IT Budget Planning: 7 Tips to Keep in Mind

Having a well-laid out IT budget is crucial for your IT department as it provides them with a roadmap to project operations. Management can easily see where the money is going and what resources are available. This eliminates the need to justify or request any IT expenses later on.

The IT costs of a company comprise a sizable chunk of its overall budget. Therefore, planning well for these expenses is a very crucial task.

Every year, IT leaders across the globe work diligently to plan their budgets and overall tech strategy.

IT budgeting refers to aligning a company's business strategy with its tech-related requirements. As the department needs are defined, the IT leaders of the company allocate resources to support the strategy.

Before the planning process starts, there are a few major questions that we must answer, like what are some of the top company initiatives, what method IT follows to make them happen, what value every project adds up to the business, etc.

Yet, the road to foolproof IT Budget planning involves a few super tips and tricks to make the planning process a resounding success.

So, let us dive right into the seven tips IT teams need to keep in mind while planning an IT budget.

1. Review Previous Budgets

Before you work on your present IT budget, it is good to understand what was in your past year’s budget. Upon reviewing previous budgets and goals, if you find a big gap in the results, you need to discuss it with top management. This helps you either ask for additional budgets or set realistic goals for the year.

To thoroughly review your prior budgets, you first need to look at all the invoices, receipts, income and reconcile those with all the bank statements for the IT department.

2. Address the Spendings Precisely

There are three major categories of any IT spending.: capital spending, project spending, and operating spending.

The capital spending usually includes all the hardware purchases, software upgrades, software licenses, and replacement of parts.

The operating spending includes all the spending associated with IT operations, such as maintenance, subscriptions, hardware support, and software support.

Then there should also be a project budget that covers the incentive-specific expenses. Typically, these expenses are a flexible part of the budget, which can be adjusted from the rest of the budget.

It is important to address all the spending and cut down on unnecessary expenditures. You need to take full responsibility and ownership of what you want your team to accomplish. You must look at the areas you ignored in the past and assume new approaches to ensure maximum efficiency.

For instance, you can propose a shift to the cloud to save on any infrastructure costs. This will increase your data storage efficiency, but it will also require a less costly budget that can be approved without a lot of negotiation.

3. Take Inventory of Your IT Equipment

Make a comprehensive list of all your IT equipment to see how old they are. Once you make a list, decide if you want to keep the equipment or upgrade them.

There are some best practices for upgrading parts. A company should purchase a new desktop or laptop every 3 to 5 years. After completing five years of a computer, it may seem it is working okay, but it is likely slower than the newer models in the market. A slower computer is bound to reduce the efficiency of the employees.

Similarly, servers need an update after every three years to exhibit the highest efficiency. WiFi routers last up to 4 to 5 years approximately, and mobile devices can go on for 2 to 3 years.

So, if you feel your devices have been around far too long and your efficiency is taking a downwards dive. You need to upgrade your IT equipment. While this may create a new expense for the upcoming budget, it may be worth it. If you ignore such expenses for the sake of cutting costs, then bad equipment will become worse to stop working completely someday.

4. Understanding the Recurring Expenses

Many IT costs are recurring in nature. For instance, cloud storage space. The more data your company accrues, the more space you need. If you still use legacy storage, then your first task should be to change it. But even if you are on the cloud, you need more space once the current space runs out. And the space will run out!

Another recurring expense goes towards the renewal of software licenses. Whenever your contract with the software vendor ends, you have the option of either renewing the contract, negotiating the current agreement, or ending the contract altogether.

5. Engage Employees and Managers From Different Departments

Your employees and managers are the ones who use the company equipment daily. They have a better idea about the upgrades required.

Consulting them before finalizing your IT budget is a good idea as you can learn about the IT status quo of your company from the end-users perspective. You can also gather information about the changes your employees and managers would like to see in the upcoming IT systems and processes.

If you notice certain requests are common across multiple departments, those requirements should be prioritized.

Your budget should also hinge more on research and development efforts to improve the ability of the company to compete well in the market. For this again, you can turn to your employees and managers.

6. Segregate Between Run, Grow, and Transform Budget Items

To make your budget all-inclusive, you can segregate the budget items into three broad categories. These are:

• Run budget items - These items include all the mission-critical server replacements, software upgrades, and personnel costs related to administering and maintaining IT infrastructure at large. The organization should not cut back on spending on these items.
• Grow budget items - These items aid the organization in introducing new capabilities or enhancing the existing capabilities. For instance, implementing new software to enhance operational efficiency or buying a new firewall for additional protection from cyber threats. There is some time flexibility associated with growth budget items.
• Transform budget items - These refer to the research and development-related activities. For instance, proof of concepts, prototypes, and small-scale testing of new systems. These items can be ignored when the finances are tight.

7. Commence Vendor Research Early

You can contact your vendor’s sales representative before finalizing the budget. While this may seem counterintuitive, it is not.

By commencing sales talks before time, you can make a list of all the vendors who seem right. You can also list the pros and cons of doing business with each vendor.

You might also learn about the discounts that your company is eligible to receive, and you can make a price-based comparison to find out which vendor caters to your needs best at the lowest price.

By vetting vendors early, you can easily meet your budget planning goals because you are in a position to negotiate better by the cost comparison. This may even fuel some competition between the top vendors, consequently providing you the best deals in return.

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