IT budgets require a lot of thought, but the process of planning, organizing, and presenting your budget doesn’t have to be painful. In fact, a well-developed IT budget can be a focused road map for your IT strategy. You’ll avoid “wish list” budgets that support the false view that IT is a cost center rather than a profit center.

If you think of and present your IT budget as a strategy instead, it’s much more likely to gain support.

What’s even better, a strategic IT budget will clearly demonstrate your value to the organization.

First, Some Good News—IT Budgets Are Growing

These days, IT has joined the forefront of the business. It’s not just about running to help fix a broken PC anymore; IT departments are responsible for deploying the innovative technology that helps the business grow.

In other words, companies are slowly putting more and more resources toward the fun stuff like new technology (e.g. cloud, mobility, big data). That’s a direct result of the rise of virtualization and cloud models, which alleviate the costs of managing IT infrastructure or data centers.

So, for example, the IT budget of a forward-thinking retail business may dedicate a lot to big data and tap-and-go payment technology, which let them to improve loyalty programs and customer service speed, respectively. Improvements like these have direct impacts on the business’s bottom line.

Gartner even predicted that global IT spending will grow 6.2% in 2018.

This is the highest annual growth rate that Gartner has forecast since 2007 and would be a sign of a new cycle of IT growth.” – John-David Lovelock, Research VP, Gartner

Another important area where spending is increasing is security. There are more vulnerabilities and threat surfaces than ever, so your business’s leaders likely have brand reputation on the brain. This is a crucial strategic point to think about during your planning, and to bring up during your presentation.

How to Strategically Plan an IT Budget

If done well, your IT budget should simply be a numerical representation of your IT strategy. Ideally, no one will be surprised by your budget proposal—it’ll just affirm what they already understand to be true.

It’s also a helpful reference for you. At a glance, you should be able to spot the areas where you’re overspending, and in certain cases, compare your department’s spending to other, similar departments.

A well-planned budget will also help you ensure that your investments match your strategic priorities. For example, if you’re launching a major shift to a new technology, but your hiring and training budgets aren’t allowing for employees who actually know how to use the technology… there’s a problem.

On the flip side, you may discover that the cause of your budget bloat is the software licenses that nobody even uses anymore.

If you haven’t already crafted an IT strategy, this is an opportunity to create a tentative one. Think about what the business as a whole wants to achieve—then talk about it at your presentation.

What Not to Do

That said, there are two mindsets to avoid from the start.

First, an IT budget is not a wish list. Don’t include every single project and item that you can imagine. This may come from a pessimistic attitude; you expect your whole budget proposal to get slashed. But it guarantees that IT will look like a big cost center. Remember, you’re trying to position yourself as a profit center.

Second, do not artificially double or triple your budget proposal. The budget approver (e.g. the CFO) will have a general idea of what’s appropriate. So they’re going to sniff out your plan immediately. Making moves like this is the fastest way to destroy trust and credibility. Furthermore, it’ll probably backfire spectacularly and you’ll suffer harsh budget cuts.

Instead, think of your IT budget as the path to obtaining the resources you need for the fantastic—even visionary—plans you’ve been thinking about all year.

So when you’re planning your budget, describe the longer-term (IT strategic plans typically cover the next 3-5 years) directions for the IT assets you want to get. Thinking long term is especially smart when you want to recommend things like data center or infrastructure investments, since these are harder to justify on a single use case.

And again, don’t forget the overall business’s goals! You’ll have much more success if you can show that an investment is vital for the company to grow.

Things to Keep in Mind as You Plan Your IT Budget

Show that you can keep maintenance costs under control. If the business leaders see that you make wise decisions in choosing vendors and products that remain valuable for a long time, they’ll more easily trust your recommendations.

Remember that IT budgets are subject to the constraints of the organization. Even the most successful organization with well-planned goals and correctly estimated budgets will have to undergo budget cuts if the overall organization is struggling.

Vendors can be a helpful resource. Often your vendors (e.g. software vendors, strategy consultants, etc.) are more than happy to help you plan a road map, and they can provide great advice. But be aware that their perspective is biased. This is why it’s important, however, to only work with vendors whom you trust.

Compare your spending against last year’s budget. If you find that your department’s spending has deviated from your last budget plan, or you see better ways to allocate resources, use those observations as input for the current budget plan. If you come to a proposal meeting with an optimized budget and you’ve tried to find ways to save money, the budget approver will be way more receptive.

Measure maintenance costs vs. innovation investments. Some IT departments realize that as much as 80% of their budget goes toward maintaining existing applications and infrastructure. A situation like this leaves you little room for helping the organization with forward-thinking projects.

Understand your priorities. If you end up having to make cuts, understanding your strategic priorities will help you figure out cuts that have the least impact on your overall plan. Be honest and upfront about what your IT department can do.

How to Organize Your IT Budget

Now that you’ve aligned your budget to a strategy that follows the overall business’s goals, it’s time to organize the budget. This will make it easier not just for the budget approver to review, but it will make the process much quicker and easier for you down the line.

Look at your budget through the eyes of the approver. Does every purchase make sense? Is each purchase the best use of the business’s resources?

For each line item, include a description in plain English (that means NO jargon!). The description should also explain the return on investment or value of each purchase. That goes even for the smaller purchases and recurring costs.

Usually every item in an IT budget falls into two broad categories:

  1. Recurring expenses (e.g. hardware leases, software licenses, staffing, data pipe, etc.)
  2. Fixed-duration projects

Track All the Things

Your future self will thank you if you get into the habit of tracking everything. You’ll save yourself a very unhappy weekend excavating your inbox to figure out what the past year’s costs were.

