Budgeting for IT

Financial year end is approaching or has already arrived for most companies, and this means forecasting and budgeting your operation costs for the coming fiscal year.  When budgeting, the following pertinent questions must be answered: What are the key initiatives for the coming fiscal year? How will corporate goals be met short term and long term? What role does IT play in the process?

With your focus on your company’s core competencies, how many of you budget for your information technology needs?

Sadly, the last question is rarely asked, and key strategic initiatives are planned without knowing the true cost and return of projects – which will require additional hardware, software and/or personnel to support new initiatives.

There are a number of factors that will impact on a business technology budget, inclusive of the size and type of business and the technology needed.  For most businesses, basic technological requirements include:

  • Hardware – the actual computers and servers
  • Software – programmes and operating systems
  • Phone lines and internet systems
  • Computing consumables and  peripherals
  • Information Technology Support
  • Computer training for staff – if there is a high staff turnover or additional staff during peak periods, also meaning additional computers will be needed.

This is not an extensive list and technology needs will vary from company to company, with budgets increasing or decreasing depending on the sophistication of the equipment and the software needed.

The following are some guidelines to follow when planning your IT budget:

  • The first rule of thumb when budgeting capital is to use 2% of overall capital regardless of the size of your business for your technology needs.  It is always better to overestimate a budget than underestimate and small businesses should always figure in emergency funds where technology is concerned.
  • Calculate your technology costs from the previous year, unless you are planning major changes in your IT strategy, this will give you a better range to work with.
  • Most companies plan for moderate growth.  These companies should set up a category for IT maintenance/support and one for new technology expenses. (You should first calculate maintenance/support of existing equipment, since this number will remain almost the same as the previous year).
  • If you plan to purchase new systems or services, you should calculate the cost of technology and then budget for installation and maintenance – depending on the complexity, you may also want to budget for testing and downtime.  Get estimates and make sure to pad this cost in case things take longer to install than originally expected.
  • Once you’ve calculated standard IT purchases and maintenance costs for the year, create separate budget line for technology development – this is for longer-term IT planning, including new IT projects or major system upgrades.
  • Err on the conservative side and consider the possibility of leasing and outsourcing when faced with costly technology expenditures.
  • If you have an IT department – treat them as an internal vendor that earns its funding by providing sound advice and a return on investment.  The IT department should include direct costs (equipment costs, software licensing) and indirect costs (training, support) in budget estimates.  This links anything business leaders pay for to a concrete deliverable.

Major pitfalls to avoid include:

  • Going over budget as a result of other department’s needs.  Interdepartmental communication should be encouraged so that IT knows early on the needs of the business units and can work them into the budget plan
  • Failure to research and analyze new technologies and services can be a costly mistake
  • Oversight of not using the tools that are available to you, namely, budgeting software tools

IT budgeting in tough times – in view of these tough economic times, it would be remiss of us if we did not also include five basic ways to cut your IT budget:

  • Ditch the inkjet – they are cheap to purchase but expensive to keep running
  • Consolidate servers – it’s cheaper and more efficient to operate a few powerful servers rather than a bunch of old, single function servers
  • Save on office space by allowing some employees to work remotely
  • Cut phone bills – VoIP is perfect for conference calls with employees, interoffice calls or calls to remote employees
  • If you are paying a full or part-time person to manage your network, consider outsourcing to a professional IT support company.  It offers 24/7 support, a higher level of expertise and professionalism, fewer management headaches and better IT support for less money.
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