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How to build a smart IT financial plan that aligns with strategic growth.

5 components of an IT budget that will make your IT department shine.

IT spend is on the rise: Recent research shows that IT budgets represent, on average, 3.28% of annual revenue, with some industries spending as high as 7.1% of annual revenue on IT products and services. The variance can be attributed to anything from type of industry to market conditions, as well as investment in digital transformation.

While overall IT costs are climbing, IT hiring is not. Companies report an average of 4.2 employees per department, with no plans to expand their team. This all adds up to the need for more efficient, practical, and thorough budgeting, with IT being able to anticipate the needs of the business, track spending, and demonstrate how you are contributing to growth and transformation.

The IT budgeting process

Budgeting is a months-long effort. During this time, you need to develop not one, but two budget roadmaps: One short term, that accounts for the coming year and another with a longer viewpoint that looks forward two to three years out.

Throughout this planning effort, it is important to collaborate both within the IT department as with leadership across the organization with an emphasis on alignment and accountability, to position your team for long term success. Be sure to get the right people involved early, bringing together executive leadership with members of the IT team, with the intention of establishing shared goals.

A well-designed IT budget must delineate both capital expenses (CAPEX), that is the product investment required by the IT department, and the operating expenses (OPEX), or the budget required for IT to deliver their services to the business. A detailed plan should outline what is required to run the business, alongside what is needed to grow the business, so that IT can position itself as a strategic contributor to growth.

The seven components of a smart IT budget include: 

  1. Infrastructure
    • Choosing the networks and facilities required to develop, test, deliver, monitor, and IT services for the business.
  1. Apps and services
    • What programs are being used across the organization daily to get work done, are there additional services that will boost team efficiency and productivity to help grow your business.
  1. Cloud Services
    • Given the proliferation of cloud-hosted data, what is the level of investment needed in cloud costs? How much is currently being spent, what upcoming initiatives will require additional investment?
  1. Resources and labor
    • IT budgets should not focus entirely on infrastructure, products and services. Including labour costs in an IT budget will help shine a light on the costs to deliver services, including special projects, or expose opportunities for refinement or investment.
  1. Rainy Day Buffer
    • If we have learned anything in the past few years, it is the need to adopt an agile mindset when it comes to IT financial planning. While it is not possible to anticipate every change that might arise, a robust budget will provide the ability to quickly unlock additional funds when needed, to take advantage of new opportunities or respond to unforeseen market conditions.

Encourage accountability.

Once the IT budget has been built, it’s time to share it across the team. By making your plan transparent, everyone in IT will understand and be aligned to organizational goals and where investment is needed, how to spot inefficiencies, and how to best support the corporate strategy. By sharing the plan, you encourage accountability, which will reduce IT spend and help you stretch the IT budget.

Stick with it.

Budgets ebb and flow and should be thought of as a living document that can flex and evolve, according to new initiatives, special projects or market conditions.

Throughout the year, keep a close eye on your actual spend, according to the initial plan and changes that came up along the way:

  • Was spending limited to your planned guidelines?
  • Did you make sure your ROI on the IT spend is worthwhile?
  • Were there adjustments in response to big changes?

Budget with precision

The better you structure your IT budget to know and monitor expenses, the better you can plan for the short term and the long haul.

ITFM software is a valuable asset to give you visibility to understand where you are investing in IT and cloud services. It provides the right data, visibility, and analytical capabilities to make informed business decisions, to help you identify the total cost of IT and related projects and to refocus budgets and get more done. To learn more about how IT financial management software can provide strategic oversight, read about University of Alberta, and how they were able to reduce IT costs while increasing services across their campus.

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