Budgeting is a critical aspect of every Information Technology (IT) leader.
Is your IT department operating with a budget?
Is your budget aligned with the business objective?
Is your budget focus on short term or medium term or long term goals?
A proper planning and implementation of a budget is key in order to create value.
The aim of this article is to help you understand and appreciate the importance of a budget, who is affected and implementation, whether you are a small or a big enterprise.
The article will be discussed in two parts; in part one, the conversation will be around answering to questions – what is IT budgeting and why does IT budgeting matter?
Part two will look at who does IT budgeting affects and what IT budgeting tips are and best practices.
Large organisations with an established IT department operate with specific IT budgets.
Some small businesses operate without a budget and for other organisations, the IT budget operates under finance or general administration.
The IT budget is the total allocation of IT spending over a 12-month period.
IT spending or budget can come from anywhere in the enterprise that incurs IT costs, and it is not limited to the IT organisation.
It includes estimates by enterprises on decentralised IT spending and or shadow IT.
The IT budget covers hardware, software, personnel, outsourcing, and disaster recovery and occupancy costs associated with supporting IT within the enterprise.
Costs also include all taxes (except value-added tax where it is recovered or refunded to the organisation). – Gatner.com
The concepts in our conversation are credited to Patrick Gray.
Patrick Gray works for a leading global professional services firm, where he helps companies rapidly invent and launch new businesses.
What is IT budgeting?
Budgeting is the process of allocating monetary resources to various IT programmes.
These could range from recurring expenses like hardware leases and staffing to expenses dedicated to a fixed-duration project or initiative.
In some companies, this is primarily an annual exercise, while other companies might demand budgets for each initiative as it arises.
An IT budget is a wish list of funding for every conceivable project and technology that’s expected to be reduced, trimmed, and rejected.
In some companies, a reasonable budget is developed and then doubled or tripled to try to “game” the budgeting process and garner what is actually needed.
Your approver, whether he or she is in IT or from the finance side, is probably on to this game, has a general idea of what is appropriate, and will probably impose increasingly draconian cuts as you respond with increasingly ridiculous increases.
Rather than an attempt to secure the maximum pile of cash, the budget should be regarded as a manifestation of your IT strategy.
If you have been communicating a strategy of migrating infrastructure to the cloud and highlighting the operational savings, your budget should reflect those savings and use them as justification for increased project expenses elsewhere.
In short, every line on the budget should tell a story that maps back to your IT strategy.
If you have done a good job of communicating and sharing that strategy, it will shift the budgetary process to change amounts rather than justifying whole categories of spending.
Generally, an IT budget can be divided across various categories, depending on the complexity of your department and its structure.
At a basic level, you could structure your budget as follows, with each subcategory “rolling up” to the parent to create a total budget:
Ongoing expenses
Staff compensations
Recruiting and staff Acquisitions
Internal staff
External staff
Hardware
Servers
Client computing Resources (laptops, desktops, tablets, etc.)
Network infrastructure
Support contractors
Software
Licenses
Subscriptions
Maintenance and support contracts
Projects Expenses
Project 1
Consulting expenses
General and administrative
Hardware
Software
Project 2
Cybersecurity Security Expenses
Staff training and development
More established companies might attempt to allocate the elements of their IT budget to the various departments or organisations that IT supports and even charge costs back to that department.
While chargebacks are beyond the scope of this discussion, be aware that they add significant complexity to the budgeting process and should not be undertaken lightly.
Why does IT budgeting matter?
Budgeting is obviously important, as it provides the funding to keep your department running. Beyond just “keeping the lights on,” your budget is an important tool for identifying and executing the IT initiatives that are crucial to your department.
Without a budget, you may be forced to request and justify every IT expenditure as it arises, which makes for significant unnecessary overhead.
Smaller organizations may find themselves willingly migrating into a periodic budgeting process, as IT expenditures that were once simply spent as incurred, or justified with a 30-second hallway conversation, blossom into significant IT spending that can be consolidated and made more transparent through a budgeting process.
Like a project plan or IT roadmap, the budget provides direction and a holistic view of your department and its funding requirements.
It lets you quickly determine whether resources are overcommitted in one area or another, and in the case of department-level IT budgets, lets you compare what you are spending versus similar departments.
With the help of benchmarking organizations, consultants, or simply a call to a peer at another company, you can even perform this on the most sophisticated and complex IT budgets to see whether you are spending more or less than peers on a particular area.
Rather than just a wish list for funding, consider the budget as a tool to prioritise your IT initiatives and validate that your monetary investment matches your strategic priorities.
If one of your strategic imperatives is that you retool your organisation to support a shift to mobile apps, but your hiring and training budgets are tiny, you have likely set yourself up for failure before you have even started.
Similarly, your budget lets you quickly identify areas where you may be overspending.
A massive software budget might reveal that you are spending on unused or unneeded software licenses or on support expenses for an older version of a tool.
Your budget can also serve as justification for strategic initiatives.
Expensive infrastructure costs are easy support for a move toward cloud infrastructure, just as excessive external staffing expenses might justify additional hiring.
Instead of looking at the budget solely as an administrative process, regard it as a validation and support tool for your IT strategy.
If you do not have a formal or informal IT strategy in place, the budgeting process is as good a place as any to start investigating areas for improvement that will be cornerstones of your first attempts at more strategic IT management.– Credit Patrick Gray in CXO, www.techrepublic.com
To be continued.
The author is a speaker, mentor, educator, trainer, professional & community leader, IT and cybersecurity leader. For comments email: ICTMatters@kingston.co.zm; www.kingston.co.zm.