You as the IT Manager knows what technology contributes in the workplace, your team understands their value and how critical they are to the running of the company but do other departments and do the company directors. IT has always been the poor cousin, stuck in the basement with minimal light and minimal money. For you to show management and the financiers your worth, you have to present them a compelling IT budget with well thought out plans and cost analysis.
In this article we will show you how. Information Technology is more than just simple data storage, networking and broadband. It can strategically help businesses grow sales and markets and automate key processes and tasks. IT departments everywhere have to demonstrate how they can help the company with growth and transformation by using technology and systems to streamline processes and gain competitive advantages in the market.
Statistics show that companies only hire an average of 4.2 employees for IT with no plans to increase that headcount year on year. When it comes to IT budgets thought they can make up as much as 7.1% of the annual turnover of a company. The average percentage is 3.28% of annual sales so, it is a big cost and something that needs to have importance placed on it.
The IT Budget. What it Involves.
Budgeting is no longer a simple back of the napkin figure scribbled in haste. You need to take your time to develop a plan that incorporates business goals and the stakeholders that matter. It is no longer an ivory tower exercise but requires understanding the company plans both short term and long term.
If you need to speak to and involve senior management so that the IT plan can support what the company wants to do in the market and in terms of product development. By establishing shared goals with company management, you get their buy-in and understand the real direction of the company.
- Short Term and Long Term. Produce two plans not one. The first with a 12 month timeline for this current year and the second for a 3 to 5 year timeframe. This will show the company you have a grasp on what is coming up and what is for the future that can change, but at least you have a plan for the eventuality.
- Next you have CAPEX versus OPEX. The products that IT procures such as desktops, routers, software, licenses and cameras are capital expenditure. And the operating expenses (OPEX) is the expenditure by IT to deliver and manage these services like the staffing, maintenance contracts and other such expenses. Here you should provide a detailed plan to show what finances are needed to run the business for the short and long term and a 1 pager on what expense would be needed to grow the business. This shows your strategic vision and where you can add value, for example, budget to move email to cloud. By putting things in the cloud, the company can benefit from lower storage costs and storage risk from local data centres. Backup and security enhanced platforms. Also, easier accessibility and instant search and retrieval.
Essential parts of a strategic IT budget must include:
- Resources and labour
The resources including head count and hiring fees need to be part of the budget. The staff, whether casual or full time needed to manage and deliver the IT offering to the company. Don’t just provide a skeleton staff have buffers for special projects, peak periods or projects that need more resources and programmers.
The IT infrastructure is the basic components, peripherals, networks and facilities to provide the IT for the business. This may include the broadband, connections to offices, servers and monitoring hardware.
- Apps and services
All the applications and programs needed for the company on a daily basis. These need procuring in the initial place and then maintaining with licenses or maintenance contracts. Are there also strategic services like IT consultants or software licenses that will improve productivity for the company and streamline processes and costs.
- Cloud Services
Already mentioned in the operating expenses section above, cloud takes resources and money to implement and run. Does it scale with the company needs and does it come with cloud security or are extra malware and firewalls required to ensure data and sensitive information is away from hacking and prying eyes.
- Rainy Day Pot.
Just as you should put some fat in the head count, put some fat in the overall costs. IT financial planning is not a static thing and it should adapt and increase according to company needs. Try to anticipate potential issues that may require more resources. We often see fixed budgets get eaten up when there is an unforeseen problem and then IT departments are left to cope with the same budget and no further funds that may be needed. In the same way a new opportunity may not be able to be fully grasped because there just is not additional capital to expand the team or hardware.
Once you have your Budget Document.
Treat this document as a working, changing, live document. As projects change so should your document and plans.
On a monthly basis at minimum, look at it and amend as necessary.
- Is the spend on track with what you projected?
- Is the IT capex giving ROI, (Return on Investment)? Then you can justify asking for more
- Are significant changes in the business reflected in the plan? As the business environment changes, your department also has to change. If you can’t adapt or develop with the times, your value to the company is diminished and becomes cost based instead of strategic.
You can give the company a powerful way to differentiate, and stay ahead of the competition. Technology gives companies flexibility to adapt with the times and advantages in productivity gains from automation, eliminating manual error and inbuilt checks and reporting.
Any project takes resources to gather requirements, design, test, deploy and maintain the technology. This needs time to manage the rollout and money to invest in the capital expenditure. If it gets more complex, you may require a full time project manager, someone who is not also occupied with development work so, they can see the bigger picture and co-ordinate things. This could be someone from outside or a member of the team, but they have to oversee the project and know the goals and resources.
Once you have finalized the document share it to everyone in the team. This will ensure the team have aligned goals and buy in which should give them accountability so they know what they are responsible for and feel a part of a company’s success of failures. This all helps make the IT department and resources more aligned, more efficient and cost effective.
Budget with precision The more accurately you consider all the factors we have talked about above, the better your budget will work both for the short and long term. The correct and abundance of data, gives you the analytics to plan effectively and give the management a precise and useful budget and plan. The whole process is called Information Technology Financial Management ITFM and there is actually software that can help you prepare you budget giving IT managers a dashboard to monitor and strategically change according to things that arise. It also is a powerful reporting tool to share progress with teams and senior management.