Understanding the IT Budgeting Process: FAQs You Need to Know

You’ve probably heard the old adage “you get what you pay for,” and it reigns especially true for IT spending. In today’s digital world, technology drives business decisions, and investing in the resources to support IT initiatives sets your company up for success.

But that’s easier said than done. When the new year rolls around, companies start asking questions about how to allocate funding, including:

  • Why is IT budgeting important?
  • What’s typically included in an IT budget?
  • What IT budgeting best practices should I follow?

Continue reading to discover everything you need to know about the IT budgeting process.

Why Is IT Budgeting Important?

IT budgeting helps control expenses and identify ways to save money in the future. It serves as the backbone for your company’s tech initiatives, helping you allocate resources for the upcoming fiscal year.

The importance of standard operating procedures can’t be overstated, as they deliver several operational advantages for your workplace, including:

What’s Typically Included in an IT Budget?

Generally speaking, most IT budgets can be divided into three categories:

1. Personnel Costs

The first expense you’ll want to factor into your IT budget is personnel. Whether you outsource with an MSP or employ an in-house support team, you’ll want to identify how much it’ll cost this year. Just remember, personnel costs should include external consultants, short-term software developers, and any other staff-related expenses as well.

2. Infrastructure Expenses

Infrastructure expenses are the costs associated with building and maintaining enterprise-wide systems, networks, and firmware. These include:

  • Hardware: Company-issued mobile devices, laptops, and networking equipment such as routers and servers
  • Software: Any tools used to run your business operations, such as CRM software or security software.
  • Services: Server hosting, network maintenance, or implementation of third-party services like Microsoft 365
  • Subscriptions: Any fees for subscription-based services like Zoom, Calendly, Teams, Sendible, etc.

3. Expenditure Categories

Expenditure categories are any predictable, recurring operating costs. During the budgeting process, it’s helpful to break them into three parts:

  • Capital Expenditures (CapEx): CapEx refers to any major purchases your organization makes intending to use them for the long-term.
  • Operating Expenditures (OpEx): All of the day-to-day expenses your business incurs to keep operations running smoothly are termed as “operating expenses” or OpEx.
  • Project Expenditures: Project expenditures are the funds required to both run and complete an IT project. These expenditures are incurred on a case-to-case basis, often as a one-time fee.

What Best Practices Should I Follow For My 2023 IT Budget?

As we enter the fourth quarter of the fiscal year, it’s time to start working on your IT budget and planning process for 2023. To help you prepare, here are a few budgeting best practices:

Clearly Explain the Need for Tech Spending

For most enterprises, the chief financial officer (CFO) oversees financial planning and budgeting for the upcoming year. Simply put, they ensure money is going where it’s needed the most.

For certain aspects of your company, like sales and HR, it’s easy to identify how well costs are being managed. However, with information technology, that’s not the case.

IT can be tough to navigate as it is, and your CFO might not completely understand how to measure the success of IT support costs. Before they give your IT team funds for the next year, you need to demonstrate how the money will be spent.

Essentially, if you want your IT department to have the funding it deserves, you need to have the CFO on your side. Luckily, this is accomplished by clearly explaining the plan for IT spending in a way the CFO will understand. If you want to increase the budget, you’ll need solid justifications to back it up.

Looking to Consolidate IT Spending? Fixed-Cost Support Models Can Help

Break/fix IT models charge by the hour, and its sporadic payment structure can derail your long-term budget plans. Luckily, TenisiTech offers fixed-cost pricing models, which means you’ll pay a consistent price every month for a full range of services—making IT budgeting a breeze.

Put Yourself in Your CFO’s Shoes

For the financial side of your organization to understand the need for IT support, it’s helpful to think about things from the CFO’s perspective. Does your CFO feel as if the company has spent too much on improving software or hardware over the last few years? Would that money have a better use funneling into customer retention solutions?

When advocating for next year’s funding, you’ll need to answer questions like these. If you can’t, it’s challenging to propose a budget that your CFO can get on board with. The less evidence you have to support funding requests, the more it seems like you’re just throwing out suggestions. While you know first-hand the necessity of proper IT funding, if it can’t be backed up by numbers, it’s going to be hard to prove its value.

Be Thorough With Your Financial Planning

While it’s a little late to do this now, midyear reviews can help bring some clarity to the IT budgeting process. In the future, conduct a review of your current spending around the third quarter. With half the fiscal year under your belt, your organization should be able to see how effective your IT spending actually is.

Setting time aside to assess the efficiency of your tech expenses makes it easier to forecast expenditures for the rest of the year. Once finished, compile your findings and send a report to the CFO. With this information, they’ll be able to see what areas need increased funding for the next year.

Let TenisiTech Help Create Your IT Budget

Looking to develop an IT budget your CFO can get behind? Good news, TenisiTech’s CIO advisory services can help.

For years, we’ve helped local companies receive clarity on their IT funding needs. As a full-service MSP, we deliver more expertise than you’d get with a single consultant. Start a conversation to learn more, and let’s start building your budget for the 2023 fiscal year.