How to Make an IT Budget

Your company’s technology budget is the strategy of your technology for the next 5-10 years. As a result, IT budgeting allows a business to save money and plan for large capital expenditures like datacenter upgrades, new workstations, or other IT costs.

In this post I’ll explain everything you need to know to create an accurate technology budget for your organization. What is in an IT budget? What are common IT costs? Where can I save money on IT? Why is an IT budget important?

What Exactly Is an IT Budget?

An IT budget is a list of all your IT expenses over a specific period of time. These technology expenses will be both fixed and recurring. Therefore, in order to make more informed decisions for the technology in your business you must first know your rough IT costs. This will allow you to plan for large capital expenditures, it will allow you to reduce support costs by keeping hardware and software up-to-date, and it helps shift your IT from an unexpected burden into a profit center.

Related: IT Cost Calculator

What Are Some Common IT Costs to Include in My Budget?

Every business has unique needs for their technology and there are probably many more things to add into your IT budget, however, below are some of the most common:

  • Firewall licensing renewals
  • Domain/DNS/SSL/web hosting renewals
  • Software licensing renewals – Adobe, Office 365, SalesForce, VMware, Veeam, etc.
  • Data/Phone/VOIP Services
  • IT Support agreements
  • Hardware Replacement Cycles (Hardware costs & Labor Costs) – Servers, Workstations, Firewalls, Access Points, Printers, UPS Units, Switches, etc.
  • Warranty Renewals
  • New Implementation Projects

In terms of IT budgeting there are typically two types of companies; those that are ahead of the curve and those that are behind the curve. Consequently, companies behind the technology curve often struggle to keep their operating environment updated, they often don’t see a need to renew warranties and replace out-of-warranty hardware, and they often view IT as a ‘necessary evil’. This mindset leads to bad results.

Drafting an IT Budget

Now that you know what belongs inside your budget you can create one in Excel. Start by adding the month (or quarter) to each column heading, and each row will be a budget item. Add a total row at the bottom. After that, you can quickly see the monthly cost, month over month, for the year. Remember, your IT budget is not a wish-list but rather a roadmap for your IT strategy so be realistic. If your IT budget isn’t accurate it’s worthless, and in some cases, it could be detrimental to your business since spending decisions are based on this document.

Sample IT Budget

Does Expired, Old Hardware Cost You More?

The short answer: Yes.

Workstations, and all hardware, are prone to issues as it ages. Generally speaking, a single issue can cost a business much more than the cost of the warranty itself. If a PC fails, the company has to suffer the downtime for that employee and the lost revenue from that person not being able to work. Meanwhile, the employee is still getting paid. Further, there is the cost of replacement parts (if they are even available) and the labor to install the parts. In an emergency, the labor alone could cost more than a replacement computer.

Conversely, had this computer been under warranty, it would be back online a lot sooner with less cost. In addition, you are guaranteed to have a replacement part available. Likewise, machines are replaced before they fail, you are less likely to even encounter this scenario.

Now imagine if this was a server or a firewall. You may have entire departments or sites unable to function. Obviously, having an IT budget and planning these things can help you prevent problems and be prepared for costs.

Old hardware leads to higher IT costs.

How Can I Save Money on IT?

Now that you have a list of your technology expenses in a budget you can start to investigate ways to save money. Below are some of the most common money saving things you can do:

  • Call your ISP and ask for a better rate, compare this to what other ISPs in your area are offering.
  • Review licensing and cancel anything not being used.
  • Identify the high risk hardware, start planning for the replacement.
  • Have an emergency contingency plan if high-risk equipment fails.
  • Virtualize and consolidate your server infrastructure if you haven’t already.
  • Explore VOIP options vs Traditional (POTS) telephone lines.

Additionally, don’t forget to avoid common budget pitfalls. It’s very easy for to fall back into old habits. When making these decisions it’s important not to overlook the indirect costs as well as the direct costs related to managing your IT. Examples of direct costs include the cost of new hardware, the cost to call your support company, the cost of new software. Some indirect costs might be more difficult to quantify. These indirect costs include:

  • Cost of lost revenue
  • Cost of lost company reputation
  • Payroll costs while your employee cannot work
  • Moral costs (typically employee moral takes a hit when nothing ever works as expected, people are less motivated and less productive)
  • Productivity / Time loss costs

Lastly, you will be able to convert your IT into a company asset instead of it being a costly burden.

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