Your company’s information technology budget can enormously impact organizational agility. In particular, it can play a vital role in ensuring the organization has the IT resources it needs to detect and leverage critical business opportunities or industry changes.
However, IT budget management can be incredibly difficult. Especially when other organizations are constantly striving to cut costs in every department.
This blog reviews the impact of budgeting for tech resources and showcases some best practices to follow.
What Is an IT Budget?
IT budget is the amount spent on an organization’s information technology systems and services. It includes expenses related to constructing and maintaining enterprise-wide systems and services. The IT budget is typically overseen by the chief information officer (CIO), the IT organization’s top executive.
Why Is IT Budgeting Important?
Some businesses view IT budgeting as an administrative burden. But the truth is, it offers many benefits that contribute significantly to a company’s overall success. Here’s a closer look at why IT budgeting deserves a prominent place in your business strategy:
-
Alignment with Business Goals
The IT budget should be aligned with a business’s IT goals. Suppose an organization is planning to add more printers in the office area. The goal is to save the working hours that are spent on printing documents. In that case, the business will calculate how many working hours they can save by adding each printer. In such ways, IT budgeting helps businesses forecast ROI’s on IT expenditures.
-
Cost Optimization and Control
Every expenditure is a cost while not being recouped equally. IT budget management helps businesses identify cost optimization opportunities. With a budget, finance officials get a chance to filter out unnecessary expenses. A budget gives full-length information about costs which enables the managers to control the cost easily.
-
Improved Resource Allocation
There is no abundance of IT resources in a business. Businesses have to ensure that the limited resources are used efficiently. A pre-planned framework budget helps to choose the best way to use resources for the most important purposes.
-
Enhanced Risk Management
Cyberattacks and system failures are a constant threat to IT infrastructure. An IT budget allocates resources to preventive measures like cybersecurity solutions, data backup, and recovery plans. This proactive approach significantly reduces the risk of costly downtime and data breaches.
-
Informed Decision-Making
In a budgeting process, experts look for answers to questions. They raise questions like how much a new data tracking software is going to take. How many bio-matric devices do they need for more than 500 employees? Do they need a brand new CCTV system? Or, why is the existing one not enough? They need to gather the answers. Consequently, they collect quotes, compare the prices, and make notes for the new IT budget. With detailed information, it becomes easier to make an informed decision.
How to Design an IT Budget? 9 Main Components
Building an IT budget becomes easier when you break the total budget to budgets for different components. Here we are discussing 9 components to consider in an IT budget.
1. Hardware
Laptops, desktops, printers, servers, landline telephones, and intercom systems are examples of hardware. The cost of these important components and more must be included in an IT budget.
2. Software
Hardware needs software to function. Considering the expenses for acquiring the softwares is crucial for making a realistic budget. Subscription charges, download/ purchase fees are examples of this category.
3. Infrastructure
Sensitive hardware like servers, central telephone, and internet control needs designated areas. A server room is an important space for many businesses (and even some homes) that is set up to house computer servers and other equipment. Often, the IT team has access to confidential information. For these reasons, an IT budget should include expenses for dedicated infrastructures.
4. Information Security
This covers investments in the below key elements of information security
- Firewalls
- Intrusion detection and prevention systems
- Antivirus software
- Encryption tools
- Software patching
- Security audits
- Employee training
- Security incident response planning.
5. Wages of IT Employees
Wages of IT employees should be considered in the IT budget. Discuss with your payroll section for accurate data. Consider the changes in IT manpower matrics in the near future.
7. Outsourcing and Consulting Services
Even after having a dedicated team, it is not very rare that you will need outsourced services. Consider an amount in your budget for outsourcing and consulting services.
8. Maintenance and Support
Consider the expenses for maintaining the system for a smooth operation. Regular checkup, third-party collaboration, and repair costs come into this part.
9. Training and Education
Tech is an ever-evolving sector. Continuous learning is no exception when coping with the wind of change. Allocating budgets for training and educating your IT employees will provide you with a sustainable and savvy IT team.
10. IT Projects
Special IT projects outside your regular operations would require an extra budget depending on the type and length of a project. This is a special case to consider; the head of the IT department may forecast the necessities of such projects in the near future and consider each factor mentioned above when planning for a separate IT project.
IT Budget Management: 7 Steps of the Budgeting Process
IT budget management becomes easier when you break the process into smaller parts. Here we have listed 7 steps for flawless budget management,
1. Establish Budgeting Goals
In businesses, each expense has a goal. The easiest way to establish budgeting goals is to ask, “Why is the initiative Important?”. Before adding anything to your plan, you have to know why the addition is unavoidable. For example, your goal is to keep a record of the departure times of every single employee. You already have a card-punching attendance machine, but you doubt that these cards are being misused. If you still don’t have any proof supporting your doubts, it doesn’t align with your goals.
2. Gather Data and Assess Current IT Infrastructure
In this step, start with an inventory of all hardware stocks. Starting from laptops to headphones for video conferences, count and list them out all. Register with the names of users and issuance dates. Mention the purchase and issuance date of each piece. For software, look for subscription expiry dates, limitations, or upgrading needs. Your IT team should be playing a crucial role in finding out the necessities. Make a hierarchy, starting with IT team auditors and then approving managers and finance team members to make sure the expense is going to be effective and helpful for a smoother IT system.
