How to Build an IT Budget

“A budget is telling your money where to go instead of wondering where it went.” That quote from John Maxwell pretty much sums up the importance of budgeting. And while putting together an IT budget can seem tough and even a little scary, it’s far worse to try to manage your IT needs without one.

As a virtual CIO (or vCIO), developing IT budgets for businesses is a big part of my job. The success of your company depends on its IT infrastructure, so it’s important to get your tech budget right. So let me show you how to start putting one together.

Prioritize Your Goals

Start by listing out your goals for the year and assign them to a priority category. This can be a really simple process. It also helps you get over the initial hump of starting a budget by getting your goals more organized by priority. I typically start with these 3 high-level categories:

• “Must have” for this year
• “Could use” this year or next year
• “Would be nice” – this is your long-term wish list

Then look at your priority list from the previous year if you have one. Move any items into categories for this year as needed. For example, maybe something in last year’s “could use” bucket needs to move to the “must have” bucket this year.

What Items Should Take Priority in an IT Budget?

That’s definitely a question I get asked a lot. Your IT budget is really a reflection of the overall tech strategy of your company. If the main goal is to move applications and services to the cloud to reduce costs, then your budget should be heavy on those projects and priorities. Keep in mind that the budget you create will set the tone for the IT department for that year, so it should be tied to the larger technology or company vision.

Getting the Most from a Limited IT Budget

Many tech budgets are tighter due to COVID. But you still need to invest in IT. Focus on the big goals or objectives. If your organization needs to cut costs because of a slowdown from the pandemic, make sure any unnecessary items are left out of this year’s budget.

On the bright side, most industries see the pandemic downturn as a temporary setback. Executives are planning (or already seeing) a turnaround, and budget approvers should be more friendly the following year, so plan ahead. Items that aren’t 100% necessary this year (the “could use” or “would be nice” items) can be moved to next year’s budget as “must haves.”

Sample Budget Framework

Basically, an IT budget can be divided into categories. The categories will vary from business to business depending on the structure and sophistication (or even just the existence) of your IT department. But this is a good example framework you can start from, courtesy of TechRepublic.

Ongoing Expenses

Staff and Compensation

• Recruiting and talent acquisition
• Internal salaries
• External staff (3rd party managed service providers/contractors/etc.)

Hardware

• Servers
• Computing resources (desktops, laptops, tablets, etc.)
• Network infrastructure (firewalls, switches, wireless access points)
• Support contracts (warranties, renewals, etc.)

Software

• Licensing renewals and new purchases
• Subscriptions (Microsoft 365, Adobe Creative Cloud, Salesforce, etc.)
• Support/maintenance contracts

Project Expenses (non-recurring costs)

Project 1

• Consulting expenses (3rd party project engineering/project management)
• Hardware costs
• Software costs

Project 2, Project 3, and so on.

Getting the Budget Approved

You’ve built the budget, now it has to be approved. In this environment, it’s important to show areas of reduced spend or more efficient practices.

Months before your new budget is due, pull up last year’s budget. Look for items that can be reduced or reallocated to either make room for other new expenses or show some sort of savings for this upcoming year. Executives and CFOs want to see a lean budget that has already been thinned. Try to leave out unnecessary items.

Consider Working with an Expert

If you don’t have your own IT department head, an outside expert can provide great insight. A vCIO like me can help you not only set your technology priorities for the coming year, but also help define the costs that make up the budget. We use our years of experience and expertise to find creative ways to reduce expenses and find more efficiency in your budget.

"Remember, IT budgets are about overall technology vision and strategy, not just dollars and cents."