Do We Need To Budget For IT?
No matter what type of business you run, the answer to this question is “Yes.” And now we’ll ask… What is your budget for information technology? Is it well thought out and fiscally responsible?
If you have a CFO, he or she is likely doing this for you. But many small and mid-sized businesses are on their own when it comes to devising an IT budget. In this case, your Technology Service Provider is your best reference, because they know about your business, the latest trends and security needs in technology, and IT solutions coming down the road.
Why Do We Need A Budget For Information Technology?
Budgeting is obviously essential as it provides what you need to run your company. Without the proper appropriations, you could end up short on what you need to meet your customers’ demands and your business goals. Your budget for other expenses like office rent, utilities, and supplies, right? Beyond this, you need to identify how you’ll need Information Technology to operate your business and execute your initiatives.
Just like you should have an IT roadmap that aligns with your business plan – one that takes you from where you are to where you want to be – your IT budget provides direction and details for your funding requirements to ensure that you have the technology to meet your business goals.
Consider your budget as a validation and support tool for your overall IT strategy. It will be the benchmark and cornerstone for your overall strategic IT management. A good IT budget will give you the ability to manage technology costs for both the short and long term. It will also give you the agility you need to adjust IT expenditures when changes come about.
Is IT Budgeting Difficult To Do?
Companies of all types and sizes struggle with IT budgeting. This is because the financial side of the business doesn’t always understand the technology that employees need to do their jobs efficiently, securely, and productively, and the IT team and employees don’t always understand the process of budgeting. The common ground, however, is when both parties look at the IT budgeting process as an investment in your organization’s future.
What’s Involved In IT Budgeting?
It’s the process of allocating money to various IT services and solutions. These could be recurring expenses like Managed IT Services, where you pay a monthly fixed fee for an all-inclusive service plan. It should also include the hardware and software you’ll need to either purchase or lease on a monthly, per-user basis.
For most companies, IT budgeting is an annual process.
However, if unexpected IT projects come up, you may need to revisit your budget. Some view IT budgeting as a wish list of funding for every possible scenario. They see it as one big pool of money. When in fact, an IT budget comprises many components including the capital, operating and project categories, and other types of expenditures such as hardware, software, subscriptions, and services.
A good IT budgeting process is similar to personal financial planning. Both processes establish short and long-term goals. It considers account spending and other constraints. It examines the “human” impact and analyzes strategies to determine the approach that aligns best with business goals while minimizing risks.
How Do We Get Started?
Start by establishing various categories depending on the complexity of your operations and the extent of your requirements. Here’s a very basic example of some of the categories you should consider:
- IT Service & Support (in-house and/or outsourced) Be sure to include recruiting and salary/benefit costs if you employ IT staff
- Hardware: computers, servers, laptops, tablets, smartphones, network infrastructure, cabling, IP phones, video surveillance cameras, maintenance contracts, etc.
- Software: licenses, subscriptions, support, maintenance contracts
- Projects: IT consulting expenses, hardware, software, dedicated staff, cybersecurity training
If you run a mid-sized business and you have various departments, you may want to allocate various elements of your IT budget to these departments. In this case, you’ll have charge-back costs for each department. This is a bit more complex so your accountant should be consulted.
What Would Happen If We Didn’t Have An IT Budget?
Without a budget, how will you justify your IT expenditures? These costs would go into your overhead, and you wouldn’t have a proper accounting of what you’ll need both short and long-term. Smaller businesses should also have an IT budget. Simple expenditures can expand into significant IT spending that you can’t account for.
Plus, your IT budget keeps your spending in check. It lets you know whether you’ve overcommitted in one area and need more in another. It also allows you to compare what you’re spending in one department versus another.
Your IT budget lets you quickly identify areas where you may be overspending. For example, you might be wasting money on outdated or unused equipment or software licenses. Without an IT budget, you can get caught short and not have the resources you need to meet customers’ demands or comply with deadlines.
What Are IT Budgeting Best Practices?
Align your IT budget with your organization’s strategy. If you don’t have an IT strategy, you should ask your technology service provider to help you design one. At the very least, develop a basic strategy that you can use as the basis for your IT budget.
Consider all levels of your organization. Set aside the time and effort it takes to create a holistic and comprehensive budget. It will be the financial manifestation of your overall IT strategy and direction over the coming year. Use it to compare budgets year after year. Once IT initiatives have been determined and incorporated into your budget, take a step back from the details and look at the big picture.
Consider the human element. This is often overlooked when developing technology budgets. Look at how any changes you make will affect your employees’ ability to do their jobs efficiently and productively. Will they be able to work remotely with mobile solutions and cloud computing? Make sure that your account for any training they will need, including training to use new software or hardware solutions, as well as Security Awareness Training to prevent being victimized by phishing and ransomware.
Take measurements to ensure it makes financial sense. Assess your IT budget’s impact on three areas: financial key performance indicators (KPIs), financial statements and cash flow. Your accountant can help you with this. Account for your spending against the previous year’s budget so you can account for any deficiencies and variances that you’ll need for the future.
Assess the impacts of your IT budgeting for the long term. Several months before your budget is due to be approved, review last year’s budget and this year’s expenses. This will help you detect areas where you need to reduce costs or reallocate them. You can cut the “fat” from your budget in one area (like hardware purchases or software licenses) that you can apply to a more cost-effective resource (like Hardware-as-a-Service or Software-as-a-Service).
A long-term outlook is best in any case. Assess your IT budget’s financial impact not only for the current or upcoming year but also for future years where IT initiatives might be affected. You don’t want to “balance the budget” for this fiscal year, only to run into unintended consequences in years to come. A good IT budget balances both short-term and long-term requirements.
When you employ a strategic approach to IT budgeting, you’ll have a planning and decision-making tool that will ensure you maximize the benefits of your technology investments.
What is your budget for IT? In the final analysis, a good budget for information technology will give you a competitive advantage because, along with your IT roadmap, it will provide you with a strategy to achieve your goals. Your technology solutions provider can play a supportive role in helping develop an IT budget that meets your needs today and tomorrow.
One of the services Outsourced CIO LLC provides by default is the Managed Complete IT Budget for these very reasons. The Managed IT Budget service solves this problem. The goal is to make sure that the CEO retains the ultimate control over IT-related costs. Gather all the cost drivers (services, SaaS subscriptions, licenses, telecommunication, etc.), put it into one spreadsheet, and make decisions. Choose responsible people for each item and enforce a reconciliation practice, then in every quarter make small governance on the budget. This service ensures a review of the usage and utilization of the many applications and of annual plans to make sure renewals are not automatic. Contact us to get your Q1 2020 budget scheduled.