How to Set an IT Budget?

With the increasing role of information technology, business interaction with the IT department has become more meaningful. You need to constantly evaluate the demand, cost, quality, and value of your IT resources. So, how to set up an IT budget?

IT budget as a competitive advantage

Today there are different opinions regarding the role of information technology in the company’s business processes. Recently, the idea that it makes no sense for companies that do not directly create IT products or sell IT services to develop their own IT infrastructure has become increasingly popular. At the same time, the IT strategy is to choose the most inexpensive, tested, and debugged solutions. For example, this includes free or low-cost office software and increasingly developing cloud services and technologies, including remote access to workplaces. The main premise of this approach is the assumption that, for the most part, the costs of new IT solutions no longer provide any strategic advantage over competitors, and IT services are outsourced and can be considered as other resources necessary for the full functioning of business processes.

Recently, the IT department has become an increasingly significant and resource-intensive structural unit of the company. Therefore, it would be logical for its director to become not only a full-fledged but also a very active participant in the budget planning process. Thus, the manager’s understanding of the principles of IT budget formation and management becomes an essential factor in the successful work of the entire department. Also important is the efficiency of IT budget execution, assessed by the quality of the fulfillment of reasonable requirements and requests from the company’s main divisions.

When compiling an IT budget, one should not forget that its figures should be understandable to financiers and management. It is achieved by matching the IT budget format to the general requirements of budget planning adopted in the company and by determining the economic efficiency of a project. The IT budget must be balanced.

Basic aspects of forming an IT budget

When forming the budget, it is necessary to ensure the implementation of one of the main tasks within the available financial possibilities – to bring the planned costs into line with the work plans of the IT department and the main business. Therefore, let’s formulate the main principles that should guide the preparation and formation of the main financial document of the information technology department:

  • the interests of top management in IT should be clear and understandable;
  • the area of ​​responsibility is defined: what is directly the object of management of the IT department;
  • the needs (expectations, requirements) of the company’s divisions for the planned budget year are formulated, and their priorities are lined up;
  • the structure of the financial document of the IT department must comply with the requirements of the corporate budget;
  • for the planned projects, their economic effect should be assessed.

You can also draw up an IT budget for the objects of financing. They can be both divisions of the company and individual projects and activities. All this must be included in a general explanatory note containing all calculations and descriptions for each line. When designing the budget process in the field of IT, it is necessary to find the answer to all these questions and, within the existing limitations, ensure the implementation of one of the main goals of the budget process – to ensure that the planning of IT spending is consistent with the plans of the unit and the main business.