3. Involve Key Stakeholders
Once the IT team and finance team suggest an expense, involve key stakeholders and inform them about the budget and budgeting process. Not necessarily do they have to be informed after everything is done, As a responsible person for this budgeting process, you may inform about your plan and the start of your process.
4. Analyze Past Expenditures and Forecast Future Requirements
Past records work as an example. Though too-old references can be deceiving, recent purchases, subscriptions, or any other records like quotations will help you negotiate with confidence. If you have a plan to enlarge your IT system, include the ideas and forecast future requirements. For example, if you have a plan to add a webcam to desktops, you have to make a count of how many desktops there are and how many already have webcams, and then you can easily calculate how many new pieces you are going to need.
5. Categorize Your Costs
Categorizing your expenses is vital to understand where your money is going in the budget clearly. This approach is one of the most efficient methods of tracking and managing your expenditures. You can categorize your costs through the critical components of an IT budget:
- IT infrastructure (hardware, software, subscriptions, support)
- Personnel costs (salaries, benefits, employee training)
- Capital expenditures
- Operational expenditures
- Project expenditures
With Flow’s dev weeks, you can quickly categorize them by project or operational vs. capital expenditures without coordinating with developer teams to collect manual estimations.
6. Allocate Funds for Various IT Initiatives and Projects
A critical step in IT budgeting is thoroughly evaluating current IT spending and financial allocations. This involves a deep dive into the existing expenditures to understand where funds are allocated. Reviewing current spending provides valuable insights into how resources are distributed across various IT segments, such as hardware, software, maintenance, and staff. This evaluation sheds light on the current financial commitment to IT and sets the stage for future budgeting decisions. By understanding where the money is going, businesses and non-profit organizations can make informed decisions about where it might be better spent, ensuring that every dollar contributes effectively to its technological and strategic goals.
7. Have a Contingency Plan and Budget
In a perfect world, our projects would never be delayed or go over budget. Unfortunately, that is not usually how the world works. A contingency plan is a clear, actionable “backup” plan that is to be acted upon if things don’t go according to plan. It is essentially a “Plan B.” Contingency plans should be considered an essential component of risk management and should, therefore, also be created as part of the risk management plan.
IT Budgeting Best Practices
The efficiency of your IT budget depends on the perfection of the overall process. Here, we are suggesting some best practices to follow for successful budgeting,
- It will help if you do not wait until the last moment when making a budget. As we have discussed, the hierarchy of the teams in this process certainly takes time to take inventory, analyze, and approve the budget. Start with enough time to finish the process before the financial year ends.
- Review the previous budget and its impacts on the IT system. Analyze accounting information to avoid repeated mistakes. At the same time, it will help you make an efficient budget based on previous outcomes.
- Involve the other parts of your business in budget management, and let the stakeholders know the goals you are focusing on to achieve from these expenses.
Common IT Budgeting Mistakes to Avoid
When you set up your IT budget correctly, the benefits are long-term; however, sometimes, it can even be discouraging if you don’t know what you are doing. Take the time to learn about IT budgeting mistakes that you may not even realize you’re making.
-
Lack of Communication Between IT and Finance Teams
IT and finance teams should work very closely on the IT budget. The IT team will look for development options, while the finance team will evaluate the financial impacts of the expenses. Gaps between these two teams will create an imbalance for both sides and eventually make the budget unrealistic. Assigning team leaders to communicate with each other is an effective way to avoid this malfunction.
-
Neglecting to Factor in Emerging Technologies and Market Trends
If your business competitors are adopting emerging technologies and market trends, neglecting them will fade your compatibility. A tech-savvy IT team with consistent knowledge about market trends and uninterrupted freedom to discuss will save you from becoming obsolete technically.
-
Overlooking the Impact of Cybersecurity Costs
Cyberattacks can disrupt core business operations, leading to lost productivity, downtime, and revenue. Critical systems may be rendered inaccessible, hindering daily tasks and impacting customer service.
-
Ignoring the importance of ongoing maintenance and upgrades
Ongoing maintenance keeps the entire IT system revived and functional. If you avoid regular maintenance, machines may develop further critical issues, which may cost you a larger amount, ultimately resulting in a budget failure. The easiest way to avoid this is to assign in-house IT team members to inspect specific segments regularly. These members will report to the head of IT. You may deploy an outsourced team for regular maintenance within the supervision of the IT department.
-
Failing to review and adjust the budget periodically
Failing to regularly review and update the budget as conditions change can lead to poor decision-making and an inability to manage resources effectively.
-
Rigidly adhering to the budget without room for adjustment
Flexible budgets allow you to adjust how much you spend on projects and different business activities based on your revenue to prevent overspending, allowing you to adjust easily to change.
Conclusion
You no longer have to wonder what the biggest budgeting mistakes are. Now, you can focus on tracking your income and expenses accurately so you know exactly where your money is going. This is an important step to achieving your financial goals. It’s important to note that even if you fail your budget, you can always make adjustments to your spending plan and try again. To ensure an effective budget, you need a proper blend of expertise and experience with information about market trends and the latest technologies. Here, Crown Computers can help you achieve great consistency.
Crown Computers has been providing Information Technology solutions to the San Diego area since 1996. Our relationships with partners such as Microsoft, ubuquiti, sophos, HP, Dell, Acronis and Sentinal One have allowed us the ability to design, scale and implement effective infrastructure solutions for our diverse client base. Call Us at +1-858-483-8770 today for a consultation.