Maybe you didn’t even know you need to budget for IT. Let’s get this straight right now. You need to create a budget for your IT expenditure. You budget for your car, right? You account for the monthly payment, the oil changes and the car insurance. Managing the cost of IT should be no different.
Creating an IT budget should be a business priority – but it’s something a vast number of our clients have not done when we first begin working with them.
Read on to learn the benefits of a proactive IT budget — and how you can use it to get one step ahead of your IT costs.
Common-Sense Solution to a Common Business Problem
Small- and mid-sized businesses are often so busy doing business, they have no time to devote to IT — much less time to proactively budget for it. IT is often treated as a “one and done” activity. The fact is, IT is an ongoing, never-ending business function which requires continual care and feeding.
Here is a common scenario we see…
Business owner: “What do I need so I can communicate with my customers, do my accounting and track my sales?”
Geek: “Oh, you need a 720 class server with 64GB of RAM, 2 quad core processors, 500GB of storage, a backup drive and UPS.”
Business owner: “Say what?! English please and how much will it cost?”
Geek: “You need a server to run your software and store all your data. It will cost around $6,000.”
Business owner: “$6,000!!! So once I buy the server I’m good to go, right?”
Geek: “Well no… you also need a 323C firewall and a 7748 switch.”
Business owner: “Come again??? What for and how much??”
Geek: “For securing your server and connecting your devices… about $4,000.”
Business owner: “I really don’t want to spend that kind of money.”
Geek: “Well then I can’t do what you asked for.”
Business owner: “Okay, here’s $10,000. Now get this done and go away!”
Three to four years later…
Business owner: “Why are our systems so slow? How come our systems are going down all the time? Where is that geek again?”
Geek: “Oh, your server, firewall and switch are out dated and end-of-life… you’ll need to buy new hardware.”
Business owner: “I’m done!”
Sound familiar? That’s not surprising. This example of an IT need is actually a tiny sampling of what actually goes into IT for a business. You can see why it is so important to proactively budget for it before these situations arise.
Whether you buy your IT systems or rent them, there is an ongoing cost for IT. In the scenario above, the business owner spent $10,000 for three years of usage. In essence, they rented the solution for $3,333 a year. When you add the cost of end-user devices (like PCs and tablets), software, IT support, etc., there is a very real monthly cost to run IT — and this should be accounted for in your budget.
Making IT Budgeting an Annual Exercise
Creating an IT budget should be at least an annual exercise. It may even make sense to do this bi-annually or quarterly, but we’ll use an annual schedule as our example here.
During this annual exercise, budget for IT deliberately and in detail, considering IT costs in alignment with your business needs now and for the next 12 months.
Budgets should be driven from the top down, not bottom up. In the IT world it is very common and tempting to react to situations and circumstances rather than plan proactively for them. How many times have you had a computer virus, which then led you to purchase anti-virus software? Driving budgets reactively will not only limit your budget to low-value-add “tactical” items, more importantly it will not be representative of what your business actually needs.
A top-down budget should start with the company’s primary goals and objectives for the year. Business objectives should drive IT imperatives, which then drive IT implications and eventually the initiatives and discrete projects that should be undertaken in the coming year.
Creating a budget using your business objectives also ensures IT stays aligned to your business and creates a common communication mechanism for business and technology resources to use throughout the year.
It’s never any fun to watch a CFO receive an invoice from an IT provider and go white with fear and then red with anger at the “surprise” in the invoice. If you have an IT budget aligned to your business objectives, you minimize, if not eliminate, these surprises. It also ensures that IT helps drive the business as an enabler rather than just a cost center.
Step-by-Step IT Budgeting
Ready to create your IT budget? Here are the basic steps to start the process:
Determine what the boundaries are for your IT budget. What is in-scope and out of scope? Consider:
- Support renewals on hardware and software (always one people miss)
- Rent on hardware and software
- Telecom — phones, internet, voice service
- Website development and hosting
- Custom software development
- IT support
Identify what core systems you use. Typical systems include:
- Email (Microsoft Exchange, Google)
- Accounting (QuickBooks, PeachTree)
- Customer and sales management (ACT!, Salesforce)
- File sharing/document management (Windows folders, Dropbox)
- Primary business application(s) based on your industry
- Security — firewall
- Network — switches and wireless access devices
- Phone system — central “box,” user handsets, licensing
- Internet service (Time Warner Cable, Verizon FiOS, AT&T)
Identify what user devices you use. Consider devices such as:
- Laptop PC and/or Mac
- Desktop PC and/or Mac
- Projector for presentations
Identify if there will be any additions, deletions or changes to 2 & 3 above. Think about:
- Adding new employees creates new users in many systems
- Changing from owning systems (CAPEX) to using the cloud (OPEX)
- Opening a new office
- Changing phone systems
- Changing any of the core systems
- Systems that will become end-of-life and need replacement
Based on the above, determine if your IT support will change or remain the same
Make sure you spend extra time considering user device costs. This is one budget item that often bites businesses when they don’t plan proactively enough for it. Here is an example of a painful issue we often see:
A business starts out with 5 employees and over the next two years grows to 30 employees. Over those two years, they bought computers for each user as they were hired. Four years later, the company has 30 machines all out-of-date at the same time.
No company wants the surprise and extreme cost to replace 30 machines all at once. To address this, you should define a laptop/desktop refresh strategy that will force an annual budget.
For example, if you have 36 machines and the expected life is 3 years, one approach would be to take 36 machines divided by the 36 month life span to arrive at a refresh rate of 1 machine per month. You can then budget proactively for the cost of purchasing 1 machine per month, or 3 machines per quarter. You would buy the machines consistently over time, replacing the oldest machines with the new ones. This ensures your business will always stay current with IT and avoid that one-time sticker shock associated with replacing all the machines at one time.
Practice makes perfect. Strive to create your IT budget around the same time each year. Typically, the best time for budgeting for IT is in November/December when things slow down, current year budgets are near their end, and your business goals and objectives for the next year are already established.
Finally, if you do not have an IT person or staff to help you create your budget, reach out to your vendor(s) providing IT support services. Any vendor worth their salt should be ready, willing and able to sit with you to create and manage to your IT budget.