IT Budgeting: Tips, Tricks, and Templates

If you’re struggling to build your IT budget or even the budgeting process, then we can help. Most businesses recognize the need for IT as a part of the larger operation, especially when it’s time to troubleshoot the boss’s laptop. Some IT departments may struggle to rise above the perception that IT exists only to fix problems and stay out of the way. Believe it or not, your IT budget is an excellent opportunity to illustrate the value your team brings to the organization as a whole.

Turning in a cohesive annual budget is a requirement of any IT department worth their ethernet cables, but the budgeting process and final result should tell the story of how IT can help power the business.

A good place to start is with last year’s budget. But don’t fall into the trap of updating a few numbers and shipping the spreadsheet off to accounting. You will need the historical numbers to forecast the baseline of future costs. And you’ll need a systematic process to gather all the information that comprises a thoughtful, compelling budget that your CFO and CEO will appreciate.

Here’s what your budget should achieve in broad terms:

1. Position the IT team as a partner that understands the future needs of the business.
2. Illustrate the connection between the money you’re asking for and the value you’ll deliver.
3. Focus on clarity and credible reasoning behind each item.
4. Guide the organization towards the best value by showing how different scenarios affect the budget.
5. Strike a balance between an overview of the numbers and a granular view of how those numbers break down to individual projects. If you keep it too general, your stakeholders may struggle to buy-in. If you go too far into the weeds, they won’t understand it and may reject it without full consideration.

Examing last year’s budget is the right place to start. It should provide you with a clear picture of the organization’s needs up to the current moment. Whether you’re using Excel or another budgeting software, you need a system for flagging items based on their status.

For example:

• Red could indicate costs that will NOT carry over into the near year, such as projects that finished or subscriptions that you will cancel or allow to lapse.
• Green could indicate costs that WILL carry into the new year, such as staff, ongoing projects, current subscriptions, and maintenance.
• Yellow could indicate items that you would consider eliminating or want to find new solutions to replace.
• Blue could indicate new items, such as projects that haven’t been approved, additional headcount, or expansions in the department’s scope.

A system like this will allow you to quickly evaluate your budget at a glance and to drill down on items that need more consideration. Does your budget have a lot of blue items? Those items will likely require extra explanation, whereas green items are likely to get a rubber stamp of approval.

Analyze how your IT department is functioning currently. Do you have a lot of technical debt built up? Then you need to build extra time and budget for addressing technical debt. Do you have abnormal frequent equipment repairs? Your hardware may be due for replacement. Do you have staff who have performed extra well or achieved new skills and need a raise or promotion? Build that into your budget so that it doesn’t eat into other projects and so you don’t risk losing talent due to poor compensation. en items are likely to get a rubber stamp of approval.

Think about the technology investments and the hardware that could provide additional value to the business. Even something as banal as replacing old equipment can deliver fresh value — the less time you spend fixing old things, the more time you’ll have for other more important work.

Start by asking yourself “What is the ideal scenario for the IT department?” Don’t disqualify items just because they’re expensive. You can always cut something after you’ve established clear priorities for the coming year.

Laying out your priorities begins with last year’s budget. Odds are, most of the things you did last year you will need to continue doing into the following year. So that category becomes “Initiatives we will continue to support”. Next, you ask “Is there anything we did last year that we should STOP doing?” and “Is there anything we should START doing next year?” The business may be spinning up new strategic initiatives and shuttering old ones.

A high-functioning IT department should be a combination of supporting the existing business and preparing for future needs. You can’t anticipate everything, and you can’t spend 100% of your time working on non-essential projects.

Your ideal budget should reflect a thoughtful division between essentials, maintenance, paying down technical debt, and new projects.

The answer to this question depends heavily on the sophistication and size of your IT department. If you begin the budgeting process early enough you can solicit the entire department for feedback about where the needs are. Sometimes frontline employees are well-positioned to know what’s working and what isn’t. You can set expectations that you won’t grant every request for money, but it’s a starting point to uncover hidden needs and get a realistic picture of the department.

The person who is the most responsible is the Chief Technology Officer or whoever sits at the top of the IT department organizational chart.

