“Accounting rules dictate that inception has to be funded out of SG&A. What this means is that before we can spend out of a capital budget, we must spend some SG&A money first. It’s also important to bear in mind that the same is true at the other end of the delivery cycle: last mile tasks such as data migration can’t be capitalized; they also must be funded out of SG&A.

In effect, our SG&A budget (also known as operating expense, or OpEx) is leveraged with capital expense (CapEx). A contraction of OpEx proportionally reduces the CapEx accessible to us.”

And then the likelihood and mitigation:

“This “perfect storm” is more common than you might think. Mitigating exposure is done through a variety of different mechanisms.

One is to hedge the project portfolio by bringing several investments into the early stages of delivery and then putting them into operational suspense. This creates a deliberate OpEx expenditure at the beginning of a fiscal cycle (before risks of OpEx impairment are realized over the course of a year) to multiple project inceptions, and then rendering some of those investments dormant. This diversifies the IT project portfolio, allowing IT capability to shift among different projects should one or more of those projects be cancelled.”