June 01, 2023
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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