While every organization has unique needs, in our time working with companies ranging from 50 to 5,000 employees, we have identified some common threads in the ways companies of all sizes and types set up their IT budget. In addition to sharing fundamental practices, there are some expenses that every organization we work with includes in their budgets.
Common IT Budget Line Items
A typical IT budget covers a range of different line items. While each company varies, at a high level, IT budgets cover topics such as:
- Network Infrastructure. This line item encompasses everything from data center space to server hardware to the cost of network connections. It may also include off-site infrastructure in the cloud.
- Enterprise Applications. A typical budget now spans both purchasing and developing company-controlled applications as well as licensing cloud-based SaaS products.
- Desktop Equipment and Licenses. While much of the attention is being paid to IT at a very large level, most companies still have their employees use personal computers. As such, an IT budget needs to account for both hardware and software needs.
- Telecommunications and Messaging. With the ongoing convergence of computing and communications, an IT budget usually includes telephony and email as well as newer communication technologies like video conferencing.
- Support and Consulting. IT budgets also account for the cost of bringing in third parties to provide support and consulting services.
- Personnel. An IT leader also accounts for the staff he or she needs both to maintain the current network and to grow it to meet the company’s changing needs.
Defining Time Frames
Most companies require their IT budget to span a year, but most initiatives don’t happen in such a finite period. In addition to a one-year projection, an optimal budget should also provide comparisons with previous year spending and projections of spending to come. Three- and five-year projections are especially important when a budget contains multi-year projects or contains current-year capital expenditures that generate future cost savings.
Allocating IT Budget Priorities
A successful IT budget does not exist in isolation. IT leaders that reflect their company’s priorities and business styles in their budget requests are more likely to get the resources that they need. This manifests itself in two broad ways:
1) Capital vs. Operating Expenditures
Different companies have different attitudes as to how they should allocate their money. Some prefer to have a large capital stock but to keep operating expenditures low, while others avoid CapEx and use ongoing cash flow to fund OpEx. In a company that prefers CapEx to OpEx, recommending a transition to cloud-based services might be less likely to gain positive attention than one that is focused on conserving capital.
2) Sales vs. Support
A company’s view of itself also determines its IT budget priorities. In a company that views itself as a sales-focused organization, IT expenditures that directly support that vision — like telecommunications systems, increased mobility for sales forces, and CRM software for greater productivity — are more likely to gain support. On the other hand, a company that looks at its IT department as a tool to support its workers may be more likely to respond positively to investments in greater automation for cost savings or in performance improvements.
About the Author
Mr. Jake Kent is an Entrepreneur & Business Owner specializing in Information Technology. Jake has founded eight companies, to include Information Technology Consulting & Delivery, Investment Real Estate and Community Banking. Jake brings vision, leadership and a strong work ethic to the CEO role. He leads by example, possessing remarkable skills, experience and expertise across business strategy, operations, financial management and sales & marketing. Jake is a founder of the Matthew-Mint Hill Optimist Club and a Board Member of the Ballantyne IT Professionals Non-profit. Read More..