What is IT Budgeting?

By Bernhard Mehl
May 12, 2020

IT budgeting is when a company allocates money to various IT programs. It lists funding for all projects and technologies within departments. Examples include recurring expenses such as staffing or one time expenses dedicated to specific projects or initiatives. Typically, companies prepare an annual budget. Sometimes an initiative specific budget makes more sense. 

IT leaders usually present and oversee the budget, but other individuals such as line managers and consultants help out. Everyone’s activities need to be covered in the budget because if they aren’t, it will be difficult for departments to see their goals through. In order to get IT budgets right, it’s important for the people creating it to be an essential partner to the business and understand business needs. 

Why IT Budgeting is Important 

When constructed correctly, an IT budget can help IT leaders use the budgeting process as a tool to aid in communication and planning. The budget acts as a backbone for company activities. It provides resources necessary for plans throughout the year. The budget allows departments and initiatives to continue operating. 

Creating an IT budget is not all that different from a budget in a different department, yet organizations everywhere struggle with it. Finance and IT don’t understand each other. A common approach is to look at the budget as an investment in the business’ future. That way, it can be created with a common goal in mind. 

How to Create an IT Budget 

  1. Be aware of the budget calendar 

Knowing when everything is due is a key aspect in budget planning. Understanding the process will ensure you meet deadlines and account for all necessary finances. 

  1. Review Prior Budgets 

By looking at past budgets, you can gain an understanding of what was budgeted for in other years. Typically budget numbers need to be justified so everything should make strategic and logical sense. 

  1. Plan Strategically 

The budget should reflect the department’s goals and the overall IT strategy. Identify a handful of priorities for the coming year. This will help you decide where to save money and where to focus major spending. Referring to an IT service catalogue could be helpful. 

  1. Properly Address Spending 

All IT budgets should contain information related to three categories of IT spending: capital, operating, and project. Capital expenses include hardware purchases, software licences and upgrades, and parts replacements. Operating expenses are associated with operations such as subscriptions, maintenance, and both hardware and software support. The project budget is meant for incentive specific expenses. They are the most flexible part of the budget and can be changed based on the rest of the budget and any events that may occur. 

  1. Identify Types and Categories 

IT budgets are often lumped together as one big thing. By identifying type and category within the budget, decision making and general planning will be better supported. 

What should the IT Budget Identify?

Besides the standard expenses that come with any business department, IT specific costs include the following: 

Hardware: Equipment, installation costs, and warranties are all included in hardware expenditures. They are costs connected to owning a physical asset and the maintenance of that asset. 

Software: Software licenses and support contracts are software expenses. Typically these are a set price over a set period of time. 

Subscriptions: Subscriptions are fairly broad. They can have a fixed or variable price/time period and include costs related to hardware, software, training, or managed-service providers

Services: This includes all costs related to IT operations and initiatives such as advisers, consultants, service providers, and legal counsel. 

Connection to the Organization

The budget should reflect the organization’s goals and strategy. For example, if a company is transitioning to the cloud in an attempt to save, those savings should be the justification for increased funding elsewhere. Another consideration is company size. Considering employee numbers may change budgeting tactics.

Besides paying attention to strategy, the IT team should speak with other departments to clarify what they are planning for the following year and how the IT team may be affected. One common practice is to have all relevant departments create a rough budget and receive comments from everyone else. When departmental plans overlap, it needs to be clear who is paying for what. If the IT team thinks implementing more automation or switching to digital processes would be beneficial, those departments will need to plan accordingly. Similarly, if a department wants to invest in budgeting software, the IT budget needs to account for activity costs such as staff training and maintenance.

Benefits of IT Budgeting 

IT Budgeting means the department can have a roadmap to project operations. Anyone can see where funds are being allocated and it is clear what resources will be available for any given project or incentive. This eliminates the need to request and justify IT expenditures as they arise. 

General IT Budgeting Tips to Keep in Mind

  • Create a budget that numerically represents the IT strategy. 
  • Make the budget easy to understand and communicate. A confusing budget will set the department up for misunderstandings and issues late on.
  • A budget should get approved with minimal conflict because everything in it should have already been understood. Amounts may need to be tweaked but entire categories of spending shouldn’t need any justification beyond their relationship to IT strategy or operational savings. 
  • When making a new budget, review the previous year’s budget to find areas where money can be reduced or reallocated. 
  • Analyze the budget once it’s created. Consider what budget items relate to general operations like keeping the lights on, what items relate to growth and increased IT proficiency, and what items relate to R&D-type projects.
Bernhard Mehl

Bernhard is the co-founder and CEO of Kisi. His philosophy, "security is awesome," is contagious among tech-enabled companies.