IT Budget

What is an IT Budget?

An IT budget is a financial plan for a defined period that relates to IT equipment, infrastructure, and their associated costs. Businesses use IT budgets to forecast future IT expenditure and implement cost-saving measures to ensure the best value for money. 

IT budgets are implemented strategically and are used to gauge IT costs in measurable terms. IT budgets must be enforced and remain intact over time to fully reap the long-term benefits.

What is Included in an IT budget?

IT budgets vary widely and depend on the nature of the business. Some businesses might spend more on deploying or complimenting software, whilst others might focus on cloud infrastructure.

An IT budget should include, but is not limited to: 

  • Hardware 
  • Software 
  • Personnel 
  • Outsourcing 
  • Disaster Recovery 
  • IT-Related Taxes 
  • IT-Associated Occupancy Costs

What is a Typical IT Budget?

IT budgets fluctuate and depend on the size, scope, and breadth of a company’s interests. Gartner confirms the commonality for small and medium-sized businesses to outspend their larger counterparts when compared to the revenue they bring in. 

The average cost for a typical IT budget is as follows: 

  • Small Companies – Less Than $50 Million (6.9% of revenue) 
  • Mid-Sized Companies – Between $50 Million – $2 Billion (4.1% of revenue) 
  • Large Companies – Over $2 Billion (4.1% of revenue) 

Gartner has predicted steady IT budget growth for the next five years as technology expands and is utilized by more and more businesses. IT budgets are affected by different factors such as industry, company size, and overall revenue. 

Because IT budgets are growing along with profit, the average quarterly spend is often outpaced by revenue, even though overall IT spending increases year over year.

IT Budget Components

IT budgets include compensation fees for IT professionals, external consultants, and contractors used by IT departments. They also include expenses related to building and maintaining enterprise-wide systems that incorporate enterprise resource planning (ERP), accounting, HR, and finance applications. 

Hardware expenditure such as laptops, mobile devices, routers, servers, and networking equipment is also paid out of the IT budget. These costs represent a large percentage of the overall IT budget and need to be effectively monitored and regulated to provide the best value for money.

Who Should Control the IT Budget?

Technology spending should be allocated from the departmental level for maximum effectiveness. Multiple departments can work together to pool budgets and make changes to infrastructure, implement new technology, or purchase new equipment. 

IT budgets can be sliced and diced in several different ways and it’s down to businesses to establish an individual framework that works for them. The costs of equipment or services should generally be administered using percentages that utilize data from each department. Managers and executives that control departmental spending should have a vested interest in the IT budget and seek to reduce costs by scrutinizing purchases.

Why is it Important to Have an IT Budget?

Strategic IT spending helps to reduce costs, standardize equipment, improve departmental relationships and initiate digital transformation. Without proper management, IT costs can easily skyrocket and cause financial difficulties for businesses. 

IT budgets are of specific importance because they encompass a huge overall proportion of a business’s operational costs. They also enable organizations to engage in digital transformation and disrupt business models to implement and enforce positive change. 

When IT budgets are correctly implemented, they help IT leaders to use the budgeting process as a communication and planning aid. IT budgets serve as a backbone for the activities undertaken by a business and provide the necessary resources for yearly plans that incorporate updates and evaluations.

IT budgets that don’t take the full scope of business into account are usually more expensive in the long-term and eat up valuable contingency funds that could be spent elsewhere in the business.

How Should Companies Plan Their IT Budget During Digital Transformation?

The costs of digital transformation come directly from the IT budget. For digital transformation to be implemented effectively, IT leaders much change their approach to the annual budget. Modern IT departments are tied to all major business units and are entrusted with delivering applications, devices, and platforms that support strategic goals. 

When businesses use agile IT budgeting strategies, it helps to shift the focus to continuous improvement which assists in navigating new markets, improves performance, and increases revenue. The biggest budgeting constraint related to digital transformation is the need to invest in new technologies that drive innovation whilst still addressing basic IT needs such as maintenance, upgrades, and tactical projects.   

To get the most out of the IT budget and implement a successful digital transformation strategy, chief information officers (CIOs) need to permeate the budgeting process, placing a focus on creating value and driving innovation. They must have a clear understanding of business objectives and discern the relationship between technology and how it helps to achieve strategic goals

Conclusion

The digital age has seen a growing number of organizations upend their business practices and move their processes online. Digital transformation has changed the way that modern businesses operate, which is clearly reflected in IT budgets. This makes IT budgets crucial to the implementation and execution of digital transformation strategies that catapult businesses into the future. 

IT budgets are no longer confined to hardware, software, and infrastructure. Budgets now incorporate the costs associated with cloud computing, data centers, and new-age digital products that change the way businesses operate. This is why it’s more important than ever to invest in a clear, measurable IT budget that is actionable, accountable, and flexible.

Published: January 30, 2022

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