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How much business could your business do without IT?
These days, “none” is far and away the most common answer.
Yet many organizations struggle with how to approach spending and budgeting related to IT. Information technology may be the backbone of a business, but it usually isn’t front and center in strategic discussions and high-level decision-making. And whatever spending is happening, the budgeting process underneath it often doesn’t scale well.
We know that IT budgets are growing: 57% of CIOs expected their IT budgets to increase last year. An effective IT budget is about more than just spending more money. It’s about spending that money wisely — and determining how much money should be spent on IT in the first place.
How often should an IT budget be evaluated?
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Many organizations with established IT budgeting procedures evaluate that budget yearly.
Why yearly? Because the process can be lengthy, involving numerous stakeholders and significant amounts of documentation. And the larger your organization, the more complex this business process gets. It’s not uncommon for the evaluation process to take months, so it’s impractical to shorten the budget lifecycle.
For IT services firms supporting clients in the IT budget evaluation and creation process, a yearly cycle can prevent overburdening your team and allow you to stagger clients throughout the calendar year.
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Who should be involved in the process?
Keeping the right stakeholders involved in the IT budgeting process helps ensure that the budget is holistic (covering everything necessary), realistic (within the company’s overall financial means), and well-managed (administered and allocated responsibly).
The personnel involved should include any of the following, where they exist:
Chief information officer (CIO)
Chief financial officer (CFO)
IT managers, IT directors, IT department heads
IT project managers and project leads
Representatives from major divisions/departments
If the organization has a project management office (PMO), that group should also play a role.
It’s worth noting that entities outside the CIO and IT domains play an increasing role in IT budgeting as the process gets democratized across lines of business. Teodora Siman, an IDC research manager, elaborates:
“We’re seeing more influence come from outside of IT, where the CIO orchestrates technology across the business, and [technology decisions] are a collaborative conversation with business leaders who are focused on outcomes and customer-centricity.”
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Key items to include in an IT budget
Organizations differ in where certain expenses fall in the budget, but most IT budgets should include at least these five areas:
Physical employee equipment: IT money is used to purchase laptops, desktops, printers, phones, networking equipment, servers, and other hardware.
Staff salaries: Employees within the IT department or division are typically paid out of the IT budget
Cybersecurity, backup, and disaster recovery (DR): Preventive expenditures here help to hedge against disasters, natural or otherwise.
Infrastructure and maintenance: Money is allocated to repair and upgrade devices and infrastructure and to pay for ongoing IT infrastructure operational costs (internet access, cloud services, software licenses, etc.).
IT project management: IT project management costs that are not accounted for in your overall project management budget should appear here.
How to plan a budget that serves the future of the organization
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Planning an IT budget can be relatively simple for a startup or small professional services firm, a massive months-long process at an enterprise level, or anywhere in between.
Whatever the size and scope of your IT budget planning, we’ve boiled the process down to six key elements. Below, we’ll provide clear, concise planning tips to help you create an IT budget to propel your organization forward.
Assess the current landscape (internal and external)
One key strategy for planning is considering the context around your IT budget. Is business booming? Is your industry more broadly in flux? Are you growing (and if so, how quickly)? Or is this a year where it’s clear the purse strings need to tighten?
And what about the technology landscape? We aren’t necessarily seeing quantum leaps in computing power at the individual user or device level. But consider the capabilities of AI and machine learning to churn through data or for generative AI to enhance workflows and extend human capacity.
Any successful IT budget needs to be grounded in these realities. They inform how much is likely to be available and what sorts of changes that budget needs to accommodate.
Integrate business objectives and cross-department goals
Next, remember that your IT budget isn’t an island or a destination. It’s a way to achieve goals and objectives. So make sure your budget doesn’t live in a silo. Instead, it should be built atop existing business objectives and priorities.
Including business objectives and cross-departmental goals in budget planning ensures that your IT division is growing with, not against, the broader organization. By building your IT budget around the business’s core objectives, you can avoid unnecessary spending on IT projects that don’t further the mission.
This improves the organization’s financial health, affects employee morale and effectiveness, and can even advance market competitiveness.
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Set clear guidelines for expense categories
One principle is consistent for any kind of budgeting: the more clarity, the better.
It’d be preposterous to lump your entire IT budget into a single line item: you need to know where the money’s going more specifically than that. But true clarity requires more than a few vague expense categories. You’ll need to get as specific as possible and set clear guidelines with team members on what expenses go where.
With clearer and more numerous expense categories, it will be easier to understand IT spend after the fact, helping you create progressively more accurate IT budgets year after year.
Consider flexible purchase options
IT costs can be inconsistent and spiky: it’s easy enough to plan for an upgrade cycle on PCs for your workforce, but the cost of replacing a server is a different beast. Big technology investments are sometimes needed, and the larger your organization scales, the more unwieldy these IT expenditures can become.
So, as you plan your IT budget, consider flexible purchasing options for your IT investments, including fair market value leases, consumption-based billing, and installment payment agreements.
This is one reason so many organizations are turning to the cloud: procuring your computing and software needs from a cloud provider tends to flatten out these spikes. Managed IT service providers can provide a similar cost-leveling function, and in the right situations, this business model can deliver notable cost savings alongside better IT support and the broad expertise needed to meet diverse IT needs.
Use KPIs to monitor effectiveness
Next, make sure to track the effectiveness of your IT budget processes by tracking the right metrics. Key performance indicators (KPIs) can help here, but the trick is finding the KPIs that deliver the right information in the right way.
For example, IT project team efficiency, on-time project completion percentage, average hardware age, software utilization rate, and a few dozen other measures could all be helpful — but not all are helpful all the time.
Which KPIs are right for monitoring budget effectiveness depends on what your business is trying to achieve. Cost savings, increased efficiency, greater accuracy, and better customer responsiveness are all fantastic priorities, but they may compete against one another in some ways.
So first, you must establish which priorities take precedence. Only then can you select the KPIs to help you measure progress on those priorities.
Educate stakeholders about IT spending
Last, make sure you continually educate stakeholders in the IT budget about how spending works in IT. You’ll be working with people across a spectrum of specialties and skill sets, and not everyone will be a financial or IT expert.
It’s up to you to invest in these stakeholders. By teaching them about the mechanisms for IT spending (such as those flexible purchase options), your budgetary goals, and the tools you’ll use to measure success, you’ll garner better support and get more useful feedback.
Manage your IT projects and budgets effectively with Teamwork.com
For a successful overall IT strategy, businesses and IT leaders must prioritize the IT initiatives that best fit a company’s business goals and strategic needs — while staying within appropriate levels of IT spending.
Because while digital transformation is key to continued growth, it’s neither easy nor inexpensive.
For most professional services firms, managing IT projects and budgets well requires understanding and adhering to the business’s strategic plan and creating a technology roadmap that supports the overall business strategy. It also demands the ability to plan, visualize, strategize, organize, and ultimately execute projects well.
Teamwork.com is project management software that’s perfect for IT project management — including IT budgeting projects.
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