Why is preparing an IT budget within SMEs (small medium enterprises) essential? And, how can having a strategic budget propel your organisation towards success in the modern, competitive marketplace. Here, we delve into the main steps involved in creating an IT budget.
Although busy, time-pressed managers and executives might well understand the necessity for preparing a budget, some may feel bewildered or uncomfortable with rows and columns of digits. Others may dread the time-consuming prospect of having to justify, explain and convince. Consequently, even in organisations that have budgeting procedures in place, there is often a temptation to opt for something similar to last year’s format and figures (if available). Nevertheless, instead of being something to endure, the IT budgeting process can instead be a crucial decision-making tool to assure the success of a company.
When used well, a strategic IT budget is a vehicle to identify initiatives, set priorities and shape the future of an organisation. Instead of being a monotonous duty or tedious obligation, it can become a bespoke roadmap to business success, specifically crafted to mould the strategy for a growing enterprise. In short, then, it is a documented plan to make the most efficient use of the computing resources available.
Getting Started: Key Steps
Initially, smaller businesses and start-ups often authorise expenditure with impromptu conversations in corridors or around office water coolers. However, as companies grow, ad hoc and informal ways of working become difficult to manage. Such companies usually willingly opt, therefore, for a more organised budgeting system.
Having decided to prepare a strategic budget, the first step is to identify expense categories. Typically, headings might include ongoing staff, hardware and software costs. These broad-brush categories then expand into further detail. Also, there will be separate project expenses, each itemised by hardware, software, consulting and general outgoings, plus any extra administrative overheads for temporary office space, etc.
In contrast, larger businesses may choose to operate a chargeback system whereby departments or teams assume a proportion of overall IT expenses. Although these intricate accounting systems facilitate a comprehensive analysis of business area performance, the methodology is more complex and may require additional skilled staff. Consequently, systems such as these tend to exist in organisations with more than a hundred employees.
Although IT leaders and decision makers are usually those who present and oversee their budgets, it pays to engage and involve line managers, supervisors and consultants too. These key team members tend to know their company well. Consequently, they can provide valuable input. Next, a combination of thorough preparation, good presentation and effective communication form part of selling the budget plans at management level, to help gain approval and minimise resistance.
Keeping Track of Expenses
It is necessary to understand what the business has and what it needs – from hardware licences to computing power and payroll. Equally, an efficient expense tracking system is as essential for preparing accurate budgets as it is for effective financial control. With proper records of expenses, the right information will be at one’s fingertips when necessary.
When estimating future expenditure, the various sources of information include records from previous years, along with current contract documentation. Also, it is useful to consult individual departments and, where possible, optimise costs in advance to avoid the figures being brought into question later. If there are projects in the offing, it is shrewd to communicate and ensure – tactfully – that peers and other management colleagues appreciate the necessity for and importance of these plans.
Analysing Performance and Results
Once up and running, a planned budget for IT enables leaders and management to monitor and analyse which teams and projects are using resources efficiently. Equally, those areas that are under-resourced and over-committed will stand out, as will overspending and areas for improvement. Examples might include surplus software licences, costly support for outdated systems or unnecessarily high infrastructure costs that may favour migration to cloud-based systems.
Some organisations compare their spending against that of their competitors, a useful yardstick when available. Typically, small businesses spend up to seven percent of revenue on IT, whereas larger companies enjoy cost-reducing economies of scale. To some extent, the business sector and company expectations will also influence how much turnover gets ploughed back into computing. Regulated industries such as financial services or communications and media companies frequently have higher tech spends than industries such as retail.
Identification and acceptance of company-wide OKRs (Objectives & Key Results) aid budgeting. Organisational OKRs might comprise internal employee engagement, proper user testing or repeat business and revenue targets. OKRs increase clarity, focus, and collaboration, so staff move together in the right direction.
Planning and Communicating
When finalising their budgets, some managers hold short meetings to ask team leaders or senior staff what resources they need to make their working lives easier. Alternatively, they ask their direct reports to list the three things they need most. Later, after submitting the draft budget for approval, it helps to maintain lines of communication open.
Budgetary approval involves multiple variables and, at times, external factors. The path to success involves balancing tactical requirements and liquidity against the need to upgrade and set future strategy. If cutbacks are necessary, a good understanding of business priorities should help to identify those cuts that could have the least impact on long-term objectives.
Finally, for effective management, it is not enough for a Head of IT to have a superficial understanding of pricing – of a server rack, for instance. Rather, it is also necessary to be familiar with the granular cost base: salaries, power, cooling, maintenance, and technical support overheads, to continue the example. Staying on top of detail is essential; in the most successful organisations, there is usually someone who keeps a keen eye on contractual obligations, payment due dates and unplanned purchases.
Here, we have seen the business advantages of creating and maintaining a budget to manage IT. With the right tips and expert advice, it is possible to simplify year-round budgeting. If you have any queries about implementing an IT budget in your company, our team at Onestop IT will be delighted to advise.
Based in Edinburgh, we are a leading Scottish IT services supplier that helps SMEs to access enterprise technology solutions and best practices, at affordable rates. As well as customer care, we focus on delivering timely, process-driven strategy and support solutions to growing organisations. Should you require more details, please contact us here.