Budgeting for IT frequently does not occur and is instead treated as a necessary evil expense for small businesses. This typically happens because the IT team does not understand the budgeting process and the finance team does not fully understand IT. Both teams can remedy this disconnect from the annual “make it fit and fix it” exercise into a meaningful planning and ongoing management process.
INVESTING IN YOUR FUTURE
If you look at IT spending as an investment in your business’ future, you may see that budgeting has much in common with personal planning. To give appropriate savings and guidance one must understand the short and long-term goals of the organization. Identifying these goals can assist your IT staff and financial planning staff in creating an expected budget that works in harmony with the rest of your business, this results in everyone making the right IT investment decisions.
ALIGN THE BUDGET
Once the budget has been determined good questions to answer are: Does this align with the financial and long term goals? Should any initiatives that were not selected for the budget be reconsidered? One needs to take a step back and look at the big picture and make sure it all fits well together. The three categories to begin with are Run, Grow, and Transform.
- Run budget items keep your business going. An example of these items would be mission-critical server replacements, software upgrade, and personnel costs associated with maintaining the IT infrastructure on a daily basis. If you are trimming your budget, you should avoid trimming this section first.
- Grow budget items help the organization introduce new capabilities or improve existing ones. These can include implementation of new software that makes operations more efficient, or a new firewall that provides better security and protection from cyber threats.
- Transform budget items are research and development type items. This would include the process to identify new technologies for the business whether it be hardware or software. When finances are tight the transformation budget is usually the first to go.
THE MULTIYEAR ANALYSIS
As a business grows the needs will change over time. This includes the needs and wants regarding IT expenditures. One thing to keep in mind is that this budget can account for large infrastructure upgrades over multiple years. Over one or two years one can scale back its IT spending to build up reserves for major upgrades. Following the major upgrade one can plan the maintenance part of the budget over the next couple years.
When small businesses deploy a strategic approach to their IT budget, it can create a planning and decision making tool that can truly maximize the benefits of IT investments. A great budget not only gives the organization a way to manage its costs both short and long-term but also allows the agility needed to adjust IT spending in response to their business and market environments. The final point is that a good IT budget provides a competitive advantage because it helps the business execute and achieve its set goals without surprises that may derail progress.