You need to spend money to make money.
Every business spends on people, office space, research, sales, marketing, and IT every year during the natural course of its business. But how much to spend under what bucket?
IT is one of the biggest expenses in any organization. Gartner predicts that worldwide IT spending will grow to $5 trillion in 2024. This steady growth brings with it the need to manage such investments efficiently—a task good IT budgeting is poised to achieve.
In this blog post, we discuss how you can use IT budgeting best practices for better financial management in your organization.
IT Budgeting Strategies for Improved Financial Management
Summarize this article for me pleaseWhat is IT Budgeting?
IT budgeting is the process of strategically allocating funds to IT projects, tools, systems, infrastructure, and operational costs. This includes analyzing, interpreting, forecasting, allocating, approving, and overseeing IT spending.
Summarize this article for me pleaseKey Components of an IT Budget
An IT budget encompasses everything that the IT department needs and uses. This includes the following.
Hardware: Expenses related to physical technology assets such as servers, computers, networking equipment, and peripherals.
Software and services: Software licenses, applications and platforms. This can range from off-the-shelf software to specialized enterprise solutions and subscriptions to cloud-based services.
IT staff expenses: While the personnel costs typically come off the HR budget, expenses for consultants, vendors, training, etc. is part of the IT budget.
Technical support costs: Ongoing maintenance and support costs, including software updates, hardware repairs, technical support services, and warranties.
Information security: Securing IT systems, including firewall and antivirus software, intrusion detection systems, and security audits.
Cloud computing: Cloud services and subscription fees for cloud storage, computing resources, SaaS applications, and platform-as-a-service (PaaS) offerings.
Summarize this article for me pleaseThe Basics of IT Budgeting
IT budgeting is an important part of IT Financial Management (ITFM), a popular approach to financially enable the needs of an organization.
ITFM focuses on minimizing waste, saving costs, forecasting capital and operating expenses, and encouraging desired financial behaviors, all of which can be achieved through budgeting.
Why is IT budgeting important?
At the most basic level, IT budgeting is necessary to prevent money you don’t have, i.e, overspending. In addition, IT budgeting benefits a lot more than that.
Return on investment
A good IT budget ensures that there is a return on every penny spent by the organization. It also helps project managers and leaders focus on initiatives that are more likely to produce outcomes.
For instance, if you’re investing in ticketing software, a good IT budget will make a case for the exact returns you expect, in the form of increase in TAT or CSAT scores.
Strategic alignment
IT budgets help department leaders stay aligned with the organizational strategy. For instance, if the business strategy is growth, you’d allocate more budgets to customer acquisition tools, such as CRM, email marketing, sales analytics, etc.
Wholesome view
When IT budgets are set at the beginning of the year, it takes a wholesome view of the entire department’s needs and goals. This enables IT heads and project managers to plan their year effectively.
Experimentation
Good budgeting ensures that you set aside enough money for experimentative projects, which can help scale your innovation. For example, you might set aside 5% of your IT budget to build something radical without it affecting the rest of your work.
To gain all these benefits, you need the right people at your table.
Who is involved in IT budgeting?
Good IT budgeting needs to be a collaborative plan between finance and IT. Key stakeholders include the Chief Financial Officer (CFO), Chief Technology Officer (CTO), or Chief Information Officer (CIO).
Typically, a CTO/CIO is responsible for planning and requesting an IT budget, which the CFO analyzes and approves. So, the CIO is responsible for:
- Creating the IT strategy with projects aligned with business objectives
- Identifying needs, forecasting costs, and prioritizing expenses
- Collaborating with other departments to understand the IT needs of the organization
- Managing IT costs, designing cost-saving measures, and negotiating with vendors
- Agile capacity planning and resource leveling
- Assessing and mitigating risks related to IT investments, including security/compliance risks and project overruns
In parts of this process, other departments might be involved as well. For instance, HR might have a say in hiring contractors or consultants. Procurement KPIs might include negotiating the best price with vendors.
