Tips on IT Budgeting for Digital Transformation of your Business

Organizations struggle with IT budgeting because it can range from excruciating annual process to the accomplishment of a judiciously created IT strategy and roadmap. It can be a difficult exercise for an Information Technology Department who are uncomfortable with numbers or hate to endure the justification process that accompanies IT budgeting. The organization’s leaders should work together to outline IT’s role in achieving the organization’s objectives & goals — transforming IT from a cost center to an investment.

Organizations will have to work on robust IT budgeting. Many companies are undergoing digital transformation and hence Top Priorities are Security, internet-facing hardware and software that secures the edges of enterprise networks and Cloud Services. Security is major focus to protect IT Infra from advanced cyber breaches. Few other IT trends that organizations will consider are Data analytics, Internet of Things (IoT), Security on Blockchain etc. IT budgeting is getting less important however executive leadership still values IT budget as other department budgets. In order to prevent security breaches and protect data from different ransomware attacks, CIOs & CTOs should demand for incremental IT budget.

An Effective IT planning should consider long-term business needs as acknowledged by leaders in all departments. Senior Management and leaders should sit down with in-house or external IT consultants and brainstorm on what they want to achieve through technology implementation in the coming year, and over the years to come.

IT budgeting has 3 distinct components like Run, Grow and Transform

Run budget items are those that keep the organization functional and operating like critical server replacements, key software upgrades and costs associated with managing and maintaining the IT infrastructure on daily basis. Organization should avoid run initiatives to cut down IT budget.
Grow budget items help the organization to introduce new capabilities or improve existing ones like implementation of new software to make operations more effective, the purchase of a new firewall to provide extra security from cyber threats or Upgradation of the website to improve interaction with the customers. They are directly connected with the organization’s strategies. They can be considered and implemented if funds are available.

Transform budget items include research and development activities like proof of concepts, prototypes, testing of new systems or business applications etc.

The IT budgets should account for business needs, routine maintenance, system replacement costs, hardware and software licenses and warranties, and even unexpected system failures. The IT budget should guide your technology spending. The IT budgeting should consider following line items:

Support/ Maintenance costs of your IT environment — Network and infrastructure. These are the ongoing expenses like Salaries and benefits for all internal IT staff, Monthly support costs for external IT consultants, Annual support costs for any vendors of hardware and software you own, Training and education, Data network including WAN connections, ISP links, VPN expenses, Outsourced services costs, including monitoring, patching, helpdesk, spam filtering, and any other managed services etc.

Hardware includes current equipment costs plus any additional hardware you plan to purchase, and the cost of any routine hardware implementations like Computers & Laptops, Servers, Routers, Switches, Cabling, Firewalls, Warranties & licenses etc.

Software includes all the current software costs plus any software purchases you anticipate, and the cost of any routine software implementation like Server, Laptop & Computer Software, Backup Software, Antivirus, Renewals and Licenses etc.

Cloud Services includes any cloud services provision, applications as a service, desktops as a service (hosted desktops), hosted email etc. It should also include costs related to public cloud, private cloud, or hybrid cloud models and implementation.

Backup, Disaster Recovery, and Business Continuity costs includes software, an ongoing monthly cost if you outsource this function, mirrored data and storage at a datacenter, or other solutions.

IT Projects Costs related to activities like Project Planning and Implementation, New Equipment and Software etc for e.g. transition to cloud, server replacements etc.

Miscellaneous Costs related to IT emergencies should also be considered

IT budgeting has large capital and operating expenditure components. The final IT budget should be incorporated into the organization’s overall budget. In order determine whether IT Budget is realistic and making financial sense, an Organization can consider its impact on financial key performance indicators (KPIs), impact on financial statements and impact on cash flow.