How to handle budgeting for IT departments

How do you create and deliver a IT budget? Here is a quick guide on what line items to include, budgeting best practices, and tips on how to communicate your budget plan to your stakeholders effectively. 

Your IT budget should incorporate all expenses related to the operation and maintenance of your IT infrastructure and systems. IT budgets will heavily depend on the underlying enterprise IT environment. Typically, your IT budget will provision for:

  • Hardware and software costs, including the expenses of software licenses, updates, and upgrades.

  • Personnel costs, such as salaries and benefits for your IT and software development teams.

  • Maintenance and support costs, like the costs of technical support, training employees, and third-party IT support.

  • Network infrastructure costs, e.g., the costs of network hardware, software, and maintenance.

  • Data storage and backup costs, including the costs of data transfer and long-term storage.

  • Cybersecurity costs, which comprise tools such as antivirus software, firewalls, and fees for third-party IT security consultants.

  • Cloud computing costs, like the fees for hosting, storage, and software as a service (SaaS).

When drafting your IT budget, consider both capital and operating expenses carefully. Capital expenses (CapEx) are one-time purchases for long-term assets, such as a new on-premises server. Operating expenses (OpEx) are recurring or regular costs, such as subscriptions to SaaS applications.

IT budgeting best practices

Best practices for IT budgeting include:

  1. Consulting IT budgets and expenses in previous years to identify trends and patterns that can produce smarter budgeting decisions.

  2. Having a clear understanding of your organization's IT needs and objectives. Identify the projects or initiatives requiring the most IT resources, and consider all potential long-term costs these projects entail.

  3. Using software asset management (SAM) tools to help track your usage of software licenses and optimize their costs.

  4. Considering the possibility of contingencies and unforeseen expenses in your IT budget. Due to the unpredictability of IT systems and the ever-changing landscape of enterprise IT, it's crucial to have a buffer available if you need it.

How to communicate your IT budget to stakeholders

During the IT budgeting process, it’s essential to speak with the people who will be most impacted: IT and software development teams. Take the time to understand their wants and needs. What were the most valuable purchases over the past year, and what do they expect they will need most next year?

Once the preliminary IT budget is complete, you’ll need to present it to executives for approval:

  • Provide detailed breakdowns of the different line items in your budget, demonstrating how all expenses will be used.

  • Use visual aids such as charts and graphs to illustrate the budget and make it easier to understand.

  • Articulate how the choices in your IT budget align with the organization’s overarching goals and priorities.

  • Be prepared to explain and justify your budgeting decisions, backing them up with data if necessary.

(Image courtesy: Megan Rexazin)

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