For many IT leaders, annual budget planning can feel like gazing into a crystal ball. Building a realistic technology investment strategy over the next 12 months requires predicting the unpredictable, from potential cyber threats to economic shifts and emerging innovations. But without a thoughtful approach grounded in strategy, IT budgets risk becoming bloated wish lists – or they fail to execute on enterprise priorities.
With 66% of businesses planning to increase their IT budgets in 2024,1 building an effective IT budget is essential to ensuring your technology expenses align with enterprise strategies. In this blog, we'll explain why IT budgeting is important for enterprise businesses, the components of an IT budget, and best practices to help you start the year with an accurate budget.
IT budgeting is one of the most critical processes IT professionals undertake every year. At its core, IT budgeting involves allocating financial resources to the various programs, projects, software, hardware, and staffing needed to execute an organization's IT strategy over the following 12 months.
A well-constructed IT budget aligns spending with strategic objectives and allows you to course-correct quickly as operational conditions change. When done correctly, IT budgets can translate your high-level business strategy into accurate financial decisions across categories like IT infrastructure, cyber security, software, services, training, and more.
Your IT budget encompasses the investments needed to deliver and support enterprise technology across an organization. Here's what should be included in a typical IT budget:
An IT budget covers compensation costs for IT staff, including analysts, developers, architects, technicians, and IT leadership roles. Expenses for external consultants engaged by the IT department also typically fall under this budget. Having adequate funding for the right mix of internal and contracted skills is critical for execution.
Major enterprise-wide systems used across departments rely on the IT budget for funding. This typically includes platforms like ERP, CRM, and other critical applications. The infrastructure, maintenance, and operations of these shared systems are IT budget responsibilities.
Software licensing is a central IT budget element, from operating systems and office productivity suites to databases, analytics tools, and application development environments. Funding is needed for initial software license purchases, ongoing access fees, and maintenance plans.
Hardware expenditures support business systems and users organization-wide, from laptops and mobile devices to servers, networking equipment, and data centers. Since your company's technology infrastructure underpins technology reliability and security, having an adequate budget here is vital.
Analysts predict spending on public cloud services to grow by over 20% in 2024,2 with more enterprises leveraging cloud computing platforms like AWS, Azure, and Google Cloud instead of – or alongside – on-premises infrastructure. These cloud service expenses typically fall under the IT budget and can shift technology spending from capital to operating budgets, which requires planning.
While central systems fall under IT, specialized applications used exclusively by business units are often covered directly by those departments. For example, the marketing department will typically fund specific marketing automation, social media, and content management platforms from their budgets. However, integration and security for these solutions still rely on core IT systems and support.
An effective IT budget can help your business achieve a number of important outcomes, such as:
While the end goal of IT budgeting is an approved budget, getting there involves a multi-step process that typically spans several months. Understanding the phases of the IT budgeting process allows your teams to plan, coordinate, and manage this critical activity effectively. Each organization handles steps like final approval and timeline specifics a bit differently, but the following framework covers the typical process.
IT budget kickoff starts with assessing current investments across spending categories, from your IT department staff to software purchases and more. Building in funding to execute strategic priorities in your IT roadmap is vital up front, along with forecasting future needs in collaboration with business partners.
With your technology needs framed up, you can form specific budget numbers by leveraging historical data, maintenance contracts, market rates, and other factors. Multiple drafts may be required to refine the rationale and accuracy behind each proposed investment figure.
Before submitting for official approval, the initial IT budget should be reviewed at the departmental level with key peers like the CFO. Gaps, overages, and inconsistencies in expenditure can be addressed at this stage through further prioritization and tradeoff discussions.
Depending on the size of your organization and the investments involved, final IT budgets may need sign-off by department heads, division leadership, executive committees, or even the full Board. Justification is vital throughout the process, but especially at the final approval stage.
Once approved, conducting regular budget check-ins can help you identify early opportunities for adjustments, problem areas, and new goals that justify the reallocation of discretionary dollars.
The key to success when creating an information technology budget is to approach the process strategically and methodically. Here are some best practices:
For enterprises managing telecom and IT expenses across multiple locations, getting a handle on actual spending can be a significant budgeting challenge. Luckily, a professional telecom audit can help you transform the chaos into a strategic plan for optimization.
TailWind's telecom audit services encompass all services and vendors enterprise-wide to provide a holistic view of exactly what IT resources your organization pays for at each site. Our auditing experts consolidate your expenses into organized reporting that highlights opportunities for improvement, including unused services, outdated solutions, and inflated vendor pricing. With this information, you can ensure strategic alignment between your technology investments and objectives when creating your IT budget.
More than 40,000 enterprise and SMB clients rely on our expertise, so you can trust TailWind to deliver visibility into each branch and a better understanding of what you’re spending to help save on costs. Ready to kick off your 2024 IT budgeting on the right foot? Reach out to TailWind to book your telecom audit today.
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