In Depth Guide to Managing IT Budgets

October 27, 2019 | Posted by: Meghan Donovan
Managing IT Budgets

The word "budget" may give you the urge to run for the hills, but it doesn’t have to be a scary process. The process itself can vary slightly depending on the size of your organization, but many of the core principles remain the same whether budgeting is an involved corporate procedure or a hallway conversation in a small startup.

Move away from the mindset that this is just a grueling administrative practice and consider that your budget is actually an important strategic document for your IT department and your organization as a whole. A budget should clearly communicate the resources that you will need to achieve your goals and priorities.

In this article we'll take an in-depth look at managing IT Budgets and we hope to offer you some helpful, practical advice to craft an organized, goal-oriented budget for your information technology department.

Getting Started

If you’re feeling overwhelmed and don’t know where to start, the first step is to take a look at the previous year's budget.

Analyze the reasoning behind each line item in the budget and the corresponding amount asked for. In some cases, there may be detailed justification that already accompanies the budget, while in other cases you may need to seek answers from the person who created the budget or your management team. From there, take a critical look at things that could have been cut from the budget, what areas need improvement or where you need to make additions, and document what is already working well.

Basic Components of an IT Budget

Basic Components of an IT Budget

Some of the basic components of an IT budget (or any budget really) can be divided into operating expenses and project expenses.

Operating Expenses include things like payroll, administrative costs, hardware, and software needs while Project Expenses would include expenses directly related to each specific project that you are budgeting for. Project expenses can also include payroll, administrative, hardware, and software as long as they are tied directly to that specific project. 

This can also further be broken down into fixed costs versus variable costs within your budget.

Fixed Costs cannot be changed and include things like regular staffing costs while Variable Costs could be optional contract workers. Only about 25% of a typical budget is made up of variable costs that can be changed. The rest of the budget is usually fixed operational costs that support infrastructure and staffing needs.

Related: How to Reduce Operating Expenses in Business

Don’t Inflate Your Budget Unnecessarily

Don't Inflate Your IT Budget Unnecessarily

An old budgeting strategy was to inflate the actual financial need by two or three times in the hopes of getting the amount that you want rather than the amount that you need. While this may work in some organizations, it surely isn’t the most effective way of budgeting or earning respect from management.

Some departments also feel pressured to spend all of the money available to them before the end of the fiscal year in order to prevent cutbacks, which is also ineffective and ultimately affects a company’s bottom line. 

When Managing IT Budgets, try to trim the fat before you even bring your budget to the table.

By only asking for what you truly need, you communicate very clearly what direction you are hoping to move in, what your priorities are, and what goals you hope to meet. This will also earn you a reputation in you organization as a straight-shooter, so that you may not have to work so hard to justify items in your budget or provide supporting documentation for the things you are asking for. 

It’s also okay and encouraged not to spend the full amount if you’re able to find ways to cut back throughout the year. This may be due to necessity if the organization doesn’t do as well as predicted, or it could be that you found a more cost-effective solution for a goal communicated in your budget. If your spending (or lack thereof) still aligns with your goals, then management will likely be impressed with your cost-saving strategies and trust you more when you lay out the budget for the following fiscal year.

Make Sure Your IT Budget Aligns with Shared Goals

Determine IT Budget Goals

We’ve mentioned how budgets communicate your goals and priorities to management. That being said, you likely won’t get much support if you aren’t able to align those goals and priorities with the goals of the company at large. 

Seek input from upper management and your counterparts in other departments to get a sense of what needs to be accomplished in the coming year and what IT support will be needed in order to accomplish these shared goals. At the same time, take the opportunity to showcase your knowledge of new technology that can support their goals.

From here, you can build your budget with a solid rationale for purchasing those licenses for a new software suite, the new tablets that a team will need for a specific company project, or the payroll increase for new IT staff to support the needs of the company as it grows.

Consult With Your Team

Consult With Your Team When Creating and Managing IT Budgets

On the topic of consulting with upper management, it is also equally important to consult with your IT team to see what their needs are.

Given that many of your colleagues in the IT department are on the front lines, they will have the best understanding of where inefficiencies lie, not only with respect to their own needs but with respect to the support that the company needs as well. Getting your team involved in the budgeting process by incorporating their feedback and sharing a little bit about what the approved budget looks like can go a long way to building important trust and respect and insuring that your team feels supported and advocated for. 

Needs vs Wishes

There is an important distinction when it comes to budget time, much like in a personal budget, between needs and wishes. While there may be a new software or new gadgets that are cool and top of the line, it’s important to consider whether they are truly necessary to the company’s success. Sometimes, posing the information to upper management while you are building the budget may provide some idea of what resources they have available to overhaul a system or replace scads of hardware. Sometimes making a financial investment upfront can be worthwhile if it will ultimately help a company meet long-term goals.

Optimize

By optimizing operations, you effectively eliminate redundancy and wasteful spending. This can include a number of measures:

  • Consolidate: Eliminate the need for useless programs, software, and apps by finding one all-encompassing tool that can be used for a wide variety of functions. For example, using G Suite instead of Microsoft and other suites keeps everything in one place and thus can eliminate cost from multiple suites as well as improve security and data loss prevention.
  • Cut unnecessary costs: In the same vein, stop paying for legacy licenses, subscriptions, and other fees that aren’t being used. 
  • Share People Power: Find ways for employee roles to overlap departments to make the most efficient use of one person’s time as well as sharing the cost of that person’s salary. For example, if multiple departments need a dedicated IT support person, they could share the payroll cost for that person and that person’s time is also used more effectively than if only being used by one department that may not have enough work to fill their time.
  • Financing: Work with external partners to come to financing agreements for software or hardware that the company needs; or see if there is a way to “try before you by” via a trial period. The latter has the dual advantage of being able to demonstrate effectiveness when including it in the budget that follows.

Get Support When Managing IT Budgets

Get Support When Managing IT Budgets

At the end of the day, unless you are an accountant, it will likely require some support to properly balance the budget that you are creating. If there is a person in your company dedicated to finances or accounting, use their expertise to polish the draft of your budget before submitting it for approval.

If not, consider taking a basic accounting course online or at a local institution in order to fully understand the nuances of creating and managing a budget.

And if you'd like to discuss your current office licensing costs and discover how much you could save by going Google, contact Suitebriar. As a Google Cloud Premier Partner we're equipped to analyze your business and create customized solutions to save you money on phone service, cloud storage, office suite licenses, and more.

Joshua Wold"Our first-year savings for our Office licensing was well over $100,000, if not $150,000. Right off the bat, we were able to save that money."

Joshua Wold, IT Manager
West Liberty Foods