Let’s assume you are currently based, or planning to be based, in Singapore or Hong Kong and that you own a multi-use tech startup. You raised the money and assembled a great team. Your idea is going to change the industry and your company is about to go to the moon. But there’s one big obstacle: you don’t have a proper IT budget plan. Setting your IT budget is actually way more important than it sounds. Lack of a solid budget can impede your success with unforeseen expenses, misplaced assets, and security weaknesses.

According to Statista IT spending has been continuously increasing for a reason. An effective IT budget is essential to a modern-day business. Not doing so could lead to investing in the wrong technologies. However, do not panic, we are here to offer you a definitive overview of how to plan your IT budget. This article will provide you guidance on the key considerations and best practices to be adopted to maximize your IT investments.

By the end of this, you will learn how to prioritize your IT costs, where to direct your resources, and sufficient organization for the future.

Step 1: Define IT Goals and Align with Business Objectives

Key details pertaining to your business are critical in creating an accurate IT budget. It begins with asking some fundamental questions, like “What are your business’s IT needs?” or “Which parts of your IT system need the most work?” Bear these points in mind as we transition into the first step of our IT budgeting process.

Understanding the Business Vision

Every business establishes a specific set of goals, with each function of the operation aligning with these larger goals. The same principle applies to the IT infrastructure of your company; you need to know your IT initiatives and make sure they are in line with the overall objective of the business. To do so, you require a firm grasp of the strategic path that your business is taking.

Identifying IT’s Role:

Having a clear understanding of your business goals simplifies the process significantly. The next step is to determine how you can leverage your IT infrastructure to achieve those goals. For example, if your broader objective is driving innovation, IT can help, by streamlining operations, or improving the customer experience.

Setting Clear and Measurable IT Objectives

Many objectives start off as vague thoughts and out of those vague thoughts come clarity, relevance and value added objectives. Goals should be:

A further important element of these objectives is their alignment with the higher business goal.

For instance, if one of your business objectives is to enhance customer satisfaction, a relevant IT goal might be to implement new customer relationship management (CRM) software. This would help improve response times and elevate the quality of service provided.

Step 2: Gather Data and Assess Current IT Infrastructure

How will you know what the areas of improvement are if you do not thoroughly assess your entire IT infrastructure? So that’s your starting point.

Inventory Your IT Assets:

A detailed inventory would include the following:

• Hardware: Servers, workstations, laptops, printers, network devices, etc.
• Software: Operating systems, applications, licenses, and subscriptions.
• Network Infrastructure: Routers, switches, firewalls, and other networking components.
• Cloud Services: Cloud subscriptions and usage patterns.

Evaluate IT Performance and Efficiency

Next up, its performance evaluation time. This will give you two sets of distinct information: areas for improvement and potential cost savings.

Here are the key things to look for:

• System Uptime: For how long does your system stay available and how long is the downtime.
• Network Performance: Check for these three; speed, latency and reliability.
• Software Utilization: Here you must look for patterns for software that are either underutilized or those licenses that are unnecessary.
• Security Posture: Here you must carry out vulnerability assessments and penetration testing to ensure the overall cybersecurity posture of your business is either good enough or needs improvement.

Identify Gaps and Areas for Improvement

Once you are done with the first two steps, i.e. inventorying and evaluating, you will have a detailed list of improvement ideas and gaps to fulfill with your IT budget. Here are some common examples of areas for improvement:

1. Outdated hardware
2. Inefficient software licensing
3. Security vulnerabilities
4. Performance bottlenecks

Step 3: Develop a Comprehensive IT Budget

Once the IT goals are aligned with the business objectives and areas of improvement are identified, it’s time to put your money where your mouth is. Although this may be one step in our guideline, it is far more detailed and the most important and complex one of all.

Allocate Funds Strategically

There are 5 key sections on which the IT budget will be allocated upon. However, it is your business needs that will determine which sector gets more of a share:

1. Hardware: The budget for hardware is spread across three phases; purchasing, maintaining and upgrading the hardware. Common hardware components to allocate budget on are your servers, workstations, networking equipment, and peripherals. When spending money on new hardware, you must look for three things: performance requirements, energy efficiency, and future scalability.
2. Software: Similar to the hardware, you can also divide your software budget allocation into three separate sections: licenses, subscriptions and maintenance costs. Each business IT infrastructure will consist of three software types; operating systems, productivity suites and specialized apps. Keep in mind that software has many associated costs (licensing fees, support cost, upgrade cost) which add up. So instead of investing by simply analyzing the licensing fee, you better evaluate the total cost of ownership (TCO) before investing.
3. Personnel: Remember, there is no IT infrastructure without the IT staff so it’s your job to look after them. That’s why a section of your IT budget must go towards their salaries, benefits, training and professional development. When hiring, it is the skills and expertise of personnel you must invest in.
4. Services: Today’s business landscape does not work on just hardware, software and an in-house IT infrastructure. Cloud computing, managed services and consulting are some essential external resources every business needs today. So, a chunk of your IT budget must go towards that. However, if maintaining a service in-house costs less, then it must not be outsourced and vice versa.
5. Infrastructure: The data center and security systems are integral parts of the complete IT infrastructure. Funds should be reserved for maintaining and upgrading them. Because these are usually long-term, energy efficiency, scalability, and redundancy should be top of mind during planning.

