own budget. Daft (2012) discusses that every functional unit should have its own budget because it represents a responsibility center. In VWoA case, the IT department has two functional units. They are the eBusiness and IT systems coordination. The eBusiness would like to see marketing projects approved. The IT systems coordination would like to see infrastructure projects prioritized. Business managers feel that if projects with their units are not financed, their units may perform poorly in performance appraisal. The department used a well-developed procedure by involving all interest groups in determining budgetary allocations.

Separating eBusiness (marketing) and IT systems coordination will not increase allocations to the IT department because the top office also uses a similar process to determine allocations to departments. However, it would reduce complaints between the two sides. The best option is for the IT department to propose to VWAG (Group) to directly finance major IT projects that have a major impact on the entire firm. In that case, the department will retain adequate amounts to finance projects that have an impact at the department level.

The IT department is doing well by prioritizing projects that affect the entire organization. The main function of the IT department is to ensure that the other departments get information system support as required. Its function is slightly different from the goals of other departments that maximize output at their level. The IT department enhances the performance of other departments. The goals of the entire organization should be prioritized before those of the IT department. The NRG goals are a guide to aligning departmental goals with organizational goals.

The IT department should understand that separating the contesting sides will not allow any side to receive higher allocations. The main reason is that top managers will use the same system at the subsidiary and Group levels. However, the IT system coordination department may benefit from separation because it will have to be allocated some funds on its own budget.

Conclusion

The IT department needs its own budget to avoid being sidelined in the budgetary allocation process. The firm uses a well-developed process that ensures that business units align their plans with corporate strategy. The IT department should prioritize the organization goals because it plays the role of enhancing the performance of other departments. Frequent restructuring of the IT department has disrupted the accumulation of knowledge in the IT department. There is a need for higher budgetary allocations from the VWAG to enable the U.S. subsidiary to have enough funds to strengthen the IT department. Separating the contesting sides in the IT department will not result in higher allocations from the top management because they will also base their allocation on a similar process. The IT department can obtain better resource allocation results by proposing that the Group (VWAG) should directly finance larger IT projects.

References

Austin, R., Ritchie, W., & Garrett, G. (2005). Volkswagen of America: managing IT priorities. New York, NY: Harvard Business Publishing. Web.

Griffin, R. (2011). Management. Mason, OH: South-Western Cengage Learning. Web.

Daft, R. (2012). Management (10th ed.). Mason, OH: South-Western Cengage Learning. Web.

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