IT Budgeting 101: Best Practices For Managing IT Costs

Jun 25, 2021

IT Budgeting 101: Best Practices For Managing IT Costs

The more strategic you are in planning your IT expenses, the more cost-effective your organization will be. Do you know what’s involved in an accurate and effective IT budget?

Are you worried about your IT budget?

It’s OK to be concerned. Whether you blow past it every year in additional support charges, or keep overinflating it because you assume your upgrades will be more expensive, it can be difficult to determine exactly what IT will cost you.

In this article, we’ll explore why this process is important, and what’s involved in an effective IT budget. These best practices will help you develop a more accurate budget for your organization.

Why Do You Need To Budget For IT?

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. You budget for other expenses like office rent, utilities and supplies, and so, beyond this, you need to identify how you’ll need information technology to operate your business and execute your initiatives.

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.

What Happens When You Don’t Have An IT Budget?

  • Tracking Expenditures: 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. Simple expenditures can expand into significant IT spending that you can’t account for.
  • Departmental Review: 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.
  • Financial Oversight: Your budget IT lets you quickly identify areas where you may be overspending. You might be wasting money on outdated or unused equipment or software licenses.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.

Does IT Budgeting Have To Be Difficult?

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 Do We Mean When We Talk About IT Budgeting?

Budgeting is 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 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.

4 Necessary Categories In An Ideal IT Budget

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:

  1. IT Service & Support (in-house and/or outsourced): Be sure to include recruiting and salary/benefit costs if you employ IT staff
  2. Hardware: Computers, servers, laptops, tablets, smartphones, network infrastructure, cabling, IP phones, video surveillance cameras, maintenance contracts, etc.
  3. Software: Licenses, subscriptions, support, maintenance contracts
  4. Projects: IT consulting expenses, hardware, software, dedicated staff, cybersecurity training

5 IT Budgeting Best Practices You Need To Follow

  • 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. Make sure that you account for 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
    • 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.

Budget Your IT More Accurately With Expert Advice From All Mountain Technologies

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.

However, knowing about IT budgeting and actually making it happen are two very different things. If you don’t have an internal IT manager or a CFO to handle this for you, you may not have the knowledge or time on your own to manage the process effectively.

Our team will help — put our expertise to use to budget your IT more effectively. Here’s how it works:

  • Book a consultation at a time that works for you.
  • Explain what you need out of your IT, and what your approximate budget has been, based on previous years.
  • Ask us every IT question you have.
  • Use our expert advice to develop a more accurate budget.