The unfortunate truth about IT budgets is that there’s no clear-cut calculation or reliable rule of thumb to follow when deciding how much to spend. All businesses and industries are different.
Of course, it wouldn’t be wise to simply wing it and act on assumption. With the high cost of today’s technological resources, organisations need to carefully assess their needs before investing. Luckily, there are several strategies that you can use to identify your priorities and make an informed decision. Here’s how to set an IT budget.
IT Budget: Consider the Competition
Let’s first establish some baseline figures to put things into perspective. The following case study details the typical spend for a small professional services firm that:
- Has 35 staff members using company equipment
- Outsources instead of running an internal IT department
- Requires guidance due to limited technical expertise
An organisation in this position may set an IT budget of around £2,000 to £3,000 per month. This translates to an annual expense between £24,000 and £36,000 for hardware, software, and support.
How does this compare to your revenue? We can draw up another scenario using the average 4.4% to 11.4% of annual revenue that UK businesses in the financial sector allocate to IT costs. If an insurance company earns £500,000 per year, for example, then their budget will range from £22,000 to £57,000 annually.
It’s useful to explore what other companies in your industry are spending, especially direct competitors. Knowing what they’re doing helps you determine how to do better. It can also reveal what sets your business apart and why. You might pay less for software because you favour cloud services, for instance.
Before we look into any additional factors, it’s vital that we discuss the effect of coronavirus on IT budgets, as the pandemic has significantly impacted how organisations distribute their funds.
IT Budgets and Coronavirus
At the beginning of 2020 and even more now, rapid technological advancement called for greater investment in IT resources, which remains key to keeping up with innovative competitors.
This trend was complicated by the pandemic. On one hand, there was crucial money to save and safety to gain from reducing technological expenditure. But this came at the cost of having less fuel to finance effective cybersecurity measures, remote working arrangements, and other components paramount to operations.
What many companies overlook is the fact that spending more on IT can actually benefit their bottom line. It comes down to how exactly the money is spent. Strategic investments in the right technologies, at the right moment, can spare the cost of suffering far greater expenses in the future.
When working with a tight budget, you need to carefully weigh up your options. Are the cost-saving benefits of forgoing cybersecurity updates worth reaping when it increases the risk of data breaches? Will remote employees work effectively without dedicated IT support in London?
You won’t know until you thoroughly assess and document your priorities. This will help you identify the primary factors for shaping your budget and clarify the specifics of your IT expenditure. Listed below are the steps you can follow to accomplish this.
Establish Your Priorities when budgeting
Start by recognising the course that your budget will most likely take moving forward. You may be expected to spend the same amount of money as last year – no more and no less. Perhaps an adjustment is in order. Whether that means investing more to account for growth, or making cuts in light of recent challenges, depends on your circumstances.
It can help to answer the following questions:
- How will budget decisions be made and who will be involved?
- How should potential employee concerns and customer complaints be addressed?
- Will it be possible to maintain the current budget without impeding service quality and efficiency?
- Which costs can be reduced to compensate for increased expenses?
- What effects might budget cuts have on operations?
From here, you should begin outlining the components of your budget. This may include hardware and software acquisition, management, maintenance, replacement, and upgrades. Remember to consider staffing and outsourcing, as well as travel and related costs.
With the resulting map in place, it will be easier to point out your IT service priorities and their financial impact. These must be aligned with your business priorities, which can be:
- Boosting the performance of existing IT resources
- Implementing new and improved solutions
- Enhancing productivity with technology
- Eliminating system and operational setbacks
- Improving digital interactions with customers
- Reducing acquisition costs and overheads
What if you’re in the position to increase your IT budget, but are unsure of the reasons for doing so? As we touched on earlier, factors such as cybersecurity and remote working are especially vital to staying afloat in the current economic landscape. Here are a few other motivators for investing in technology:
- Attract and retain talent
- Automate and streamline processes
- Drive growth and progress
- Ensure regulatory compliance
- Improve reliability and customer experience
- Outperform competitors and lead the market
- Reach larger and more distant target audiences
- Strengthen data integrity and mitigate loss
- Safeguard against unexpected financial challenges
Any of these outcomes can be achieved by strategically distributing capital across key components of your IT budget. What exactly are they? Where should that extra money go? The next section comprises some guidelines on the most important areas for investment.
Know Where to Focus
It’s not uncommon for organisations to needlessly bear the burden of software that was long-rendered outdated by new solutions. Even when alternatives are easily accessible, there can be an aversion to switching over.
This typically stems from a disparity between the perceived cost and value of upgrading.
While the premise of implementing an unfamiliar application or system can be daunting, chances are that it needs to happen eventually and should be tackled sooner rather than later. There are several reasons why software is the largest component of many IT budgets. Your business may focus on this area to:
- Access cutting-edge tools and features
- Address security vulnerabilities
- Leverage AI and automation capabilities
- Maintain regulatory compliance
- Prevent damage to your reputation
- Reduce employee workloads
- Respond to the demands of growth
Be sure to keep the cloud on top of mind when searching for new software. Everything from data storage to communication to project management can be enhanced by cloud-based solutions. These services are vastly superior to traditional programs and ideal for meeting all of the objectives listed above.
In addition, your software decisions likely need to account for remote workers. Look for tools that facilitate effective collaboration. For instance, you may require screen sharing or video conferencing solutions. Teams in different time zones can use a time converter, while reporting tools can help them stay accountable.
After completing your software budget, you can move on to the physical components that power your programs. Just as it’s imperative to replace outdated programs, hardware that has lost its competitive edge should be upgraded when possible. There are always new components available that can deliver better performance, security, and reliability.
That said, the latest hardware is seldom affordable, and it can be challenging to navigate the ever-expanding sea of products on the market today. Even with cost out of the picture, the process of adopting new technologies is often too complicated for smaller organisations to carry out alone.
These are some of the reasons why outsourcing is integral to many IT budgets. Thanks in part to the cloud, remote IT support solutions have become popular among growing businesses in need of affordable and reliable expertise. You can find countless firms that offer IT support in London. Selecting the right partner is key.
- Choose a local provider for timely on-site service
- Assess their certifications and partnerships
- Ensure that they’re familiar with the software you use
- Look for companies with experience in your industry
- Read the agreement thoroughly and address any concerns
- Make sure you understand their pricing and terms
- Verify that their service is scalable to your needs
With the capabilities and resources of an IT support service at your disposal, you can significantly decrease expenditure on technology. An outsourced team is far more cost-effective than having your own. The financial burden of staffing and infrastructure is replaced by a predictable fee, saving a great deal of money and time.
This is one of the ways that you can gain better control over your budget. The final section contains a few more tips for effectively managing IT investments.
Control Your Budget
Smaller companies must be particularly diligent when it comes to how their funds are distributed, as limited resources leave less room for error. It’s crucial that you take measures to keep your IT expenditure under control, such as by:
- Scheduling regular audits to identify potential concerns
- Searching for new technologies and solutions that reduce costs
- Recognising that IT is a valid target for investment
- Using analytics to track expenses and generate insights
Setting an effective IT budget that works for your business can take some time. But making the effort is beneficial to both your bottom line and overall operations, serving as an ideal opportunity to reveal areas for improvement that drive growth and innovation.