Budgeting for IT: The Whole Picture

You understand the importance of creating and using budgets for benchmarking company performance. How can you properly budget for IT spend. IT spending has evolved in recent years with the advent of subscription licensing, leasing, and more necessary services. In this article we will break the spending down into three parts: subscriptions, hardware, and services.
Subscriptions often replace what used to be annual or multi-year software licensing agreements. Microsoft Office, Adobe, and many more software license costs are now sold as a monthly subscription. The subscriptions costs are stable with pricing changes only once a year if that. This helps keep the cost assumptions constant and predictable. These subscriptions are also usually sold per user so your incremental cost of hiring a new employee is also predictable.

Hardware is probably the most overlooked part of IT budgeting. If you aren’t using leasing, financing, or newer “as-a-service” offerings your hardware costs will fluctuate. Your Managed Services Provider should continually provide you a five-year hardware replacement schedule. Computers do not last forever and often need to be replaced for users to take advantage of faster and improved components. We typically recommend that computers are replaced every five years and physical servers are replaced every five to six years. We find that computers start to lag and generate more support calls around the five-year mark. If correctly done a hardware replacement schedule can be created to spread the cost of replacing hardware over a period. There are also leasing, financing, and even subscription options for hardware that can create a predictable monthly cost without having to make larger investments at one time.

We categorize services as your IT support costs. This may include management, cyber security, and your support costs. Your Managed Services Provider may offer different service plans that include different levels of services and support. Some of those plans may include certain support services so your service spend is more predictable. If you select a lower cost plan you may have to pay out of pocket for service calls which in turn can create a more fluctuating services bill.

Companies should also consider if they have any short- or long-term IT projects that may affect their budget. Migrating solutions to the cloud, moving offices, or moving to a new software package are all projects that may want to be budgeted for in advance. Budgets don’t have to be exact but doing an imperfect budget is better than not doing one at all.