Every time you make a purchase, record it in one place. Track recurring costs and when they recur—you probably have different contracts that are renewed annually, quarterly, monthly, etc. This can be a big mess to wrangle if you don’t have it all written down in one place. The goal is to be able to see at a glance all your recurring costs for any time interval.

Going one step further, you can track lead time for all your vendor assessments—i.e., the number of days before a given contract’s end date. Some organizations have an automatic report scheduled for every month that shows the upcoming renewal dates. This way, you have time to consider whether you want to renew or begin evaluating alternatives. Otherwise, the date may sneak up on you. You can easily end up paying the recurring cost despite having wanted to evaluate other vendors, or you may incur a penalty if you end a contract without giving proper notice.

And that’s not all to track—keep tabs on the costs for new hires by department, as well. It’s possible you’ll be asked for this information throughout the year, so best be prepared at any given moment.

The itemized costs should include hardware, software, and other licenses by department. For example, salespeople may get corporate cell phones while customer service reps get soft phones. In some cases, the cost is actually a small piece of a larger purchase—like a 25-pack of client access licenses.

Categories in Categories in Categories

Once you’re tracking everything, categorize all of it. Here are a few ways you should categorize your line items:

  • Whether they’re new initiatives, recurring costs, or salary
  • By type of cost—equipment, software license, support, etc.
  • Whether they’re desktop hardware, network hardware, software, printers/copiers, telecom, etc.
  • Operational expense (opex) or capital expense (capex)
  • Depreciable asset or not
  • Priority level (e.g. “mission-critical,” “would like,” “can do without,”)

Provide the budget approver with a cost calendar so they know when you expect to incur costs throughout the year. You can break it down by month or by quarter. Spread out costs where you can (i.e. don’t put them all in the first quarter). Sometimes a project is cheaper to start halfway through the year—this may be enough to get the project approved.

Some Common Mistakes to Avoid

Don’t make it too complex… or too simple. If you micromanage your budget by creating a line item for every paper clip, it’s easy to end up with an inflexible budget. On the other end of the spectrum, don’t create a generic budget with a top line item labelled “stuff.”

Don’t forget taxes. Taxes (e.g. sales tax) add up! If you don’t account for them, you may run out of budget far faster than you expected.

Plan for disaster. Have a disaster fund that’s separate from the standard budget. If, for example, someone broke in and stole laptops, you’ll want some funds set aside to deal with that.

Project longer-term cloud expenses. Cloud-based applications are great because they can be opex, and your CFO will be more comfortable with that model. But if you need full governance over a cloud app for many years, be upfront about it.

Don’t under-invest in training. Training is considered a discretionary expense, but with the current IT skills shortage, a lack of investment in training causes a lot of problems. You need staff that is prepared to run the new technologies that you want to deploy.  Discuss the skills that your staff will gain from the training, and how those skills will add value to the business.

Don’t spend all your money on storage. Because it’s cheap, storage is considered a commodity item that you just purchase whenever you need it. But the nature of data and storage is changing. Determine which data need to live on fast-moving solid-state storage, on hard drives, and on slow but reliable archival storage. Then you’ll be better able to argue for an effective way to manage storage.

Don’t stress over the differences. Lastly… don’t sweat the small stuff. There is nobody out there who can balance a budget perfectly. You will see differences between your proposed budget and the actual spending. Instead of stressing out about them, learn from them for next year’s budget.

Communicate Ahead of Time

You should start communicating your budget even before the actual budget meeting. Your proposal should not be a surprise to anyone there (ever heard of sticker shock? Yeah, avoid that). Start selling your budget before you even start writing it, so you can communicate and get support for your IT strategy.

You could even team up with other business leaders. They can help you figure out where IT can make a positive impact inside the organization. This also shows you’ve had conversations with people outside your department and that you’re thinking of how to help the whole organization.

Not a bad way to get the CEO’s attention, right?

How to Present Your IT Budget

When it’s time to present your budget proposal, your pitch should revolve around three things that impact the business.

  1. Lowering risk to the business
  2. Reducing cost to the business
  3. Improving value for the business

Bring a summary of the strategic background that forms the basis of your IT budget proposal. This should be 1 page long, maximum, and be the first thing you show. State the current and predicted state of the business. Then briefly explain the aligned IT strategies that you need in order to support the business. This can come in several forms: increasing revenue, market share, profitability, compliance, etc.

Again, write it in plain English—no jargon.

A strategic brief is helpful because a thick stack of spreadsheets is off-putting, especially when you’re presenting to budget reviewers who may not understand why or how the requested items are used.

As you present your budget proposal, focus on outcomes. If you fall into the trap of explaining why a project is cheaper than the alternative, you’ll start a price conversation rather than a value conversation.

If you’ve been diligent in organizing your budget, you’ll be able to recall past results to justify future expenses. You’ll also have great information at your fingertips that the CFO is sure to ask for, such as ROI for each item as well as both business and cost justification. The more clearly you can explain the business case for each item, the likelier it is you’ll get approval.

Expect to negotiate and to compromise. This will be much easier because you’ve already figured out where your priorities are. You’ll be able to focus on the items that are absolutely essential. Rather than getting defensive, you’ll be able to work with the approver to determine what should be cut first.

And lastly, stay relaxed—you’ve got this.

In Conclusion

If you follow these steps, not only will planning an IT budget be a much easier process, it will become an important part in planning and mapping your IT strategy.

What’s more, you’ll be able to demonstrate your value to the business loud and clear. As technology becomes more and more entwined with business objectives, you can establish yourself as an invaluable business leader.

Read more in these related blogs:

Alienor

Alienor

Alienor is a technical writer at Plixer. She especially enjoys writing about the latest infosec news and creating guides and tips that readers can use to keep their information safe. When she’s not writing, Alienor spends her time cooking Japanese cuisine, watching movies, and playing Monster Hunter.

Related