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How to Create the Perfect IT Budget in 6 Easy Steps

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We need to have a talk about money.

I know we’re fresh out of tax season, but stay with me.

I don’t know when your organization’s fiscal year starts, but here at Capterra, our 2017 budget is about to kick in.

As a mere content writer, I don’t play a huge part in deciding our team’s budget. I just cross my fingers every year and hope I continue to get paid.

But you’re a responsible CIO, not a slacker, former English major. And people are counting on you for resources and guidance, in addition to their paychecks.

You need to put in the time to get your budget right, making sure your employees and your company have the resources to get their jobs done.

Below, we’ll discuss the six steps you can take to create the perfect IT budget.

IT budget

1. Compare your IT spending to your competition

I know your mom probably told you to just be yourself. So I’m sorry if this is a harsh wake-up call, but just being yourself doesn’t always fly in the business world.

While you don’t have to follow the crowd in terms of budgeting, you should always be aware of what the crowd is doing.

Even the nerds have to fit in sometimes.

Knowing what your competition is up to means you can tell your boss how you’re doing it better.

You should consider how your IT spend compares to others’ based on few different factors.

How much are businesses of a similar size spending on IT?

Especially in small businesses, you need to justify every penny you want to spend.

But, as a small business, are you (and your CEO) aware that you’ll spend a larger percentage of your budget on IT than medium and enterprise organizations?

Understanding how similar organizations run their IT departments not only helps you justify costs, it also helps you set expectations.

Tracking down that information led me into a strange rabbit hole full of charts and pivot tables. For your sanity, the rule of thumb for IT spending has been simplified in this helpful, simple infographic. Small businesses will spend about 6.9% of their revenue on IT, whereas larger companies will spend about half of that.

How much are companies in your industry allocating for IT?

Every small business is different. And businesses in different industries require different resources and have different expectations of their IT departments.

For example, if you’re involved in the banking industry or any other industry that deals with heavily protected personal information, you should expect to spend a lot more on tech than if you’re in a less regulated industry like retail.

Again, knowing what’s going on in your business ecosystem helps you set expectations both for yourself and for whoever is approving your budget.

Highlight how your tech team is different

Pay attention Millennial CIOs (and older ones), because this is your chance to discuss what makes your team unique.

Now that you know what everyone else is doing, it’s time to point out how you differ from them and why.

Are you spending more on payroll than similar companies? Maybe it’s because you make it a priority to pay higher salaries to your very talented engineers.

Spending less on hardware? Point out how you’re currently doing more with less to either justify an upgrade or explain where you can afford to reallocate funds to another category or project.

2. Find out what your organization is doing

So now your CEO knows everything about your IT department and the IT departments of your competitors.

But your tech team doesn’t exist in a bubble. It’s your turn to find out what the rest of your organization is up to.

At the end of the day, IT’s goals should align with the rest of your business’s goals, and your budget needs to support that.

But how are you supposed to support other departments if you don’t know what their goals are?

Does your marketing team anticipate needing help integrating a new email marketing system? Does sales want to test a new eCommerce feature on your site?

If your company already uses performance appraisal software or a similar system, finding out your business goals might be as simple as logging in to the system or requesting a report.

Otherwise, you can pitch something like a company-wide OKR system to your boss. Below are some tools you can use to do that:

Here at Capterra, our top management sets company-wide OKRs. Team leads set team OKRs based on those goals, and individual team members use their team goals to set individual OKRs. OKRs are set for the year and for each quarter, with regular updates to help everyone stay on track.

With business’s (and the world’s) increased reliance on tech to get things done, you’ll need to know ahead of time how you’ll be expected to work with and for other teams.

When you all work together, you can make something great.

Understanding your business’s overall goals helps you set your own expectations about how much funding your projects will get while ensuring that your main projects support your organization.

3. Know what you’ve got, and know what you need

So you’ve checked in with your industry and you’ve checked in with your CEO (or whoever is responsible for keeping track of your business’s goals).

Now it’s time to check in with your department and get down to the foundation of budgeting: figure out what you’ve got, then figure out what you need.

Gather all of your resources together.

What hardware do you have? Will it be enough for the upcoming year? What about software? When do your licenses expire? If you’re hiring, do you have enough seats to accommodate new employees?

And speaking of your employees, don’t forget to factor in payroll. Is anyone on your team up for a raise? Will you need a new engineer for an upcoming project?

Track everything you have, possibly with something like IT asset management software (ITAM). If you’re not quite ready to purchase an IT asset management system, you can try a solution on the less-expensive side, like Smartsheet, which provides some free Excel templates to get you started

Make sure you’re using your resources to their full potential, and figure out where you have gaps. That way, you’ll avoid duplicates and, hopefully, make fewer unplanned purchases.

4. Don’t limit your budget tracking to right before it’s due

But speaking of tracking your resources, I hope you’re not waiting until right before your budget is due to take stock of everything you have.

This shouldn’t be your attitude during budget write-ups.

Something like ITAM software can help you keep track of who’s using which resources. But when you think of something your team needs, don’t wait until the end of the fiscal year to make note of it.

Keep track of everything you’re using and everything you might need throughout the year. That way, you’re not scrambling to think of things at the last minute, and your team won’t find they’re lacking valuable resources in the coming year because it happened to slip your mind.

Keep a running wish list of sorts so you don’t forget anything.

5. Get everyone involved

Speaking of your wish list, why not go straight to the source to find out what your team needs?

Make it a point to ask the people in your department what tools or resources would make their lives easier.

You can hold a meeting specifically about budget items and priorities. Or you can ask everyone to send you the top three things on their wishlists.

What it should look like when you ask, “Who wants to help put together the budget?”

Understanding the needs of your team is essential to putting together a budget that will help everyone.

We’ve already talked about how your IT department supports the larger business. Don’t just ask your team what they need. Make it a point to ask other departments and teams what they need from you.

Although you lead your team, you should never be dictating needs and wants. Get that information straight from the source, from your own team and everyone else’s.

6. Keep the lines of communication open after you’ve turned in your budget

But communicating with others doesn’t stop after you’ve set your budget.

Communication is a big deal.

Remember when I said you should track what you have and what you need throughout the year?

The same goes for checking in with your team and other teams. Checking in with everyone periodically helps make sure you’re not overspending on a certain project. Or, if you’re under budget somewhere, it helps you decide the best place to reallocate resources.

Again, this check-in could be as simple as sending an email to the appropriate people, or it could be as involved as a sit-down meeting.

There’s no set rule for how often you should check in with everyone, but depending on how often you need to update your budget, once per quarter or once per month should be good enough.

It’s up to you, but at the very least, make sure all of your coworkers are able to let you know when they need something.

Check out these other budgeting resources

As I’ve tried to express throughout this post, you can never have too much information when it comes to budgeting.

Check out a few of these other resources to:

What are your IT budgeting tips?

But hey, you didn’t make it this far without knowing what you’re doing.

What are you tips and tricks to creating a great IT budget? Let me know in the comments!

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About the Author

Kelsie Anderson

Kelsie is a writer and researcher for Capterra. She has a background in English and French literature, so she can read pretty good. When she's not reading and writing about software trends, she enjoys reading about literally anything else, dabbling in comedic pursuits, and settling Catan.

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