CEO Digest | Strategic Insights for CEOs | NSI

5 IT Budget Management Best Practices

Written by Tom McDonald | Jul 29, 2022 12:46:18 PM

There are lots of statistics out there about IT spending in the US and around the world, particularly in relation to how IT spending is increasing.

For example, worldwide IT spending this year is set to top an eye-watering USD $4.4 trillion. The thing is, you will probably already know that IT spending is increasing because it’s increasing in your business.

It's not just increasing in monetary terms, either, as IT spending is also increasing in relation to its proportion of overall spending. This increase in IT spending across most industries is largely down to an ever-growing reliance on IT. Just think about how many workflows and processes in your business that were manual and/or paper-based 10 years ago but are now digital and/or automated.

Also, the pace of change to further digitalize and automate is only going one way – up. That means IT spending in businesses like yours is probably also only going one way. Yep, up.

The Importance of IT Budget Management

The above reality makes it more important than ever to control IT spending to ensure you are getting business value and return on investment. 

After all, the things you can do with IT are almost endless, and a good proportion of those things might be on the wish list of your IT team. That doesn't mean you should do them all.

Instead, you need to invest and spend money in areas that will be most beneficial. IT budget management is crucial to retaining a high level of control over IT spending. 

Your organization should adopt the following best practices to ensure an optimal level of IT budget management.

  1. Align Your IT Strategy with Your Business Strategy

One of the biggest pitfalls that companies face when developing and managing an IT budget is approaching the exercise from an IT perspective.

The IT that you own, pay for, and invest in needs to work for your business, so IT budgeting is a business rather than an IT issue. Therefore, the starting point should always be ensuring your IT strategy is properly aligned with your business strategy. 

Where do you want the business to be in one, three, five, 10 years time? How will you remain competitive? and what market changes do you expect? – these are some of the things that are typically considered when developing a business strategy.

When you have your business strategy, you then need to make sure the IT strategy your IT team presents you with is in alignment, i.e., will the IT strategy proactively help with the implementation of your business strategy and the achievement of your business goals?

  1. Align Your IT Budget With Your IT Strategy

The next step is to ensure your IT budget is aligned with your IT strategy. 

What are you spending money on now? What do you need to spend money on in the future?

What large projects are in the pipeline? And, most importantly, does all of this expenditure align with your IT strategy (which is also aligned with your business strategy)? 

When you go through this process, you might find you need to cut IT expenditure in one area while increasing it in another. Whatever the outcome, you will have an IT budget that will help move your business, as well as your IT, forward.

  1. Ensure You Have an Emergency Reserve

With an increased reliance on IT comes increased risks.

This includes everything from downtime that impacts revenue and reputation to cyberattacks that present an existential threat. When problems or deficiencies in your IT infrastructure are identified, they are likely to land high on your list of priorities. 

Therefore, it is beneficial to have reserve funds available to deal with these issues.

  1. Look for Alternatives to Large Up-Front Capital Expenditure

IT spending 20 years ago involved large upfront capital expenditure.

There were few alternative options. That isn’t the case today, though, as spending large amounts of cash upfront is rarely the best approach. 

This applies whether you are investing in infrastructure, software, or IT managed services. The main alternatives to large up-front capital expenditures are “as-a-service” options. 

The main examples include:

  •         Software as a service
  •         Platform as a service
  •         Infrastructure as a service
  •         Desktop as a service

With the as-a-service IT expenditure model, you can obviously keep upfront costs down. There are other benefits too. Those benefits include enhanced flexibility and scalability, plus you’ll only pay for what you need.

As-a-service options are also location agnostic, and you will benefit from performance and security gains.

  1. Consolidate, Standardize, and Streamline

Different departments, functions, and even individuals in your company will have different IT requirements.

This reality often leads to independent spending decision-making where, for example, two different departments could have tools from different vendors that perform very similar functions. Situations like these rarely represent value for money.

Other issues that can develop because of independent IT spending decisions include compatibility issues and process divergence. You can get more from your IT budget by streamlining the apps and services that you pay for. For example, are you paying for an app to perform a function that is a feature in another app that you also pay for? 

Are there free options available that could replace paid-for services? Then you should consolidate as much as possible. For example, if you use Microsoft apps and services for some functions, processes, and workflows, look for other areas of the business where a Microsoft solution could replace a solution from another vendor. This could help you reduce the licenses you need as well as the cost of those licenses.

Finally, standardize your workflows and process across departments as much as possible to ensure there is a minimal level of IT-related friction. You will have tighter control over your company’s IT budget by going through the above process, and you might also see productivity and efficiency gains.

Bonus Tip

We also have a bonus tip to optimize IT budget management in your business and, yes, we admit, it is also a plug for our services. 

Yep, you’re in the CTA part of this blog, but the point is still highly relevant. Getting assistance from an IT managed services provider can be invaluable when creating an IT strategy, developing an IT budget, and ensuring that budget is properly managed over the financial year. 

This is because an IT managed services provider will bring a fresh perspective, a critical eye, and new ideas, helping to maximize business value from your IT budget.

Get in touch with us today at NSI to learn more.