What is IT Budgeting, and How to do it Right?

IT budgeting can take many forms, from an unpleasant annual procedure to executing a properly thought-out IT strategy and plan. It can be challenging for an IT executive who struggles with numbers or hates going through the explanation process that goes along with budgeting. The temptation can be to modify last year’s budget or give in to arbitrary cuts.

We have designed this guide to assist IT executives in enduring the budgeting process and using it as a strategic tool to drive their priorities. It should lessen the agony of budgeting and assist you in learning how to use your budget as a tool for planning and communication. 


But, as experts say, you put your money where your mouth and your budget ultimately commit corporate resources to the strategies you’ve been outlining all year. Therefore, those responsible for generating IT budgets must understand business needs and serve as crucial business partners.


What is an IT Budget?


IT Budget planning by IT executives


The total amount of money allocated to an organisation’s information technology systems and services, including salaries for IT staff and costs associated with setting up and maintaining company-wide systems, services, and projects, is known as the IT budget. Some businesses only do this once a year; others may want appropriations for each programme when it is launched.


According to a survey by Ailean Inc., midsized businesses spend just about 4.1 percent of their revenue on IT budget compared to small and medium-sized companies, which spend about 6.9 percent. Additionally, according to the Kaseya 2021 IT Operations Survey Report, 38% of respondents increased their IT budgets in 2021.


Who Controls IT Budgets?

The annual IT budget for the business is generally developed under the direction of the chief information officer. They decide which costs are necessary and can be reduced to increase business growth and profitability. Then, it is the responsibility of finance teams and other executives to analyse and approve IT budget documents.


How Often Should IT Budgeting Take Place?

Most businesses typically prepare their IT budgets and review them yearly at the start of the fiscal year. However, business owners should time over the year to examine their IT expenditures.


Setting up a routine of more frequent IT budget reviews will assist companies in seeing any trouble spots or unforeseen expenditures early on and assure that they have an adequate budget to meet their specific needs at any moment.


Why is IT Budgeting Important? 

An adequate IT budget can enable IT leaders, to use the budgeting process as a tool to improve planning and communication. Although creating an IT budget is similar to creating a budget for another department, businesses worldwide struggle with it. 


IT and Finance don’t communicate well. The budget is frequently viewed as an investment in the company’s future. It can then be produced with a single objective in mind.


Furthermore, a well-designed budget gives key decision-makers complete visibility into the relationship between IT spending and overall business performance. They can then apply these insights to reduce wasteful overhead expenses year-round and reallocate funds to more important investments.


What is Included in an IT Budget?

To what extent do you budget? What must an IT budget include? There is no correct response to this query without a thorough understanding of the various information technology budget categories. 


Of course, requirements differ by business and sector. Nevertheless, these broad categories are a fantastic starting point for your budget planning. Generally, an IT budget comprises six categories of expenses which are as follows.


1. Hardware

The business’s systems, including PCs, laptops, tablets, and mobile devices, are referred to as hardware. Hardware, such as routers, switches, firewalls, and wireless access points, is also utilised to support the company’s network infrastructure.


2. Software

The price of software licences, including upgrades and renewals for current software, is included in software costs. This category should also contain any updates you plan on making and any potential fees associated with software support.


3. Support and maintenance

Your internal personnel and outside vendors or consultants you hire to provide IT support are all included in your support costs. These expenses are usually broken down by service provider and category, including cloud services. Because they are so common, these expenses are frequently ignored. They do, however, contribute significantly to the IT budget.


4. Backup and contingency costs

Knowing how much money you’ll need to spend to keep your business operating in the event of a disaster is one of the most crucial components of your data protection strategy. According to your company’s unique needs, the price of the systems and solutions that enable backup, disaster recovery, and business continuity may vary.


5. IT Personnel Costs

You need to budget for staffing expenditures to run your IT department. It also includes funding for expenses like hiring and training new IT personnel.


6. Miscellaneous

It would help if you accounted for miscellaneous expenses while creating your IT budget. This cost will cover any unforeseen costs that may arise over the year. It’s crucial to remember that this estimate needs to be as accurate as possible. If you don’t account for this sum in your budget, you can struggle to make up the difference over the year, which will probably cause budget problems.


4 Steps of Successful IT Budget Planning


1. Set Right Objectives

The first stage in creating an IT budget plan, regardless of the budget models used, is to specify short- and long-term goals. What are the objectives you wish to achieve in the coming years? How about the long-term goals? What do you foresee the IT budget for your business to look like in the upcoming year, three years, five years, or ten years?


When developing a budget proposal for the IT department, you must ask these questions. In this way, you can decide whether the project you’re working on will impact the company’s bottom line for the better or worse.


2. Evaluate Your Asset Inventory

Evaluating your asset inventory is a crucial phase in the budget planning process for information technology. This procedure should review all hardware, software, operating systems, applications, databases, and network devices. It supports your comprehension of the equipment currently in use and how it is used. This enables you to decide whether you need to upgrade or buy new gear for it to support your future IT ambitions.


3. Set Budget Management Roles

To address the digital transformation problems, business IT executives should establish clear roles for IT budget management. When creating your IT budget, assigning key staff members the appropriate duties and responsibilities is crucial because managing budgets is difficult. Set accurate expectations for your staff members if you don’t want to unintentionally impair your organisation’s capacity to manage its budgets efficiently.


At Cloud Solutions IT, every client project we execute has a project manager who communicates with clients and developers. This makes it easier to track spending.


4. Set Backup Plans

Planning for your IT budget is essential, but you also need to create backup plans in case the economy changes and your early estimates turn out to be off. In addition, as you go through the various components of your project, you will need to make adjustments because budgeting is an iterative process.

You may better manage your budget throughout the year and ensure your business can accomplish its goals by having a contingency plan.


IT Budgeting Tips and Best Practices

  • Make a budget that reflects the IT plan numerically.
  • Make the budget simple to present and understand. A confusing budget will leave the department susceptible to further miscommunications and problems.
  • Because everyone should clearly understand everything in the budget, there should be little disagreement during its approval. Although specific dollar amounts might need to be adjusted, entire spending categories shouldn’t require any further justification beyond how they relate to IT strategy or operational savings.
  • Examine the budget from the previous year while creating a new one to identify areas where spending can be decreased or redirected.
  • Once it has been prepared, analyse the budget. Consider the budget items related to general operations, such as keeping the lights on, growth and improved IT skills, and R&D-type projects.


Final Verdict

Budgeting for the IT department is frequently a challenging task. Before you can come up with the ideal solution, you must evaluate various things. However, effective IT budget management is essential for IT businesses to fulfil business needs and keep supporting an organisation as it expands.


The IT department will be able to accomplish more with less effort and provide the infrastructure, platforms, and tools necessary for innovation and growth by planning effectively and strategically.