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July 19, 2018

What Does the Perfect IT Budget Look Like?


Developing an IT Budget That Benefits Your Business

Budgeting isn’t exactly the first thing you want to think about. However, if your business doesn’t have a concrete IT budget, then chances are you’re missing out on opportunities to grow in an efficient and effective manner. A well thought out budget could set you apart from the competition and provide much-needed clarity for the future.



The Purpose of an IT Budget

Every business leader, whether in IT or management, understands the basics of how to develop a budget. There’s also a broad understanding of why a budget is necessary. But when you really drill down and look at the specifics of budgeting, it’s painfully obvious that most people don’t have a practical understanding of a budget’s true purpose.

If you fall into the camp of people who know a budget is important, but can’t explain why it’s necessary within the context of your organization and/or IT department, then you need to step back and get the lay of the land. In virtually every situation, a budget serves three main purposes:

  • Contextualizes income and expenditures. The first goal of a budget is to help you gain clarity around how much money is coming in and how much is going out. Ultimately, this permits you to understand profitability and make strategic adjustments that allow you to accomplish larger fiscal goals.
  • Aids in decision making. When you have a crystal clear understanding of income, expenses, and profitability, it’s far easier to make healthy and informed decisions. For example, you can answer questions like, “Can we purchase this piece of equipment this quarter, or does it need to wait until next year?”
  • Monitors long-term business performance. From a big picture perspective, a budget allows you to track and understand long-term business performance. It serves as a barometer by which you can measure what’s really happening beneath the surface.

When you view an IT budget through these filters, the need becomes abundantly clear. The sooner you’re able to figure this out, the better off your department (and the organization as a whole) will be.

Helpful Suggestions for a Better Budget

Business budgeting isn’t a whole lot different than personal budgeting. The same basic principles apply. As RISE explains, you identify the money coming in, track the money going out, and then determine the necessary changes based on how much you have left over (or how much extra is being spent).

When you specifically look at IT budgeting, here are some key points to consider:

1. Validate IT’s Role

It’s fairly common for large organizations to misunderstand the role that IT plays in the organization and not allocate enough financial resources to the department. In order to avoid this, you need to validate the role of IT.

Validating the role of IT may mean walking the executive leadership team through the tangible action steps and processes your department is involved in and explaining what the organization would be like without it.

It may look like dividing the budget up into groupings so that it’s obvious why you need the resources you do. According to Donny Shimamoto, managing director of IntrapriseTechKnowlogies in Honolulu, there are three main components: Run, Grow, and Transform.

The “Run” budget items are what you need to keep the department up and running. (Think servers, mission-critical software, etc.) The “Grow” budget items are expenses that allow you to improve and modernize along with evolving industry trends. The “Transform” budget items are initiatives that require significant research and development (but also offer the chance for a huge return).

2. Ensure Strategic Alignment

Once you have the basics out of the way, it’s important to turn your attention towards the specifics of the budget. This means looking at the larger organization and ensuring that the IT budget properly aligns with these strategic objectives.

As Shimamoto suggests, “Each organization should answer the following questions: Do the selected IT initiatives align with and support the organization’s strategic objectives? Should any initiatives that weren’t selected for the budget be reconsidered? Would any of the organization’s strategic initiatives make one of the selected IT initiatives obsolete?”

3. Develop an IT Governance Structure

It’s really important that you develop an IT governance structure to ensure accountability and cooperation throughout the organization.

“The IT governance structure should include a governance committee to help steer the decision-making process,” Baker Tilly International advises. “The IT governance committee should include stakeholders from various departments in the agency who have been given appropriate authority to hold the IT department accountable and may include the IT Director/CIO, Finance Director, Human Resources Director, and any other stakeholders the government feels are appropriate.”

4. Be as Specific as Possible

One of the bigger mistakes people make when developing budgets is generalizing line items. They assume that they’re doing everyone a favor by simplifying the budget, but they’re really doing them a disservice. When the budget is vague, it removes accountability and creates questions.

As you develop your IT budget, list every single expense you can think of. Not only does this establish clarity, but it also shows the governance committee that you’re going above and beyond the call of duty. In a situation where they’re considering whether or not to extend additional resources, this may provide some extra leverage.

5. Constantly Reevaluate

The nature of IT is such that new technologies quickly emerge and old ones rapidly become obsolete. By constantly reevaluating your budget on a revolving basis, you can stay ahead of these trends and begin thinking about future investments far before the time for implementation arrives.

Adding It All Up

The basic principles of budgeting remain the same from business to business and department to department. The specific techniques and application points will vary depending on the needs and stipulations you face. Hopefully, this article has created a framework through which your IT department can begin to develop a budget that benefits your business in both the short-term and long-run. It’s time to dig your heels in and get started.



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