4 Steps to Creating Next Year’s IT Technology Budget

We’ve hit December and now is the time you will see three things on blogs everywhere: recaps of the year, holiday gift ideas, and planning for next year.  This is a business-focused article, so recaps of this year’s technology will not be helpful to anyone, and we already have an article on what you need to know when buying a new computer. This leaves us with the topic of how to plan next year’s technology budget for your company.

However, this is not merely a compulsory planning article, and your technology budget should not be a token gesture toward financial planning.

We have seen that very few companies take the time to plan for their IT spending.  And when unexpected emergencies happen, these companies are stuck paying thousands of dollars for new equipment and labor costs that they had not budgeted for.  Since these funds were not set aside for these expenses, business owners are often forced to buy lower quality products that will likely break again unexpectedly, perpetuating the cycle.

Here is a fact of doing business in the modern world: IT costs will happen whether you plan for them them or not. New employees get hired, computers die, and servers crash.  Not planning a technology budget won’t prevent these events from happening, they will just be more expensive to fix – both in cash flow and lost business and productivity.  Creating an IT budget will give you the following benefits:

  • Peace of mind: Whenever we feel like we have to spend money, we are upset about it.  Creating a budget will put you in a position of power over your technology. You’ll likely be happier with your spending, rather than resentful.
  • Better technology: When you can plan for things ahead of time, you are more likely to get the equipment and services that are in alignment with your business goals and strategies.  When you make technology decisions from behind the eight-ball, you end up spending a lot of money on something that will merely get the job done to meet the nearest deadline.
  • More efficient business: Robbing Peter to pay Paul is rarely an effective way of doing business.  If you take an honest look at what is likely to happen and what is needed, you can more accurately fund your other departments as well.

Simply using “last year’s support numbers” belies the true cost of next year’s IT spending.

So, what is needed when planning a technology budget?  Most people simply take what they paid the previous year for support and set aside that much.  This belies the true costs of IT spending and leads to the problems described above.  If budgeting is worth doing at all, it is worth doing right.  So take a few hours out of your year, schedule a meeting with your IT provider, and and sit down together to do it right.

The 4 Steps for Creating a Technology Budget:

  1. Have a conversation with your IT provider. Discuss your business goals and needs for the following year. Ask him about new technologies and if it makes sense to switch any major areas, or if it is better to stay the course.  Discuss what software should be upgraded.  Decide which computers and what other equipment will need to be replaced and when.  For a discussion of when to replace computers, see here.  This is the major planning step and should not be skipped.  This is a technology steering meeting and should happen at least once a year, perhaps as often as quarterly to review and reassess.
  2. Calculate hardware and software costs. Take the results of that conversation and call software and hardware vendors to get pricing.  These may change by the time you make the actual purchases, but not by much.  Gather pricing for new computers, networking equipment, new software, software version upgrades, and licensing.
  3. Calculate support and project costs. Now that you know how much you will spend on software and hardware, it is time to calculate how much it will cost to set up and support it all.  First, consider normal IT support.  Your IT provider will be able to help with this number, but last year’s support costs are a good place to start.  If you are planning on hiring more employees, you will need to consider them in your calculations.  To do this, simply divide last year’s IT support costs by last year’s number of employees to get an average cost per employee for support.  Then multiply that by the number of employees for next year.  Now think about other support costs, including renewing or purchasing support contracts for your business-critical software, and renewing hardware warranties.  Get estimates from your IT vendor on how much it will cost to set up or install the software and hardware you discussed in the first step.
  4. Plan a timeline. At this point, you know how much you will need to spend to keep your technology in line with your business goals and the steps necessary to do that. Now, you can start planning when to do it all.  It doesn’t need to all be scheduled for January 1.  If you are purchasing several computers, you may be able to spread them out across the year.  Look at the projects you and your IT provider came up with and plan out what quarter each should happen in.

Now that you have a budget for your IT spending, you can take your business into the future with the peace of mind and confidence of knowing that your technology budget is in alignment with your business goals and you are managing your IT spending, rather than letting the technology dictate it to you.