May 15, 2018
You can tell a lot about a company by the way it spends its money. Historically, businesses have not considered increasing IT budgets. In fact, IT, more than any other area within an organization, has been forced to do far more with far less. But a shift in priorities and investment is emerging. According to a study conducted by ZDNet in late 2017, executive management is increasingly valuing IT funding as much as other departmental budgets, with 65 percent of survey respondents stating IT budgets were given equal importance within their organizations as other budgets.
With more of the spotlight on information technology, IT budgeting becomes more important than ever. And although summer may be on our minds, budgeting season will be here before we know it, so our team has assembled a short guide to kickstart your planning. Below are the key areas to account for as you budget and the biggest pitfalls to avoid.
IT Budget Structure
Outside of salaries and general personnel costs, your budget needs to account for eight areas of spending in an IT department. We have listed these sections below in no particular order.
- Support Maintenance: Support and maintenance is a hard number to pin down. By its nature, these costs are unexpected, and depending on the skill level of the in-house team, a breakdown could last minutes, hours, or days. Looking at historical data might help in identifying a budget number, but sometimes, this is more art than science. However you determine the support maintenance budget, it’s important dollars get allocated to this area. Some level of predictability can be made by taking advantage of managed services options which provide you with a team of experts – think of this as an extension of your team. These experts can manage some or all parts of an environment and dramatically reduce the risk associated with the many unknowns in IT.
- Hardware: Hardware and software are typically the biggest investment areas in an IT budget. The hardware component is driven by the type of hardware in an environment and when it is due for a refresh. Refreshes can be very costly, which is why organizations are increasingly looking at alternatives like cloud solutions. Recent Gartner research shows that organizations are expected to spend nearly as much on hosted / cloud-based services in 2018 as on hardware and software. According to the study, IT professionals said 31 percent of their budgets were being allocated for hardware, 26 percent for software, 21 percent for hosted/cloud-based services, and 15 percent for managed services. Undeniably, the cloud could be a cost-saving alternative when done right. Read more about Mindsight’s Path to the Cloud Analysis to determine what workloads in your organizations may be good candidates for the cloud, what type of cloud (whether public, private or hybrid cloud), and how best to migrate.
- Software: The software category includes licenses and any SaaS applications the company may be using. As a result, this category is a largely predictable expense which makes it easier to account for. Existing and future software allocations should be factored into this area.
- Cloud Services: If SaaS applications are not lumped in with software, they will be here along with any other “as a service” solutions used by the company. This could include the contact center, web applications, and even voice hosting. Like software licenses, cloud services are for the most part a particular expense. Considering the savings on hardware, a long term strategy may be to annually inflate the size of this sub-budget while simultaneously decreasing the hardware budget.
- Backup, Disaster Recovery, and Business Continuity: Unfortunately, this category is too underrepresented in budgets. According to Cisco’s 2017 Cybersecurity report, 90% of businesses without a disaster recovery plan will fail after a disaster – a sobering statistic that can’t be ignored. Be sure to understand any gaps in this area, and increase your backup and disaster recovery budgets as needed. Whether an accident, disaster, or ransomware attack, a data backup and disaster recovery plan are often the only things that can prevent a complete loss. Some organizations opt for a managed backup and managed disaster recovery approach to ensure the business is protected today and in the future.
- Projects: The project budget is going to vary depending on the year. The key is to plan out your projects in advance and approximate the cost. This practice will help you align your projects as well as your overall budget with your strategic goals.
- Discretionary Spending: Things happen; new solutions are released, and no one can predict the future. There’s going to be expenses you did not expect, and discretionary spending will account for any holes or mistakes elsewhere in the budget.
- Business Training: We all know how fast the technology industry is moving. For that reason, it is absolutely essential that some funds be set aside for continuing education. Without an informed team, you may remain unable to implement new cost-saving solutions or worse, you may not even be aware they’re out there. Training not only ensures you are taking advantage of technologies that can enable your business, but also helps retain your key talent.
IT Budget Pitfalls
Beyond understanding how to subdivide funds in a budget, there are also several pitfalls to avoid. What may appear to be logical or prudent decisions can hurt the department in the long run.
- Don’t Structure a Budget Based on Line Items: The focus of the budget shouldn’t be placed on individual line items. Instead of looking at these expenses as mere costs, keep the strategic goals in mind and frame your expenses on how they contribute to achieving those goals.
- Over-Budgeting: By this we don’t mean having too much money in one area or another. We mean that it’s possible to get too specific in the nitty gritty of the budget. The more specific and detailed the costs are, the more rigid the budget becomes. Stay flexible in your budget to adjust to unexpected circumstances.
- Business Training: When budgets are tight, the first thing to go is usually the continuing education budget. Many of the other categories are essential, and it seems practical to shrink this non-essential portion. However, in the long run, this practice will only hurt your organization, and stifle the career growth of the team.
A good budget is like an instruction manual. It provides a backbone to guide your decisions for the coming year. If you build it correctly, you’ll be able to weather unexpected complications, expand the skills of your team, and move your IT environment another step forward. Focus on your goals and make sure every dollar helps you get there.
Like what you read?
Mindsight, a Chicago IT services provider, is an extension of your team. Our culture is built on transparency and trust, and our team is made up of extraordinary people – the kinds of people you would hire. We have one of the largest expert-level engineering teams delivering the full spectrum of IT services and solutions, from cloud to infrastructure, collaboration to contact center. Our highly-certified engineers and process-oriented excellence have certainly been key to our success. But what really sets us apart is our straightforward and honest approach to every conversation, whether it is for an emerging business or global enterprise. Our customers rely on our thought leadership, responsiveness, and dedication to solving their toughest technology challenges.