Budget season is upon us! As organizations prepare their annual budgets, technology investments and the overall IT budget will undoubtedly influence the planning process.
For instance, according to market research firm Computer Economics, 68% of organizations are reporting increases in their 2019/2020 IT budgets as they strive to implement new processes, technology and automation to support growth and revenue opportunities. Some key themes for this upcoming budget season include:
- Combatting digital disruption
- Increasing investments in technology
- AI and automation
- Cybersecurity
- Managing the hidden costs of IT
- Prioritizing (and implementing) processes
But let’s back up for a second and address this question…
What is IT budgeting?
IT budgeting is essentially the process of allocating or
securing money from your organization’s overall budget to fund IT expenses and
initiatives. An IT budget could include recurring expenses like hardware
or software investments to expenses dedicated to increasing
end users’ security awareness.
Because IT budgets are necessary to secure funds for IT
initiatives, many organizational leaders find the process of developing the
budget to be painful. Thus, this often leads them to succumb to the pressure of
simply tweaking last year’s IT budget instead of carefully crafting a new IT
strategy and roadmap to align with the organizations strategic plan.
…But this process doesn’t have to be difficult.
An IT budget isn’t just for securing funds from the CFO—it’s
an important tool for identifying and executing crucial IT initiatives for an
organization. Therefore, developing a strong IT budget requires an
understanding of how to use the budget as a planning and communication tool.
To help make IT budgeting less painful, we’ve put together a
list of five best practices for developing a strong IT budget.
Best practices for developing an IT budget
- Revisit aging assets and/or hardware. When budgeting, an easy place to start is an inventory review. (Don’t forget to count the PCs, printers, servers, virtual machines, phone systems, and other equipment sitting in storage). What assets and/or hardware are approaching end of warranty? How many need to be replaced? Decide whether this will have a strong impact on the budget formation and communicate that.
- Provide start and end dates for each line item. Start and end dates for investments in each item will help identify exactly when expenses will be incurred. Another tip is to not front-load your budget in the first quarter. A project that starts in the third quarter will cost a fraction of the spend required for a year-long project; this savings might be enough to get the project approved.
- Keep a working copy of the budget that notes which items can and cannot be cut. Make no mistake—the budget process is conducted in the spirit of negotiation and compromise. No business area, including IT, will get everything it requests. It's important to know which items can be cut or deferred from the budget, if necessary. A separate version of the budget that breaks down items into groups of “must-haves,” “nice-to-haves” and “optionals” may be considered. This keeps the focus on items that are necessary to have to ensure a successful year for IT.
- Align the IT budget with your strategic plan. Even with cost justifications and business cases for each budget line item, it's helpful to describe the longer-term goals for these assets. The best way to do this is to align the budget with your IT strategic plan. Aligning purchases with strategy is especially important when recommending larger investments, such as data center or IT infrastructure projects. It's always a good idea to show why an investment is necessary for the organization to meet their short- and long-term goals and improve their technical capabilities.
- Plan for a more diverse budget. In 2019, many organizations put a majority of their spend in IT security and the cloud. While security and cloud investments will still be a priority in 2020, many IT budgets will also be allocated for digitalization, mobile initiatives, and investment in staff training and re-training.
A well-developed budget should be the numeric manifestation of the organization’s IT strategy. If aligned properly and well-communicated, the IT budget should merely affirm what's already been understood and should get approved with minimal pushback. Also, look at finance, lease or installment plans to shift capital expenses to operational expenses to stretch your investment.