IT budgeting is the mechanism for future-proofing your IT expenditure. It can help you accurately forecast planned spending and ensure that we have the right equipment at the right time and the right people to ensure that supply and demand are effectively balanced.
Its activities take part in the organization's overall IT Financial Management practices, which coordinate all the financial decisions and planning of IT departments. Under this framework, IT budgeting particularly makes sure the funds destined to IT operations are accurate and correctly prioritized.
The following article will break down what an IT budget looks like and provide general guidelines on how to build one. Also, because IT assets are a key component to budget, we will see how a InvGate Insight can support these activities and which features come into action to do so.
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What is an IT budget?
An IT budget is a defined plan for a time period that is related to hardware, software, and other IT service costs. It is a financial plan or allocation of funds that an organization sets aside to cover IT expenses, planning, and investments. This document is a key part of the overall organizational budget reflecting the resources committed to IT service delivery.
An IT budget aims to align technology requirements and spending against organizational business strategy. It is used by finance, IT, and business colleagues to create a financial blueprint that ensures the right IT equipment is in place to provide effective IT support and that costs are optimized.
IT budget vs. revenue
Some of the terminology can be confusing when we talk about IT Financial Management. The most common example we've found is people not understanding the difference between IT budgets and revenue, so let's look at the differences between the two.
- IT budget - As we mentioned, it’s the complete financial allocation set aside by the business to provide IT service delivery. It represents the planned expenditure on IT resources, infrastructure, software, hardware, services, personnel, and other related costs. It estimates the money needed to support IT spending over a specified period. A budget helps with resource allocation, planning, and ensuring that the organization can meet its IT requirements within its financial targets.
- IT revenue - It represents an organization's total income through its IT products and services. It is the financial inflow from the organization's IT operations and reflects the value generated by using IT resources to deliver products or services to customers or clients. An effective IT budget should not only make sure the allocated funds are correct, but also to maintain or progressively increase the revenue.
Why is IT budgeting important?
The IT budget serves several important purposes:
- Cost Management - First and foremost, IT budgeting is key in helping you manage and control your IT (and overall business) costs. It enables organizations to track and review their IT spending, ensuring that costs are kept within the limits agreed with the business.
- Decision making - The IT budget supports your overall IT strategy by enabling your IT department to identify and plan for your IT ecosystem's financial constraints and opportunities. It helps your team make informed decisions about priorities and projects based on the available funding.
- Resource allocation - It also helps IT teams understand how funds will be allocated to IT operations, ensuring that the appropriate funding is available for each area to maintain IT service delivery. This improves overall efficiency by focusing their resources and efforts on the areas with the potential for the biggest impact.
- Project funding - IT budgeting ensures appropriate funding is also in place for IT projects. This includes support for activities such as technology refreshes, tackling technical debt, and ensuring the proper cybersecurity measures are in place.
- Communication between teams - Having a budget in place ensures that there is more transparency around IT and that everyone has the same expectations when planning projects and changes.
- Risk Management - A well designed budget can help businesses track areas of risk, for example, possible outdated services reducing the likelihood of technical debt.
- Better outcomes - The IT budget enables organizations to review the financial performance of their IT department. Organizations can evaluate the value IT delivers by comparing actual expenses with the budgeted amounts.
How to build an IT budget? 9 main components
Every IT department is different, but in general terms, an IT budget includes the following components:
- Hardware: The cost of purchasing, hosting, maintaining, and upgrading IT hardware such as servers, laptops, storage devices, network equipment, and small peripherals.
- Software: The cost of supporting software and applications and ensuring the appropriate licensing and subscription models are in place.
- Infrastructure: The cost of managing and improving IT infrastructure, for example, data centers, server rooms, cloud services, network and voice servers, power and cooling, and IT service continuity / DR solutions.
- Information security: This covers investments in information security and cyber resilience measures, including firewalls, intrusion detection and prevention systems, antivirus software, encryption tools, software patching, security audits, employee training, and security incident response planning.
- People: All IT colleagues' salaries, pensions, benefits, and training.
- Outsourcing and consulting services: This refers to help and support from third-party suppliers.
- Maintenance and support: This covers BAU support contracts, maintenance fees, and warranties for hardware and software systems, as well as expenses related to troubleshooting, repairs, patches, upgrades, and technical support.
- Training and education: Covers the costs associated with training programs, certifications, workshops, conferences, and other professional development activities to support personal development and upskilling IT colleagues.
- IT projects: Manages the funds allocated for specific IT projects.
IT Budget Management: 9 steps of the budgeting process
Here are the general steps to create an IT budget:
1. Gather your A-team
You can't write a good budget plan in isolation. If your budget team comprises only IT colleagues, you will miss out on key aspects of the framework, including governance and structure. Engage with your Finance, Procurement, and Supplier Management teams when creating your budget so that you have something that meets the needs of the business rather than just those of IT.