How is IT budget related to revenue?
IT budgeting concerns the outflow of funds, i.e., expenses. IT revenue is the income, tracking how much money IT services or products generate. You need a good balance between IT revenue and budgets to maintain profitability.
Average IT budgets as a percentage of revenue is a key success metric across organizations. It can range from 2-8%, depending on the industry. For instance, the construction industry spends about 1.68% of revenue on IT, while banking spends nearly 8%.
To maintain that standard and ensure return on investment, you need a process. Let’s look into it.
Summarize this article for me pleaseExploring the IT Budgeting Process: A Detailed Step-by-step Guide
Budgeting is a process that involves managing multiple moving parts. You need a good process and robust IT project management software like ClickUp to plan effectively. In this section, we discuss both.
1. Assess current state
Before you visualize a future state and plan for it, you need to understand where you stand. Review your current IT landscape, including:
- Existing IT infrastructure, including hardware, software, network systems, and security measures
- Performance metrics, such as system uptime, incident response times, and user satisfaction levels
The goal is to identify strengths, weaknesses, and areas needing improvement or investment. For instance, if your servers are frequently over capacity, it indicates a need for investment in additional or more powerful servers.
Use ClickUp Dashboards to understand your current state. Customize it with the reports you need and evaluate gaps.
2. Define IT strategy and objectives
Understand the business’s goals for the coming years and determine how IT can support them. Based on the business strategy, create a supporting marketing strategy.
For example, if a business aims to increase its market share by launching an online platform, the IT strategy would include building e-commerce capabilities. So, plan for that. Using an IT template or a technology roadmap template can accelerate your journey.
Or start on a clean slate and brainstorm your needs collaboratively with your team using the ClickUp Whiteboard. Invite feedback and convert items into tasks directly from the whiteboard.
3. Forecast requirements
Based on your IT strategy, conduct a thorough requirements analysis. Cover technology upgrades, new system implementations, staffing needs, and other required IT resources.
For instance, if you’re looking to rapidly scale software development, you might need IT documentation software to incorporate repeatability into your process.
ClickUp Forms is a great way to collect requirements from project or functional leaders. Set up a form and send it to heads of product, security, infrastructure, data, etc., to capture their needs.
4. Estimate costs
Estimate the direct and indirect costs associated with your requirements. Calculate the total cost of ownership. For instance, your new analytics software might cost you $X a month in subscription.
In addition, you’ll spend on implementation, customization, user training, maintenance, etc. Ensure you cover all costs associated with each item on your budget request.
5. Prioritize investments
You’re unlikely to get everything you’ve planned for. So, prioritize to make sure you get budgets approved for the most important programs.
For example, if you need to choose between upgrading its CRM system and enhancing cybersecurity measures, it might prioritize the latter if it has identified recent security threats.
Before you ask for a budget:
- Evaluate the business impact of each budget item
- Document its strategic importance
- Calculate expected ROI in terms of business value, such as savings, efficiency, productivity, etc.
6. Develop the IT budget
With all the information on hand, create a comprehensive presentation of your budgets. Any good small business budgeting software can do the trick for you.
Create a table with line items for each expense category. Include information about the associated project, how much you’re looking to complete, the budget you’re requesting, potential ROI, and any other resources you might need.
Use ClickUp’s project budget templates to get started right away.
7. Obtain approval
Take it to the finance and business leadership to get your approvals. At this stage, be prepared to answer questions and negotiate with them. If you’re using a project budget software, this can easily happen async as well.
8. Implement and monitor
It’s now time to spend the budgets you’ve been given and implement your strategy. To make sure you’re making the best of your budgets, set up your projects on IT operations management software and monitor progress.
ClickUp’s accounting template helps manage this process effortlessly. With its nine different views, this advanced template makes monitoring the accounts payables and receivables easy.
