An IT budget is a financial plan that outlines the costs associated with implementing and running a company’s IT. The goal of an IT budget is to ensure that the company’s technology resources are allocated efficiently to meet their needs in the most cost-effective way possible.
However, IT budgeting doesn't always come easy for every business owner. Some may not have a good understanding of the costs associated with technology or may not know where to start when it comes to budgeting for IT resources. To help, here are some practical tips for setting up an effective IT budget:
1. Use budget standards as a reference point
To get started, you'll want to do some research on industry budget standards for the type of technology your business needs. Many companies spend 6% of their annual revenue on IT, although this number can vary depending on the size and complexity of an organization. For example, startups tend to spend more on IT than established enterprises because they need to build out their technical infrastructure from scratch. Similarly, organizations in healthcare tend to have higher IT budgets due to complex data privacy and regulatory requirements.
2. Assess your current IT expenditure
Take the time to review detailed expense reports to determine where money is currently being allocated and how much is being spent on each IT activity. If you haven't already done so, break down your IT expenses into the following categories:
- Capital expenditure – for any hardware and software purchases made up front
- Operating expenses – for staffing, maintenance, support, and other services that are paid on an ongoing basis
- Project costs – for one-time expenses associated with specific projects and initiatives, such as software development, cloud migration, and remote work implementation
Knowing where you spend your money will help you determine where you can reduce expenses or add more resources to meet your goals.
3. Identify future IT needs
Once you have a clear picture of your current costs, begin planning for future IT investments. Think about the type of technology you will need to support the business, both in the short-term and long-term. This can include factors such as additional hardware upgrades, software licenses, and staff training. For example, workstations and servers should be refreshed after five years, so if you're nearing that timeline, it's important to account for that in your budget. You should also consider the annual cost of optimizing different IT functions like cybersecurity and data backups.
4. Align company goals with IT investments
The ideal IT budget should help your business meet its goals. Consider the strategic objectives of the company and what technological investments will help you achieve them. For instance, if your goal is to increase customer satisfaction, then you may want to invest in customer service software. Alternatively, if you want to reduce costs and increase efficiency, you may have to spend a portion of your budget modernizing your IT infrastructure with cloud platforms like Microsoft 365 and establishing a bring your own device policy.
5. Take a preventive approach to maintenance
A preventive approach to maintenance is a great way to save money on IT costs. That means instead of saving most of your budget for emergency repairs and troubleshooting, you should allocate funds for maintenance and support services that can prevent problems in the first place. This includes investing in regular system checks, software updates, cybersecurity training, network optimization, and more. Allocating your budget for these services now can save you from having to lose thousands of dollars later on.
6. Set up a rainy day fund
While preventive maintenance is important, it's still wise to set up a rainy day fund to handle emergency issues like data loss, hardware failure, and security breaches. This fund should be used to cover costs related to disaster recovery, incident response, and other urgent IT needs. It’s also a good idea to include a budget item for professional services, such as those provided by an IT consultant or managed services provider, to help you handle IT-related issues quickly and cost-effectively.
7. Monitor and adjust your budget as needed
IT budgeting isn't a one-time process, it's an ongoing effort. Make sure to review your budget on a regular basis and adjust it as needed when new problems arise, goals change, or new technology trends emerge. This will ensure that you always have the funds needed to support your IT activities and stay competitive in your industry.
Budgeting for IT is hard work, but with the right guidance, you can create a budget that helps you meet your goals. Athens Micro is a managed IT services provider that can guide you through the budgeting process and provide you with the technology support you need. Contact us today to learn more about our services.