Developing an IT budget is never an easy process. But it’s absolutely necessary to ensure you reduce costs when applicable and have the funding to scale and grow. There are multiple steps to consider when building your IT budget and numerous elements, including costs that are consistent and some that are variable.
Your biggest question may be, what should my small business spend on IT? There isn’t a magic number, and the expectation is that in most cases, spend will increase. According to a 2019 State of IT Report from Spiceworks, 89% of businesses surveyed said they expect to increase their IT budget in 2019, with small businesses spending more on hardware.
“Midsize companies often compete in markets with greater growth opportunities and hence are more likely to reinvest in the business. And in many cases, investing in IT will have a higher return than investing in other areas…”
–David Friend, CEO and co-founder of Wasabi
In order to make the most of each dollar you put into IT, it’s critical to have a clear budget in place. Then you can adjust it when your business goals change.
If it’s time for you to revisit your budget and find strategic ways to reduce IT costs while maintaining a solid IT strategy and cybersecurity best practices, you’ll want to keep reading as we break everything down in this all-in-one guide to building an IT budget.
First, let’s go over some basics about IT budgeting.
- What is IT budgeting?
- Why does IT budgeting matter?
- Who is impacted by IT budgeting?
- Getting started
- Dividing the IT budget
- IT budgeting best practices
What is IT budgeting?
Budgeting is the process of allocating funds to your IT programs ranging from recurring expenses like managed services or in-house staffing to one-time costs like new equipment. Most often, companies set a new budget annually.
Why does IT budgeting matter?
Your budget obviously keeps operations running day-to-day, but a budget is also imperative in executing different IT initiatives as well as supporting other departments.
Who is impacted by IT budgeting?
Basically, your entire company, as every employee relies on technology to do his or her job. It’s set by the executive in charge of IT but has ramifications for the entire enterprise.
The first thing you should do is to think of your budget as the backbone of your IT strategy. Your IT strategy may include things like migrating from legacy systems to new programs or moving operations to the cloud. If so, your budget should reflect this. These goals can also stand as justification for the need for funding.
Every piece of your budget should be tied to your strategy and the company’s overall goals. By doing this, you are likely to get the budget you need to make those much-needed strategic decisions.
Dividing the IT budget
Usually, an IT budget is divided across several categories. This will depend on the complexity and sophistication of your department as well as its structure. Here’s a basic layout of those categories with subcategories:
- Ongoing expenses
- Staff and labor
- Recruiting for staffing
- Internal employees
- External staff (IT consultants)
- Servers or cloud services
- Computers and other devices
- Network infrastructure
- Support contracts
- Licenses or subscriptions
- Support and maintenance
- Project expenses
- New and emerging technologies
This basic outline will help you stay on task in your allocations, but where exactly should you invest your IT funds?
Well, you could consider where most SMBs are investing. Capterra surveyed 700 SMBs on their 2019 and 2020 plans for IT purchasing. The survey revealed three major areas of spend:
- Finance and accounting technology (54%)
- Cloud computing (48%)
- Cybersecurity (47%)
Thus far, these spending buckets have held true with a huge spike in cloud migrations with solutions like Office 365 and an uptick in cloud back-up investments.
Once you decide how you think the budget should be for each category, the next step is presenting the numbers and securing funding. You can do this effectively by following these best practices.
IT budgeting best practices
Be prepared for technical questions about the technology you need funded
As budget decision-makers become more technically apt, they will ask more questions about how technologies work and what value they’ll bring to the business. They may ask about proof of concepts or other information, so be ready to issue explanations.
Determine if outsourcing certain IT functions will reduce costs
You may have a limited internal staff and want to include dollars for new hires, but that’s not always the best fiscal move. Plus, you’ll have to convince leadership you want to increase headcount. You may find it less expensive to outsource certain functions, like cybersecurity measures, cloud computing, and help desk services. With the money you save, you can redistribute it to projects or R&D.
Revisit aging assets
Global IT spending is projected to total $3.76 trillion in 2019, an increase of 3.2 percent from 2018, according to the latest forecast by Gartner. Much of that increase in spending may be related to replacing aging assets.
To understand if that will be a driver for your budget, it’s time to take stock of all IT assets. Consider if any aging assets will be coming off depreciation schedules and what new ones will be added. And, if it’s coming off the books, does it need to be replaced?
That’s why you need to track all your assets—every old PC, printer, or other piece of equipment. Don’t forget to include what’s new to keep your IT infrastructure at optimal efficiency.
Focus on how you schedule discretionary budget items
Your company’s revenue and expenses are directly tied to your IT budget. If the company takes a downturn later in the fiscal year, your budget may get cut. For those projects that are critical, be sure you schedule them in the beginning of year to mitigate disruption. If there are things you can defer, move them to later in the year so if you’re asked to make cuts, you won’t be left with failed initiatives.
Manage fixed and variable costs accurately
In a perfect world, every budget line item would be fixed. You’d know exactly how much money you need every month to maintain and sustain your IT efforts. But the reality is that many costs will be variable. If you currently have a large number of variable costs, dig deeper to see if they can become more fixed.
For example, you may currently use a variety of tools for cybersecurity defenses with variable costs. However, if you used a third party to monitor your network, you’d be more likely to pay a flat fee monthly.
IT budgeting doesn’t have to be complex. Not when you understand that it should be approached strategically. Follow these steps for an easier exercise in budgeting. Contact us if you have any further questions.