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Budgeting for IT. How much should your IT cost?

By August 3, 2022 No Comments

IT is becoming increasingly important to the success of any business, particularly in a world where the need for remote and hybrid working is continually on the rise. And seeing the writing on the wall, many small business owners are more willing than ever to allocate the right level of funds to IT budgets in their companies.

While this is excellent news for IT Managers – and IT Managed Services providers who deliver IT services externally to the business – the reality is, that with extra power, comes an extra level of responsibility. No one wants to be the IT specialist that requests too much or too little in the budgeting process and  has to explain why later.

Instead, you want to be the IT Expert that is able to do more with less as you implement your small business IT budget. And can demonstrate to Managing Directors and CEOs how far budgeted IT investment will go in order to successfully implement the planned IT strategy and initiatives.

Central to this is effective budgeting for IT based on a sound strategy and best practices. In this article, we’ll show you exactly how you can achieve that.

What is IT Budgeting? And why is it important for your business?

Simply put, IT budgeting is the process of calculating and allocating funds for an organization’s IT-related systems and services. It includes not only the financial investment you are making in internal IT staff but all of the technology related costs – for IT “kit” and services – that are involved in delivering IT projects right across all of your departments and teams. This would include any retainers for the external provision of Managed IT Support services that are being delivered externally to your business.

Effective IT budgeting essentially involves answering several essential questions:

  • How big should your budget be to support your business requirements not only now but in the near future?
  • Where do you need to increase your infrastructure IT spending, and where do you potentially need to trim your expenses?
  • How should you divide and allocate available funds for maximum business impact across different areas of IT, such as:
    • Hardware
    • Software
    • Data storage
    • Support services
    • Staff costs and training
  • What IT processes are going to be more cost-effective to outsource?

Unfortunately, no “cookie cutter” template is going to help you accurately calculate your small business IT budget ahead of time and assessing IT costs for small business can be a challenge. Your business will have unique IT spending requirements, depending on its size, industry, products & services and level of resources (both human and digital).

So, each business should conduct an IT budget audit based on assessing their unique business requirements. You also shouldn’t treat IT budgeting as a simple cost-calculating operation. Instead, you should use it as an opportunity to optimize value and your IT expenditure – which, by extension, will optimise all if your IT infrastructure and processes.

Without an IT budget, you’re simply allocating and using funds in the dark. Not knowing whether your spending is needed or even having the desired impact in terms of investment to return ratios. From CapEx to OpEx to project-specific expenses, IT costs are simply too complex to deduce without a proper budget assessment.

Plus, a formal IT budgeting process will help you intelligently modify and adjust your IT expenditure over time. Which ensures you are getting true value for your investment in the long term.

When and how often should you do IT budgeting?

Once again, there is no one right answer which will apply to all businesses. However, I think we safely say that that IT budgeting should be a cyclical and routine practice.

At the very least, you should create an IT budget annually as part of the wider business planning process for the financial year. For most businesses, however, reviewing their IT budget at shorter intervals, such as quarterly or bi-annually might also make a lot of sense. For example, you should be able to tell after a few months whether you under or overestimated certain expenses that run through the budget and can be adjusted for additional accuracy on your year-long view.

Tracking and plotting your performance at regular intervals will also allow you to make more informed decisions. For example, you may discover seasonal trends really alter your expenses at different points throughout the year.

What to consider during the IT budgeting process?

It costs for small business are not generic.

Different businesses will structure their IT budgets differently depending on the scope and complexity of their business needs – and it also fair to say that virtually no two businesses will use the same ecosystem of technologies, software and hardware.

However, there are general guidelines you can follow for items that should be included in your IT budget as follows:

Ongoing expenses

  • Personnel costs: For example, the cost of recruiting, compensating and training internal IT staff.
  • Hardware costs: All hardware costs associated with keeping your business operational. This includes servers, employee devices (laptops, tablets, company phones, etc.), network infrastructure and also any associated maintenance contracts.
  • Software costs: Costs associated with licensing or paying subscriptions for software services, such as SaaS (Software-as-a-service) platforms like Marketing, Financial and HR applications.
  • Project expenses: These are expenses tied to specific projects. For example, you may need to hire a contractor or independent consultant or invest in temporary software, hardware or office space to meet project based needs. These costs can be divided per project.
  • Emergency expenses: A reserve of funds to cover major, unexpected IT expenses. For example, having to hire high-level IT staff to fill expertise gaps, contingency for cleaning up a cybersecurity incident or disaster recovery situation or gearing up for new regulatory requirements.

There are also individual factors to consider. For example, if you’re about to embark on a significant digital transformation or make a major, once-in-a-lifetime IT acquisition.

Finally, keep in mind that IT systems are evolving at a dramatically accelerating pace. You must need to create an allowance for the potential rise or fall in cost for specific technologies or services.

6 tips and best practices for IT Budgeting

OK, so you know how an IT budget works, when you should do it and what it should include.

Still, you might be wondering where to get started? And, how to make sure your budget is accurate and actionable?

Fear not, here are our tips that will help you improve efficiency, optimize costs, and boost ROI:

  • Identify and categorize IT expenses: to properly itemize and structure your budget, you’ll need a complete inventory of all of your IT assets in a structured and logical format. This will also help you prioritize, allocate and track expenses in very specific areas of IT spend and the wider business.
  • Review previous budgets: Auditing your past budgets for what you got right and what you got wrong will help make your future budgets more accurate. Well-executed past budgets can also help you gain leverage for future negotiations. And also provide valuable tracking on tracking on long-term trends that help you make better IT strategy calls when you are undertaking IT infrastructure reviews.
  • Don’t be too rigid: As mentioned, it is a good idea to have some element of flex in your budget which can mean, for example, allocating emergency funds for unforeseen circumstances.
  • View the big picture: IT drives your entire business. So, make sure that your IT investment demands and your IT strategy align with your overall business trajectory and goals.
  • Include important dates: Be sure to indicate which payments are due and at what intervals. This is particularly important for high value capital investment elements of your budget that are likely to have significant on overall business costs at specific dates during the year.
  • Establish roles: To avoid misunderstandings, create and assign roles responsible for authorising and releasing funds for IT related expenses that are part of your IT budget.

Let us know if we can help

So, being structured and flexible is the key to effective IT budgeting that is going to support wider business ambitions.

However, accurately budgeting for IT can sometimes be challenging due to the complexity associated with IT and also depending on the level of IT expertise that exists in your business.

If you need help with the process. then please do not hesitate to reach out to us. At Managed IT Experts we have over 15 years’ experience of providing flexible IT solutions to a wide range of small businesses. And ensuring effective IT budgeting is a key element of what we do for clients, as part of a wider approach to ensure that you get the most out of your IT infrastructure. And a broader IT support business case.

Contact us now.