Simple Steps To Technology Budgeting

By Author: Kevin Smith
Total Articles: 15
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Accurate estimation of technology expenses is a difficult task; however, it is a critical need for every organization. In these dynamic times, an organization aims to remain updated with the changing paradigm; information technology is a critical capability for effective operations and increased business value. A well-designed technology budget is a key to better cash flow management, improvement in operations, the overall growth of the organization, and groundwork for future technology needs. IT leaders take into account the multiple variables, discounts, price rises, and internal growth of the organization while budgeting.

IT also has a role to play in every department in the organization in terms of the use of external and internal resources, marketing systems, operating platforms, and other solutions used across the organization. Therefore, organizations must consider their IT priorities prudently and justify the same for a better strategic IT management and success of the organization.

Few steps must be followed for an effective IT budgeting process; otherwise, it may result in investment in technology, which ...
... is not critical for the organization or disconnection of the IT department with the other teams, thereby leading to overall inefficient operations. The key steps for technology budgeting includes:

Implement an IT governance structure

Defining a governance structure for IT will ensure clarification on the rights and duties of key personnel in the organization along with the specification of accountability structure for the correct usage of IT. Furthermore, it ensures risk management, resource optimization, and better learning from the past experiences of IT budgeting that can be useful in future investments in IT. For this, the organization must form an IT governance committee to aid the decision-making process. This committee will be responsible for guaranteeing the organization’s capability and efficiency in IT management, the use of the precise standards and methods for its implementation, alignment of IT with the business goals and objectives, and accomplishment of the expected outcomes and ROI.

Audit current IT spending

The IT department of an organization needs to review the IT budget of the last year to analyze the spending and recognize where the changes are required. The IT team must check the budget to identify the recurring expenses and non-recurring expenses as well as leasing versus buying solutions. Some of the recurring costs, which are essential for every year, include the renewal of software licenses, content management systems, cloud storage space, URL registration, web hosting, and many others. Some of the one-time costs include the purchase of a new server, new computers/laptops, mobile devices, and others, which need not be accounted for every year. The IT team must check the need to upgrade hardware and software before finalizing the budget so that a balanced budget can be made.

Set up the strategic goals and objectives

Once the base for the budget is formed, the companies must focus on new, innovative initiatives in IT to remain in trend and have a competitive advantage over their competitors. For example, gaining awareness of the new cyber threats looming over the market, presence in IT conferences for gaining knowledge about new products and platforms, and networking with the right IT experts to understand the future outlook. The annual IT goals and objectives must be reviewed thoroughly to consider the same in the budget for a long-term outlook.

Consult with other departments for required changes

The IT team must ensure that they have discussions with other departments to understand their requirements for any new purchases or upgradations. This exercise facilitates the identification of priorities and needs of the organization and the IT leaders’ duty to take it from idea to reality. However, it is their obligation to check how useful this new equipment would be compared to their ROI. In addition to any new solution or software of technology, the IT team must also factor in the training costs, which is essential as it affects employee productivity.

Align it with the organizational strategy

A collaboration of all the departments with the IT department and alignment of IT spending with organization-wide spending is a prerequisite for the right IT investment decisions. The IT department must ensure that the budgeting aligns with the overall strategy of the organization to remain competitive in the market. The budget document is just a numeric presentation, but it must be well-communicated, well-understood, and well-accepted by the organization in general.

The steps mentioned above are a good way to approach the Information Technology budgeting process in any organization. However, the role of IT leaders becomes crucial in this process to factor for the organization’s cash flow and the total operating and capital budgets. IT leaders must also ensure that they review the impact of IT initiatives on other projects of the organization and vice versa. Moreover, another key consideration is to study the impact of IT projects on the human assets of the organization in terms of working hours, training requirements, or adaptation to new technologies. Overall, IT leaders must lay due importance to the Information Technology budgeting exercise as a tool to take the organization on the road to success and obtain a competitive edge over its peers.

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