At the very least you want to include people managers and project managers who can give you a clear picture of the resources they need to fulfill their responsibilities. Give everyone suggested categories they can use to identify where each request fits in the overall budget.

You should also solicit feedback from the company as a whole, by communicating with the other department heads. Do they have technology or equipment needs that you aren’t aware of? Perhaps there are opportunities to cut unused services or software and free up money for more valuable projects.

Again, just because you’re asking for feedback doesn’t mean that it’s Christmas time and you’re Santa Claus. But if you’re serious about delivering more value to the organization as a whole, you need to know what the perceived needs are.

We’ve included some sample budget categories and a sample budget outline to get you started.

Here are some times to help you build a realistic, robust IT budget:

1. Think about your budget as a numerical representation of the value you deliver to the business as a whole — be prepared to tell that story compellingly.
2. Create a budget layout that is simple and clear at a high level as well as allowing stakeholders to analyze it at a granular level too.
3. The majority of your budget should be easy to approve because it represents ways that you’re already supporting the business. Spend extra time detailing the new items that your business isn’t accustomed to paying for.
4. Use a simple color flagging system to help stakeholders who aren’t IT experts to understand how the different categories fit into the bigger picture.

Here are some high-level categories that every IT budget should include.

This one is pretty obvious. IT may use computers and automation, but you always need intelligent, hard-working people to run the software, fix the hardware, and help the organization to run smoothly. You may have full-time, part-time, salary, hourly, and contract employees. You will likely have some staff turnover and compensation adjustments to make in the coming year. Your HR department should be able to provide more details about historical staffing needs so you can prepare for the coming year.

There’s a difference between new hardware and replacing existing hardware that is broken beyond repair or over its anticipated lifespan. If you’re working with an asset management system, you should be able to get a detailed report on what your hardware needs were in previous years and build on that base. Look out for unusually big-ticket items, such as server replacement. Your organization may be able to easily replace laptops regularly, but servers are another matter altogether. The sooner you know a server is ready for retirement, the sooner you can build support for the extra budget it takes to replace one.

Monthly software licenses, annual licenses, fluctuating “seat” counts, and new software vendors all need to be part of this calculation. This is also an area where organizations tend to experience waste. What happens if you have an employee on a key project who requested a task-specific software platform for temporary use? What happens if that employee leaves or forgets about the annual license? You’ll probably get hit with a bill when you least expect it. This is why you should use a vendor management system to see who you’re paying and when the bill is due.

We talked about technical debt earlier. That’s when you have work that needs to be done, but you find a way to delay it. This can happen with hardware and software, it can even happen with asset management (where you fill storage rooms with unused gear). Some technical debt is inevitable, but if you budget time and resources properly for maintenance, you can keep it from building to unmanageable levels.

Thanks to cloud computing and a globally connected economy, the odds are high that you contract with vendors to provide essential services. Take stock of these vendors and examine the value they bring. Maybe you can cut some costs, or maybe you stretch your dollar further by utilizing managed service providers. Only you can make that decision.

The outline below illustrates some high-level line categories and some line items that a comprehensive IT budget should include. If you have last year’s budget in hand, you already have a structure to work from. If you’re building from scratch, this outline will give you a jump start.

1. Ongoing expenses
   1. Headcount
      1. Talent acquisition
      2. Raises, promotions, and continuing education
      3. Existing staff
         1. Internal staff
         2. External/contract staff
   2. Hardware
      1. Servers
      2. Client computing resources (laptops, tablets, etc.)
      3. Network infrastructure
      4. Support contracts
   3. Software
      1. Licenses
      2. Subscriptions
      3. Support/maintenance contracts
   4. Maintenance
   5. Outsourced services
2. Project expenses (add as many as you need)
   1. Project 1
      1. Consulting expenses
      2. General and administrative
      3. Hardware
      4. Software
   2. Project 2
      1. Consulting expenses
      2. General and administrative
      3. Hardware
      4. Software

i.e.Smart Systems is a Houston, TX based technology integration partner that specializes in design and installation of audio/visual technology and structured cabling. For more than three decades, our team of in-house experts has partnered with business owners, architectural firms, general contractors, construction managers, real estate developers, and designers in the Houston market, to deliver reliable, scalable solutions that align with their unique goals.