2. Agree on clear goals and objectives
This is so that IT spending can deliver value. We do this by working with our counterparts in the business to align IT strategy with business objectives to determine the technology requirements and priorities.
3. Know your environment
Spend time getting to know your IT services to create an accurate forecast. A typical IT service provision will probably include evaluating the following:
- File & print services
- Microsoft Office
- Network services
- Voice services
- Corporate applications
- Information security and cyber resilience services
- Current infrastructure and possible areas that need upgrades, replacements, or enhancements to meet the organization's support requirements.
4. Have a plan in place for technical debt
Technical debt occurs when you accept something that isn't quite right to save time. We might have the best of intentions, but the reality is that if left unchecked, technical debt will cost more to fix the longer you leave it and put you at risk of reputational or even financial damage if you have unpatched software or insecure systems. When building an IT budget, have a section for addressing or mitigating technical debt.
5. Estimate your costs
Break down the costs associated with each IT project or initiative into categories so they are easy to assess. Typical expense categories include the components we listed above, this is hardware, software, maintenance contracts, consulting fees, training expenses, IT, and ongoing operational costs. When doing this, research market prices, supplier quotes, and previous spending and invoices to estimate accurate costs.
6. Use your resources effectively
At this stage, we've put in the work to understand organizational objectives and to get to know our IT environment. So now we can prioritize IT projects based on their alignment with corporate goals. This will enable us to allocate resources accordingly, so we know that IT assets will be deployed to where they will add the most value.
7. Future proof of your spending
The only certainty in IT is change. As IT leaders, it's our job to anticipate future technological needs and consider them in relation to our working environments. If you can, allocate a portion of the budget to accommodate emerging technologies and potential unforeseen IT requirements that may arise during the budget period.
8. Practice makes perfect
Once you have your draft budget, review it with input from your stakeholders. Check the accuracy, feasibility, and alignment with business values and then make any necessary adjustments as appropriate.
9. Review and improve
Once the budget is finalized, establish processes to monitor and manage IT expenses throughout the budget period. Regularly review actual spending against what you documented in the budget so that you can take corrective action sooner rather than later.
IT budgeting best practices
When carrying out your IT budgeting activities, follow these best practices to make sure you are getting the most out of each step:
- Create your budget cycle to align with the overall business financial year so you have enough time for approvals, queries, and sign offs.
- Learn and incorporate knowledge from previous mistakes. Review the last budget and accounting information to understand what worked well and avoid repeating previous mistakes.
- Use business rather than technical language in your budget so that IT spending is more transparent and is more effectively communicated to the rest of the company.
- Creating an IT budget isn't a one-off activity, so foster continual improvement. It must align and support your overall business strategy so it will flex over time in line with organizational needs. Your budget is a living, breathing document, so treat it as such and build in regular review cycles to remain fit for purpose and use.
How can InvGate Insight help you create your IT budget
To create an efficient IT budget, you need to clearly know where you are standing and where you want to go. Tracking IT assets and incorporating relevant financial information (both current and future) will enhance its accuracy, making it less prone to imprecisions or mistakes.
In this sense, InvGate Insight can help you both implement or improve your budgeting process. First of all, you can build a comprehensive IT inventory and rest assured that no assets have been missed and excluded from your budget. By combining agent-based and network scanning capabilities, the tool automates this process, reducing possible manual errors.
Moreover, InvGate Insight’s IT Budgeting and Asset Depreciation feature incorporates relevant financial data related to these assets. You can set the tool to provide information on your current investments, including the depreciation rate of your hardware assets and all contracts linked to your devices. To take it a step further, through software metering you can also track the usage of licenses to relocate or retire if needed.
Finally, when reviewing or making improvements, you can customize InvGate Insight’s dashboards and reports to analyze your budgets performance through key metrics and adjust where needed. By scheduling and sharing regular reports with other interested parties, you can also encourage communication and collaboration when making these decisions.
As one of the central components of IT Financial Management, designing and following an IT budget looks to accurately forecast IT spending and plan accordingly. Not only do they make sure that the right funding is in place and that it is cost-efficient, but it must also consider broader business objectives to ensure technology balances business value.
The right ITAM tool can help support your IT budgeting activities and do some of the heavy lifting for you. It will make sure that all IT assets are both incorporated and accurately tracked, providing you with the necessary inputs to enhance your budget's effectiveness.
Frequently Asked Questions
How often should IT budgeting take place?
Most budget cycles last a year, before they need reviewing
How do you budget for an IT department?
You need to consider all IT service delivery costs, including hardware, software, professional services, people costs, and IT security.
Who controls IT budgets in companies?
Budgets work best when colleagues collaborate, so in most cases, the IT and Finance teams work together to create an effective budget.
How much of your IT budget should go to security?
The short answer? Probably not enough. New threats are always emerging, so lean into your IT security team and ask for guidance when allocating funding to your security provision.