9. Review and adjust
The IT budgeting process needs to be iterative. Set up a budget calendar and regular spending reviews. Compare actual spending with planned budgets to recalibrate for changing business needs, technology advancements, or deviations. Ensure your IT governance initiatives are in line with your budget usage.
While you’re following the above budgeting process, here are some best practices to keep in mind.
Summarize this article for me pleaseIT Budgeting Best Practices and Tips
Auditing current infrastructure, collecting requirements, estimating costs, balancing conflicting demands, and making compelling budget proposals can be a lot to handle. To make that a little easier, here’s some advice from leaders in this space.
Align IT budget with business goals
The best way to get your budget approved is to keep it in close alignment with business goals. If the connection doesn’t seem obvious, take the time to make the case.
For example, you might want to invest in machine learning, while the business strategy is to prioritize customer experience (CX). As an IT leader, make a case for how your machine learning initiatives can improve CX and what business goals it can help achieve.
Use data and analytics
While conducting your audit, see if you can go back a few years. Gather the data to identify patterns, potential savings, and make informed decisions.
If you don’t have the information, set up ClickUp’s IT management software to capture data points for the future.
With ClickUp, you can collect information about your project efficiency, including estimated time, time taken, length of the project lifecycle, expenses, payments, returns, etc.
Communicate transparently
Good IT budgeting needs the input of your team members, project managers, business counterparts, and finance teams. Regularly communicate with them to build transparency and trust.
ClickUp’s tasks include nested comments to chat in context. Use the ClickUp chat view to see all your messages in one place and reply when you’re ready.
Build adaptability
While budgeting is done yearly, the budgeted cash isn’t spent all at once. So, be adaptable with your budget throughout the year.
- Conduct regular reviews to know how your outflow is performing
- Have quarterly sessions to see how your project budget and performance have progressed over the last quarter and what you need for the upcoming one
- Speak to business teams to understand how the IT programs are helping them
- Reallocate budgets based on what you learn and what you need
- Account for IT risks. Here’s how
Summarize this article for me pleaseManaging Risks and Mitigating Factors in IT Budgeting
With cyber-attacks, server downtimes, data breaches, compliance tightening, and human errors, IT is riddled with risks. The IT budget needs to acknowledge and account for risks.
Here are some potential risks and how you can mitigate them.
Use scenario planning to manage risks
When you’re forecasting requirements, consider the various scenarios. For instance, if you need a new CRM, you might build it, or buy a SaaS tool, or adapt existing spreadsheets to serve this purpose.
Explore each of these scenarios for costs, benefits and risks. Plan your budgets to mitigate the risks arising from the choices you make.
If you choose the spreadsheet way, you might need to hire more people or spend more time manually managing it. Set aside budgets for additional people.
Prepare for outsourcing risks
IT teams use outsourced teams to save costs in salaries and overheads. However, reliance on external service providers can introduce risks related to vendor stability, quality of service, and the potential for service disruptions, which can impact business operations.
- Evaluate your vendor for reliability
- Setup a strong contract, clearly defining deliverables and penalties
- Try to spread your risks by engaging multiple vendors
- Design a cost management strategy in case you are hit with the risk
- Build backup mechanisms
Strengthen risk and compliance management
IT risks can be expensive. IBM finds that the average cost of a data breach is $4.45 million. When British Airways was found in breach of the General Data Protection Regulation (GDPR), the EU fined the airline £20 million!
The only way to stay ahead of these risks is to actively strengthen your security measures. Manage project budgets to support continuous optimization of security and risk management initiatives.
Summarize this article for me pleaseSlice and Dice Your IT Budgets With ClickUp
It is common for teams to think of budgets as the limits for their spending. On the contrary, a well-planned budget can be the freedom to execute the projects you want to.
Use ClickUp to create clarity and transparency in the budgeting process. Collect data and run your projects on ClickUp for greater efficiency and granular monitoring. Review performance regularly and adapt as you go along. Save money along the way.
Let IT budgets liberate you to pursue your goals. Try ClickUp today for free!
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