|5 Tips For IT Budgeting |
Even small businesses should have an IT budget. IT Budgeting is the process of allocating monetary resources to various IT expenses. These expenses could range from recurring expenses like cloud services, hardware leases, IT support agreements, and staffing to expenses dedicated to fixed-duration projects or capital hardware purchases. In some companies this is primarily an annual exercise, while other companies might demand budgets for each initiative as it arises.
While IT budgets are usually developed and presented by IT managers, everyone from department heads to 3rd party IT providers could have a say as to what goes into the budget. Or if your IT is outsourced, your IT provider should be creating and maintaining your IT budget.
The activities your employees and consultants will be engaging in during the year are defined by the budget, so it’s a critical document for taking your priorities from concept through execution.
Tip 1 – Your IT Budget starts with your Technology Roadmap
In last month’s newsletter, we detailed the importance of having a Technology Roadmap.
Business leaders should be able to look at your Technology Roadmap and your IT budget, and see how the two go hand in hand. Your Technology Roadmap should lay out the reasons why you need particular expenses. And your IT budget should clearly lay out the expenses that are mapped out in the roadmap.
Tip 2 – Start by reviewing your IT budget and expenses from the previous year.
Make sure to capture all recurring costs like Internet service, phone service, support/maintenance agreements, warranties, cloud services (don’t forget to include cloud services from specific departments like Sales, Marketing, Accounting, and HR), etc. Also include recurring services from IT vendors.
Tip 3 – Have a technology refresh plan.
Check our guidelines for technology refresh from our August 2016 newsletter to see how often you should refresh laptops, PCs, servers, printers, firewalls, and other technology.
Tip 4 – Involve your CFO to determine the best method to purchase IT needs. (capex or opex)
Traditionally, many IT expense were capital expenses that had to be capitalized and amortized over 5 or 7 years. Most cloud services are consider operational expenses, meaning that the full cost of the expense is written off as an expense each month. Leases, depending on how they are structured, can be categorized as either capital or operating leases. Another consideration is Section 179, which allows small businesses to write off up to $1M of capital expenses in one year, instead of amortized over multiple years.
Tip 5 – Don’t underbudget for IT Security.
Cyber security threats continue to increase at a rapid pace. And the costs for IT security continue to increase. New threats mean that we need new tools to protect us. Assess and inventory your current IT security resources. Having a multi-layered approach to security is best practice, but don’t forget to budget some consulting dollars to help with IT security policy development and IT security solution deployment. And, finally, make sure that you budget for tools to monitor IT security for security breaches and compromises, as well as measure the effectiveness of your IT security systems.