How to set an IT Budget

The unfortunate truth about IT budgets is that there’s no clear-cut calculation or reliable rule of thumb to follow when deciding how much to spend. All businesses and industries are different.

Of course, it wouldn’t be wise to simply wing it and act on assumption. With the high cost of today’s technological resources, organisations need to carefully assess their needs before investing. Luckily, there are several strategies that you can use to identify your priorities and make an informed decision. So, follow along for some general guidance on how to set an IT budget:

IT Budget: Consider the Competition

Let’s first establish some baseline figures to put things into perspective. The following case study details the typical spend for a small professional services firm that:

  • Has 35 staff members using company equipment
  • Outsources instead of running an internal IT department
  • Requires guidance due to limited technical expertise

An organisation in this position may set an IT budget of around £2,000 to £3,000 per month. This will translate to an average annual expense ranging between £24,000 and £36,000 for hardware, software, and support.

But you may be thinking how does this compare to your revenue? We can draw up another scenario using the average 4.4-11.4% of annual revenue that UK businesses in the financial sector allocate to IT costs. For example, if an insurance company earns £500,000 per year, then their budget will range from £22,000 to £57,000 annually.

It’s useful to explore what other companies in your industry are spending, especially your direct competitors. Knowing what they’re doing helps you determine how to do better, and where to grow your IT resources. It can also reveal what sets your business apart and why. For instance, you might pay less for software because you favour the use of cloud services.

Before we consider any additional factors, it’s vital that we discuss the effect of coronavirus on IT budgets. We have no doubt that the pandemic has significantly impacted how organisations distribute their funds.

IT Budgets and Coronavirus

At the beginning of 2020 and even more now, rapid technological advancement called for businesses to increase investment in IT resources. Even today, this shift in business spending remains key to keeping up with innovative competitors in your industry.

This trend was complicated by the pandemic. On one hand, there was crucial money to save and safety to gain from reducing technological expenditure. But this came at the cost of having less fuel to finance effective cybersecurity measures, remote working arrangements, and other components paramount to continuing business operations smoothly.

What many companies overlook is the fact that spending more on IT can indeed benefit their bottom line. What it truly comes down to is exactly how the money is spent. Strategic investments in the right technologies, at the right moment, can spare the cost of suffering far greater expenses in the future.

When working with a tight budget, you need to carefully weigh your options. Are the cost-saving benefits of forgoing cybersecurity updates worth reaping when it increases the risk of data breaches? Can your remote employees work effectively without dedicated IT support in London?

You won’t know the answer to these questions until you thoroughly assess and document your priorities. This will help you identify the primary factors for shaping your budget and clarify the specifics of your IT expenditure. Listed below are the steps you can follow to understand your priorities and establish a spending plan.

Establish your Priorities

Consider these questions before taking action

Start by recognising the course that your budget will most likely take moving forward. Maybe you’re expected to spend the same amount of money as last year. This may be strictly no more and no less. Or perhaps an adjustment is in order. Whether that means investing more to account for growth, or making cuts in light of recent challenges, it all depends on your business’ circumstances.

It can help to answer the following questions:

  • How will budget decisions be made and who will be involved?
  • How should potential employee concerns and customer complaints be addressed?
  • Will it be possible to maintain the current budget without impeding service quality and efficiency?
  • Which costs can be reduced to compensate for increased expenses?
  • What effects might budget cuts have on operations?
  • Will a budget increase help create a competitive advantage?
  • How could your IT expenditure help mitigate risk to your business?
  • How could costs align with your overall business strategy?

Defining clear business priorities and allocating costs

From here, you should begin outlining the components of your budget. This may include hardware and software acquisition, management, maintenance, replacement, and upgrades. Remember to consider staffing and outsourcing, as well as travel and related costs.

