How to Make an IT Budget (+IT Budget Template)

Posted by Rubens Perdomo on May 7, 2021 9:00:00 AM

In ERP, IT Services

Budgets are a key part of the effective management of any business. Being able to control spending and prioritize what should or shouldn’t receive funding is crucial for ensuring stability in any key business operation. IT operations are no different.

According to Gartner, global IT spending is projected to reach $3.75 trillion dollars in 2021—a growth of 4% over IT spend in 2020. However, simply spending more on information technology doesn’t guarantee success. On the other hand, not spending enough on the right IT initiatives can compromise a business’ competitiveness.

Why You Need to Have an IT Budget

Having a well-planned IT budget is crucial for ensuring that the business has the right information technology tools in place. Without sufficient budget planning, it is all too easy for IT departments to waste money on frivolous tech that doesn’t provide much ROI—or to be underfunded to the point that they cannot accomplish their core goals.

A strong IT budget can help a business meet its most critical goals by helping them acquire the right technology at the right time. Technology spending is a crucial part of modern business—setting a budget is how companies focus their spending on achieving positive business outcomes.

As noted by Tech Republic, “IT budgeting can range from a painful annual process to the actualization of a carefully crafted IT strategy and roadmap.” While the process of creating a budget can be stressful, it is often well worth it!

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7 Critical Components of an IT Budget

While there will always be some differences depending on the organization, its goals, how it uses IT resources, and even specific workflows and data management tools, there are some things that every IT budget should account for. Here’s a shortlist of some of the most critical components of an IT budget:

  • Hardware Expenses. Even in the age of cloud-based solutions and bring your own device (BYOD) policies, businesses will need hardware for their IT teams (and all their other employees) to use. This includes expenses for things like servers, employee devices (laptops, phones, tablets, etc.), and infrastructure updates.
  • Maintenance Expenses. Hardware and network infrastructure will need to be maintained to keep operating at peak efficiency. Setting aside funds for preventive maintenance and necessary upgrades can help prevent downtime and cost overruns.
  • Software Expenses. Many businesses require specialized software for their key business processes. This means paying for software licenses and service subscriptions if using pre-built solutions from third parties. Or, if engaging in custom software development, paying for R&D, troubleshooting, bug fixes, and other expert labor internally. Naturally, the costs of using software from an external developer are much easier to budget for since they’re more consistent.
  • IT Project Expenses. Will the company launch any major IT initiatives during the year? If so, project expenses such as administrative costs, project-specific hardware and software costs, labor, and consulting will need to be accounted for.
  • Emergency Expense Reserve. Some organization might try to establish a reserve for covering major, unexpected IT expenses. For example, a company might set aside funds for data breach recovery expenses, meeting new regulatory standards, or replacing a high-skilled IT position.
  • IT Department Staffing. The salaries, bonuses, and benefits paid to IT staff needs to be accounted for in the IT budget. There also needs to be money set aside to handle things like recruiting new IT staff or providing IT training.
  • IT Overhead Costs. For internally-owned IT assets, the company will need to meet certain overhead costs. For example, if using privately-owned servers, the company will need a data center to host them. This means acquiring real estate, setting up a server room (complete with power, network access, and cooling), buying and maintaining server racks, and more.

These are just a few of the top-level categories that a company might need to include in an IT budget template. Many of these cost categories can be further sub-divided into specific types of IT expenses—and there are places where they overlap.

For example, do server racks belong in the “Hardware expenses” category, or the “IT Overhead” category? Is internal IT staff labor for hardware and software maintenance an IT staffing expense, a maintenance expense, or (in the case of a major overhaul) an IT project expense?

It’s important to ensure that, when you craft your IT budget, that questions like these can be answered consistently so that IT expenses aren't tracked twice.

IT Budget Template Example

When creating an IT budget for a given quarter or the year as a whole, it can help to compare your planned IT spend to what you spent in the previous quarter or year.

Here’s a quick, generic template for planning your yearly IT budget:

Table 1: IT Staffing

Expense Category

Last Year’s Spend

Projected IT Spend

Difference

Full-Time IT Staff

$208,000

$212,000

$4,000

Part-Time IT Staff

$100,000

$110,000

$10,000

IT Staff Benefits

$100,000

$120,000

$20,000

Total

$408,000

$442,000

$34,000

 

Table 2: Hardware Expenses

Expense Category

Last Year’s Spend

Projected IT Spend

Difference

New Employee Devices

$50,000

$45,000

-$5,000

Servers

$75,000

$20,000

-$55,000

IT Infrastructure (power & data cabling)

$10,000

$10,000

$0

Total

$135,000

$75,000

-$60,000

 

Table 3: Software Expenses

Expense Category

Last Year’s Spend

Projected IT Spend

Difference

Licensing Costs

$50,000

$50,000

$0

Subscription Costs

$30,000

$30,000

$0

Total

$80,000

$80,000

$0

 

Table 4: Outsourced IT/Managed Service Expenses

Expense Category

Last Year’s Spend

Projected IT Spend

Difference

Outsourced IT Staff

$150,000

$150,000

$0

Managed Security Services

$100,000

$100,000

$0

Data Backup Solution

$30,000

$50,000

$20,000

Total

$280,000

$300,000

$20,000

 

Table 5: IT Maintenance Expenses

Expense Category

Last Year’s Spend

Projected IT Spend

Difference

Data Center Maintenance

$12,000

$8,000

-$4,000

Employee Device Maintenance

$10,000

$10,000

$0

Spare IT Components

$500

$500

$0

Total

$22,500

$18,500

-$4,000

 

Table 6: Data Center Costs

Expense Category

Last Year’s Spend

Projected IT Spend

Difference

Data Center Real Estate Acquisition

$100,000

$0

-$100,000

Expansion Costs

$10,000

$20,000

$10,000

Security Costs

$50,000

$50,000

$0

Server Update Costs

$400,000

$50,000

-$350,000

Total

$560,000

$120,000

-$440,000

 

Table 7: Utilities Costs

Expense Category

Last Year’s Spend

Projected IT Spend

Difference

Power

$10,000

$10,000

$0

Internet Access Costs

$50,000

$50,000

$0

Data Center Cooling

$50,000

$20,000

-$30,000

Total

$110,000

$80,000

-$30,000

 

Table 8: Total IT Spend

Expense Category

Last Year’s Spend

Projected IT Spend

Difference

Staffing

$408,000

$442,000

$34,000

Hardware

$135,000

$75,000

-$60,000

Software

$80,000

$80,000

$0

Outsourced Services

$280,000

$300,000

$20,000

Maintenance

$22,500

$18,500

-$4,000

Data Center

$560,000

$120,000

-$440,000

Utilities

$110,000

$80,000

-$30,000

Total

$1,595,500

$1,115,500

-$480,000

 

This template example is far from comprehensive and reflects a hypothetical example of a company that had a major capital outlay for a new data center and employee devices just the previous year. When creating your own IT budget template, it may help to reflect on the specific costs that affect your company’s IT expenses so you can plan around them.

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