What to account for when creating an IT budget

Every organization must invest money to keep ahead of the curve in a constantly evolving market, yet many businesses are spending more than they need and failing to achieve the desired results.

IT is a major expense for any modern business. A Deloitte study says that IT costs account for 3.28% of annual revenue on average across all industries, with the biggest spenders being financial and professional services and education. Still, every organization, no matter its size or industry, must invest a considerable amount of money to keep ahead of the curve in a constantly evolving market. Yet many businesses, particularly those which are still heavily dependent on internal IT departments, are spending more than they need and failing to achieve the desired results. To determine your optimal IT budget, consider these five key areas:


By far the biggest expense when it comes to running an IT department is personnel costs. Executive-level IT staff all command six-figure salaries, and a widespread skills shortage isn’t helping. And as companies face an ever-wider range of IT challenges compounded by a vast overabundance of data, they need someone to continuously maintain, monitor, and manage their infrastructure. Fortunately, a far more affordable option is to outsource these tasks on an on-demand basis to a managed IT services provider (MSP).


Infrastructure refers to the foundation that all your hardware runs on. For the most part, this concerns networking hardware and cabling, all of which require proper planning, maintenance, and implementation. Without a rock-solid infrastructure, you could end up facing unscheduled downtime and performance and reliability issues. For in-house data centers, you also need to think about the physical space you need to house your hardware. Server rooms, for example, need adequate climate control, cable management, and the necessary physical safeguards. However, even if you opt for cloud-hosted services and storage, you’ll still need to think about networking infrastructure to ensure everything runs smoothly.


Another major expense is the servers, workstations, laptops, and mobile devices employees need to do their jobs. Fortunately, companies can save a lot of money in this area simply by migrating to the cloud. This greatly reduces, if not eliminates, the need for costly in-house hardware. When all computing workloads and data storage needs are taken care of off-site, all you need is cheap, bare-bones machines, or so-called thin clients. Another option is to allow your employees to use their own devices for work by implementing a bring your own device (BYOD) policy.


Software licenses present another significant expense. Larger businesses often reduce costs by opting for volume licensing agreements with companies like Microsoft. Windows Enterprise and Office 365, for example, are offered on a per-user basis. Fortunately, software is another area where there are many opportunities to reduce costs. Instead of buy-once software that’s installed on local machines, cloud-based apps require no maintenance or upgrades. Instead, they’re always kept up to date by the vendor and delivered on a subscription basis to provide complete visibility into costs.


As technology moves closer to the service model, services are often what smaller businesses will be spending most, if not all, of their IT budget on. From outsourced consultancy services to round-the-clock security monitoring to web-based software and cloud storage, almost any kind of computing workload is now available as a service. However, unless you evaluate the total cost of ownership (TCO) carefully, the service model can end up being more expensive than taking care of everything internally. It’s important to note, though, that the service model comes with many other important advantages, such as simplified management, improved security, and practically unlimited scalability. With everything delivered over the web, it’s even possible to have a completely location-independent business powered by remote work.