5 things to keep in mind when creating an IT budget
In the current digital age, IT spending is an inevitable business expense. Gartner forecasts global IT spend to hit $4 trillion by the end of the year – an 8.4 percent growth over 2020. The main reason for this spike is the evolving business landscape caused by the COVID-19 pandemic. The pandemic is still accelerating digital transformation in many organizations, and this shows in their IT budgets.
Budgeting is a vital part of IT and business planning. An IT budget is more than just a document showing funds allocation; it’s basically a numerical representation of your organization’s IT strategy. Plus, the funds and effort directed toward IT have an impact on overall business performance. With the mounting demand for IT resources and services, now is the time to ensure you get your IT plan just right. Here are five tips to help you out with IT budgeting and planning.
1. Understand your IT needs and long-term vision
IT budgets vary significantly, even between similar businesses. That’s because every organization has unique IT needs and commitments. The first thing you need to do before drafting an IT budget is to analyze your current and future technical needs. Carry out a comprehensive IT audit to determine what’s missing from your digital infrastructure and the cost to keep it running. From there, you can create a list of recurring and growth-oriented IT expenses. Doing so will help you plan funds allocation based on your business’s long-term goals.
2. Make the budget comprehensible
A comprehensive IT budget touches every part of an organization, not just the IT and finance departments. For instance, IT decisions can affect workflows, HR management, and administration. For this reason, it’s important that every department understands and accepts the new budget. The best way to bring everyone on board is to involve departmental heads or representatives in preparing the budget from the start. A mutual understanding among all the different teams will prevent conflict and confusion after the budget’s implementation.
3. Review the previous year’s budget
If you made an IT budget last year, review it before drafting a new one. Reviewing the previous budget will give you valuable insights to help you draw a template for the next budget. The goal here is to borrow and build on the ideas that worked brilliantly in the last budget and avoid repeating any planning mistakes or oversights. Also, analyzing previous budgets against current and expected spending can shed light on periodic IT growth.
4. Analyze multiple drafts critically
You’ll probably go through several iterations of the same draft before settling on the most suitable version. But before dismissing any drafts, be sure to analyze them carefully from multiple perspectives. Play out different financial scenarios for each plan to determine the expected results. Find out how various IT funding structures and investments could potentially affect business performance. Deep economic and business analysis is the closest you can get to testing an IT budget before implementation.
5. Be realistic
IT budgeting is no place to be reckless or experimental. Play it safe and work within your limits. First, understand your business’s financial situation and funding options to work out exactly how much money you can comfortably channel toward IT. Second, develop your budget based on past results and future projections. But then again, don’t be too conservative – repeating the same old tricks year after year. Try new things but keep a cautious eye on financial risk management and long-term ROI.
IT scope is a key business performance indicator. Unfortunately, acquiring and maintaining optimal digital performance does not come cheap. On average, businesses spend about 8 percent of their total revenue on IT. That’s a huge chunk of overall business spending. An optimized IT budget helps put these funds to good use for the best interest of the entire organization.
Let IT experts help you create a budget that truly helps achieve your IT goals and business vision. At KME, IT efficiency is our top priority. Let’s talk about streamlining your IT operations and costs.
