How much does your IT cost? You may be able to point to figures on a page, but too often, these numbers obscure the reality of what your technology is costing. Here are five ways CIOs can extend the value of their IT budgets to support their business’ strategic IT goals.
Knowledge is Power
The invoices for your cloud services, co-location and telecom are a good place to start when analyzing your IT budget, but gathering information on IT spend requires more. When a CTO or CIO digs into the full scope of their IT spend, they often find that there are more dollars being funneled into technology than they realize. From individual department budgets to personal credit cards, there are often “hidden” pockets of IT spend that must also be tracked to get an accurate understanding of an organizations real investment.
Understand Your Users
The true value of your IT should be measured in terms of how people use it and the business impact it delivers for particulars like risk mitigation, productivity increases and improved customer experiences. Every component should be in service of employees and customers, therefore you must fully understand the risk to operations if a critical service fails, and allocate your budget accordingly. Viewing IT investments as nothing more than a dollar amount per user is a shortsighted strategy that results in overlooking critical pieces of the puzzle.
Build Your Budget
Having a yearly budget calculated on a spreadsheet is essential [Resource: IT Department Cost Calculator]. Take into account both recurring costs (for at least 12 months) and one-time costs. Keep in mind that the latter expenditures (e.g., servers, PCs, etc.) will likely have a useful life of between 3 – 5 years. However, with the pace of technology, it’s probably closer to 3 years. You also need to budget for existing employees as well as company growth and future needs. For benchmarking guidance, most companies with a healthy IT budget are operating at around 7% comparative spend.
Accounting Is Your Friend
To really see your budget in the context of the bigger organization, you need to speak with people who have crunched all the numbers. The finance department is the one that can show you the historical data, so you can determine which patterns will influence your budget allocations moving forward. This is also where you’ll discover duplicate spending efforts, which can be a key way to help you avoid overhead costs or find dollars for reallocation. Building relationships in finance gives people more freedom to share their perspectives and pitch ideas that can ultimately benefit everyone.
Spend Smart
Optimizing your IT dollar can look very different from one company to another, which is why it’s important not to fall into a one-size-fits-all trap. For instance, moving to the cloud may help you lower your costs, but it’s by no means guaranteed. Smart spending often comes in the form of meticulous consolidation and improved productivity.
The strategies described are all designed to get you thinking past the figures page. From protecting data to preparing for cyber incidents, your budget needs to factor in how your organization operates and who is using the technology you’ve worked so hard to build.
Bonus Section: Budgeting Methodologies
| Description | Benefits | Constraints | |
| Incremental | Based on previous year | Simple, quick to develop | Does not account for structural costs Discourages new ideas and fundamental changes Permits low value activities or projects to proceed unchallenged |
| Zero-based | Built from scratch | Forces management to review entire cost base Highlights cost drivers and controls weaknesses | Time consuming Wastes time re-justifying costs Best used for audit and review and not budget |
| Top-down | Senior management dictates spending limits | Sets enterprise-wide parameters so that everyone is on the same page | Absence of spending justification Spending is only good when business is good Allows the executive to be lazy – separates cost reality from business expectations |
| Bottom-up | Begins with needs from the end users in the enterprise | Requires users to be involved and committed to the process Takes into account operational needs through analysis | Time consuming Communications may become jumbled or lost in translation between IT and business No view of potential synergies Will result in a budget request that far exceeds what the organization can afford |