Prioritize IT Projects

Allocating a budget can be an easy task, but it is only manageable when you know where your priorities lie. Are you, before starting an IT project, keeping its direction in line with your business strategic goals? This is also why it’s important to articulate a clear business case with each project by detailing the benefits that project will bring and expected return on investment (ROI).

• Assess Return on Investment (ROI): The golden rule is working on projects that deliver high return on investment (ROI) with low risk. But this isn’t an uneducated guess; there are plenty of metrics and tools at your disposal to help you. Metrics such as payback period, net present value (NPV), and internal rate of return (IRR) are used to determine the financial viability of a project.
• Consider Long-Term Impact: It is not just financial impact on IT projects that matters. So, it makes sense to invest in projects with long-term payback. These benefits could all be seen as increased output, better customer satisfaction, or greater security. Go a step further: Explain how this project will give you an edge.

Consider Future Needs

The constantly changing landscape around technology requires adaptability and an appreciation for what’s coming next. So, your budget should certainly include a segment of the emerging technologies such as AI, IoT, Machine Learning etc. And if scalability is what you need, look no further than the flexibility of the cloud. Also, you should definitely put some resources into the latest security apparatus because while technology is changing constantly, so are the cyber attacks so you have to always protect your sensitive data against the risks.

Establish a Contingency Fund

Never use all your IT budget on projects, you always have to keep some money back for a rainy day. Somewhere down the line, it is ineluctable that your infrastructure will face a hardware failure or a security breach. That’s the role a contingency fund plays; it allows you the freedom to adjust to changing circumstances and always be one leap ahead.

Whether a problem arises within the system or through an external threat by force, you must have all the necessary tools to face it before it causes any significant damage. The contingency fund will cover you for any such issues financially. With the same funds, you can even hire an external help to deal with any haphazard issues that come your way.

Step 4: Implement Cost Effective Management Strategies

No matter how carefully you plan an IT budget, it takes very little to overspend or to go off track. Hence, budget allocation must go hand in hand with monitoring:

• Track IT Spending: Spending and keeping a track side by side will allow you to see the areas for optimization in real-time. If you think real-time tracking is difficult, worry not; there are financial management tools which will make your life much easier.
• Leverage Cost-Effective Solutions: IT infrastructure in the present age empowers you to test out on-demand solutions instead of locking up capital in costly in-house systems. Serverless computing and virtualization are practices that help reduce infrastructure costs without affecting performance and scalability.
• Negotiate Favorable Contracts: Vendors are usually willing to provide better rates, especially on volume discounts or package services. Negotiate as many long-term contracts as you can, if they will result in lower costs.

Step 5: Regularly Review and Adjust the Budget

If you think planning the IT budget ends once you have allocated the funds and spent them on the projects, you are wrong. In today’s IT landscape, things change quickly and that’s where regular review and adjustment of the budget comes in:

• Identify Variances and Take Corrective Action: Once IT budget spending is complete, monitor actual spending and see how far it deviates from the planned budget. There, you will have some areas of improvement such as contract negotiations or reallocating funds.
• Adjust the Budget: If you were to regularly review the budget, you will see certain aspects of your IT infrastructure that require more attention in that given moment. That’s where you can adjust the budget to accommodate the changing business needs and priorities. If you want to know what are those factors that can cause you to adjust the budget, here are three most common ones: economic conditions, technological advancements, and organizational growth.

Best Practices for Successful Budgeting

Creating an IT budget for your business can be approached in different ways; however, some methods of best practice can prove more beneficial than others:

1. Ensure participation of key stakeholders – business leaders, IT, finance, etc.
2. Prioritize IT initiatives that matter the most to you, in particular those that correlate directly to your desired business outcome.
3. Use IT asset management to maximize resource utilization and reduce costs.
4. Be attuned to the trends and prepare for the next through investments.
5. Monitor the budget on a regular basis and update it according to the circumstances as they change.

Final Thoughts

IT infrastructure is important for any business in today’s digital age. This is why an IT budget needs to be well-defined. These will not only help you plan your budget but also execute it! As a note, IT budget planning is not a one-size-fits-all; you need to adapt to your company needs and requirements.

We can help you with your IT budget planning. FunctionEight is a trusted IT service provider in Hong Kong and Singapore, with vast experience and a proven track record. So why wait? Talk to FunctionEight today to get the professional assistance you need to start the IT budgeting process.