An Introduction to Managing IT Budgets

Great outcomes require a great vision.  

But realizing that great vision requires...money. 

And, since most companies aren’t startups beginning at square one, how your company manages and allocates money depends on many factors, like the scale of your organization. In other words, a $4B/year company growing at 8% a year is going to be a lot more sophisticated about how they allocate money compared to a $50M company growing at 23% a year. 

That said, in business, money typically goes to the areas that support mission-crucial initiatives (i.e., places where the company has holes that need to be filled) or where the company is making money and wants to continue pushing resources. This allocation of resources is one of the biggest enablers or inhibitors of successful business outcomes.  

IT teams need to be well-stocked with resources to help your company keep pace with technological advances and rising cyber threats. This article will break down the complexities of managing IT budgets, so that as a chief information officer (CIO) or IT manager, you’ll have a better understanding of what’s important and what’s not—to help you navigate the complexities successfully.  

Why Do IT Budgets Matter? 

Budgets align directly with business goals as they the answer to the question: How will these initiatives help the company win (read: increase revenue)? 

IT budgets are roadmaps (financial roadmaps, that is).  

They tell you where you can and cannot go (i.e., what you can and cannot afford). They tell you where the boundaries are and help you understand that to go somewhere, you need to devise a plan to do so. But, when talking about budgets, you’re not just talking about costs, you’re also talking about opportunity, value, and investment. 

And often, when doing IT budgeting, IT budget can be looked at as a cost center. This is a mistake that CIO's need to shift. In reality, technology is woven into the fabric of how we generate revenue, differentiate ourselves from competitors, keep employees productive and happy, and keep customers coming back. 

3 benefits of IT budgets 

• Strategic Planning: A strategic plan is a well-defined vision for the future of a company—it's goals and objectives. By building and using an IT budget, your organization is outlining your tech priorities for the short and long term future to support the identified business objectives.  

• Resource Allocation: For companies to grow, they need to strategically select where resources go and what’s not going to make the cut (software, hardware, talent). Following an IT budget makes it easier for executives to decide what to invest in and what to skip. Often this revolves around asking, “What’s going to bring the most value to help us reach our goals?” Sometimes the answer for what to push money towards shows an immediate return (ex: new desktops for all engineers), while other times the investment takes longer (ex: deciding to hire a COO). If it’s the right investment, the pace at which it's done matters less than if it’s completed or not—the two sides will even out eventually. So, if it’s within your budget, spend on what you need to give your team the biggest chance of long-term success. 

• Risk Management: An IT budget will help you to predict and navigate any potential risks that may arise. Through proper resource allocation and planning in not only the IT department, but also every other department in the company, you’ll ensure your business will have the funds to tackle any unforeseen challenges. 

Constructing IT Budgets 101 

You can’t put together a solid, weather-protected budget in a night. Like most things, the best budgets (read: those that are helpful) require dedicated time and attention. Why? Because all necessary executives need to be involved; the entire company needs to be assessed; individual departments need to be analyzed; and goals need to be set.  

Don’t just put numbers in spreadsheets for laptops to order or subscriptions to buy. Assess where your company is right now, and where you’re going—longevity matters. The steps below will help you to be better prepared to build an IT budget that’s aligned with your company’s strategic plan. 

1. Book a meeting – Gather anyone who’s relevant to setting the budget or understanding what the department needs (some suggestions: engineers, the head of finance, CIO, IT directors). A tip: set a dedicated, distraction-free time on the calendar. It might be helpful to set multiple calls and outline the goals ahead of time for each call—typically the first meeting is a high-level overview, and less “here’s our plan.” 
2. Bird’s eye view – Understand your organization’s goals for the immediate and distant future. How can technology be used to propel those goals forward? 
3. Look back – Assess past IT budgets to learn how to avoid previous pitfalls and continue building on what’s been successful. What worked? What didn’t?  
4. Establish KPIs – What values and statistics do you want to track to measure your success?  
5. Grab your crystal ball – Analyze what tech trends or technology upgrades are on the horizon that align with your business strategy. Is it worth investing in them now or should you wait? How will your business benefit from investing in these resources (e.g. generative AI or cloud-based ITSM)?
   

You've been given an set amount of money to cover overhead costs of tech talent, software, hardware, and some incidental expenses—what’s next? After going through the planning session notes, speaking to IT managers to understand what their direct reports need, and meeting with your CEO about the company’s goals, you can begin to craft your budget portions.  

• Break down your needs into various categories (e.g., software, hardware, talent, etc.) 
• Fill each category with current demands and needs 
• Add in new items, where applicable, to their correct categories 

Be realistic about what items cost (i.e., you might not get the enterprise deal you were hoping for that would save you $50k/year on a software) or the projected timeline for implementing upgrades. As a final note, leave yourself some wiggle room for any unexpected events or incidents. While you don’t want to have to buy new MacBook computers for your entire team, surprises can (and will) happen! 

The Secret to IT Budget Management  

It’s hard to not get distracted by new technology—there's something different on the front page of news sites every day. Something shinier and lighter. Something that processes data a millisecond faster. Something that's “life changing.”  

Something that's not what you have—something dim and old. 

But it still works—and well.  

You already know your IT budget isn’t bottomless. You can’t spend on things just because you want to look cool. Your job is to invest your allocated money into talent and resources that align with your organization’s objectives. To do so, you need to prioritize. Here’s how: 

1. Align your IT priorities with your organizations’ goals – For example, if you’re switching to full-time remote work, invest in remote IT support (location independent support). 
2. Important vs Urgent – Prioritize items to differentiate them between tasks that are necessary (contribute to long-term business success) and those that are urgent (need attention ASAP). 
3. Clear out the cobwebs – It’s well-known that legacy systems and outdated software drain resources and prevent progress. Assess your technology and distribute your budget accordingly to nick these systems before they cost your company even more. It’s well worth the time and money to switch the programs and processes, even though it will be time-consuming and require some learning for all parties involved.  
4. Check-in – Hold regular follow-ups to assess the budget’s performance—allowing you to adjust where needed.  
5. Be open to pivoting – If an initiative isn’t delivering the expected ROI, change your plan and adapt as needed.  
6. Tech talent retention – It’s expensive to hire new employees. To prevent having to do so, keep your people happy by giving them company with great culture and the opportunity to grow. Popular examples: Invest a portion of your budget into employee engagement initiatives, recognition programs, and skill development training. 
7. Cloud services – Regardless of what maturity stage your company is at, it’ll benefit from cloud services. Why? Because most cloud services work on pay-as-you-go models—allowing you to scale up and down with more flexibility based on your actual usage, not pre-allotted.  
   

TIP: CIO's and IT leaders (especially in larger orgs) should leverage benchmarks to help find a reference point to assess against but should NOT target those benchmarks as a goal. Benchmarks are averages, and averages are not a good business goal. Instead, set a target above or below the industry benchmark that is triangulated based on constraints and goals specific to the company's strengths and priorities, aligning this investment with the company vision.

IT budgets are living, breathing documents, not rigid boulders that have no flexibility and cannot be moved. As the overseer of the budget, it’s your job to monitor and adapt the document to fit your actual circumstances, not just what you projected. Use all the information at your disposal accordingly to match your IT department’s demands with your organization’s objectives to ensure long-term success.