With the resulting map in place, it will be easier to point out your IT service priorities and their financial impact. These must be aligned with your business priorities, which may be:

  • Boosting the performance of existing IT resources
  • Implementing new and improved solutions
  • Enhancing productivity with technology
  • Eliminating system and operational setbacks
  • Improving digital interactions with customers
  • Reducing acquisition costs and overheads

Reasons to invest in technology

What if you’re in the position to increase your IT budget, but are unsure of the reasons for doing so? As we touched on earlier, factors such as cybersecurity and remote working are especially vital to staying afloat in the current economic landscape. Here are a few other motivators for investing in technology:

  • Attract and retain talent
  • Automate and streamline processes
  • Drive growth and progress
  • Ensure regulatory compliance
  • Improve reliability and customer experience
  • Outperform competitors and lead the market
  • Reach larger and more distant target audiences
  • Strengthen data integrity and mitigate loss
  • Safeguard against unexpected financial challenges

Any of these outcomes can be achieved by strategically distributing funds across key components of your IT budget. What exactly are they? Where should that extra money go? The next section comprises some guidelines on the most important areas for investment.

Where to invest your budget

Upgrading your software

It’s not uncommon for organisations to needlessly bear the burden of software that was long-rendered outdated by new solutions. Even when alternatives are easily accessible, there can be hesitation in response to switching over. This typically stems from a disparity between the perceived cost and actual value of upgrading.

While the premise of implementing an unfamiliar application or system can be daunting, chances are that it needs to happen eventually. As such, it will be more rewarding to act sooner rather than later. There are several reasons why software is the largest component of many IT budgets. Your business may focus on spending in this area to:

  • Access cutting-edge tools and features
  • Address security vulnerabilities
  • Leverage AI and automation capabilities
  • Maintain regulatory compliance
  • Prevent damage to your reputation
  • Reduce employee workloads
  • Respond to the demands of growth

Be sure to keep cloud computing services at the front of your mind when searching for new software. Everything from data storage to communication to project management can be enhanced by cloud-based solutions. These services are becoming increasingly superior to traditional programs and prove ideal for meeting all the objectives listed above.

In addition, your software decisions likely need to account for remote workers. It may be useful to adopt tools which facilitate effective collaboration for projects. For instance, you may require screen sharing, group messaging, or video conferencing solutions. Teams in different time zones can use a time converter, while reporting tools can help them stay accountable.

Upgrading your hardware

After completing your software budget, you can move on to the physical components that power your programs. Just as it’s imperative to replace outdated programs, hardware that has lost its competitive edge should be upgraded when possible. There are always new components available that can deliver better performance, security, and reliability.

That said, the latest hardware is rarely affordable for SMEs. Additionally, it can be challenging to navigate the ever-expanding sea of products on the market today. Even with cost out of the picture, the process of adopting new technologies is often too complicated for smaller organisations. Simply, your organisation may not be equipped to setup new hardware, let alone undertake regular maintenance internally and conduct audits.

Outsourcing IT services

These are some of the reasons why outsourcing is integral to many IT budgets. Thanks in part to the cloud, remote IT support solutions have become popular among growing businesses in need of affordable and reliable expertise. You can find countless firms that offer IT support in London. Selecting the right partner is key:

  • Choose a local provider for timely on-site service
  • Assess their certifications and partnerships
  • Ensure that they’re familiar with the software you use
  • Look for companies with experience in your industry
  • Read the agreement thoroughly and address any concerns
  • Make sure you understand their pricing and terms
  • Verify that their service is scalable to your needs

With the capabilities and resources of an IT support service at your disposal, you can significantly decrease expenditure on technology. An outsourced team is far more cost-effective than having your own, particularly for small-to-medium sized businesses. The financial burden of staffing and infrastructure is replaced by a predictable fee. This can save your organisation a great deal of time and money.

Overall, outsourcing IT services is one of the ways that you can gain better control over your budget. The final section contains a few more tips for effectively managing IT investments.

Control Your Budget

Smaller companies must be particularly diligent when it comes to how their funds are distributed, as limited resources leave less room for error. It’s crucial that you take measures to keep your IT expenditure under control, such as by:

  • Scheduling regular audits to identify potential concerns
  • Searching for new technologies and solutions that reduce costs
  • Recognising that IT is a valid target for investment
  • Using analytics to track expenses and generate insights

Setting an effective IT budget that works for your business can take some time. But making the effort is beneficial to both your bottom line and overall operations. It can also serve as an ideal opportunity to reveal areas for improvement that drive growth and innovation.

To find out how we can help you to determine your IT budgets for 2021 and maximise your ROI, get in touch with our friendly team here at totality services.