Planning an IT budget: important considerations.
Most business owners are familiar with planning an annual budget for overhead and operating expenses, but they may not be so familiar with the specific issues involved in planning for an information technology budget.
The key difference is that IT budgeting combines "current IT maintenance with longer-term planning, and business necessities with business development," according to business consultant Scarlet Pruitt in her article, "How to Plan Your IT Budget" published on AllBusiness.com.
The article offers some step-by-step guidelines to follow when planning your IT budget:
* Calculate your technology costs from the previous year. Unless you are planning major changes in your IT strategy, this will give you a range to work with.
* Most companies plan for moderate growth. These companies should set up a category for IT maintenance/support and one for new technology expenditures. (Companies should first calculate maintenance/support of existing equipment, since this number will remain approximately the same as the previous year.)
* If you plan to purchase new systems or services, you should calculate the cost of the technology and then budget for installation and maintenance_ Depending on complexity, you also may want to budget for testing and downtime. Get estimates and make sure to pad this cost in case things take longer to install than originally expected.
* Once you've calculated standard IT purchases and maintenance costs for the year, create a separate budget line for technology development--this is for longer-term IT planning, including new IT projects or major system upgrades.
* Err on the conservative side and consider the possibility of leasing and outsourcing when faced with cosily technology expenditures.
Pitfalls to avoid
Dean Meyer, president of N. Dean Meyer and Associates Inc., a research and consulting firm that specializes in organizational effectiveness, says that there are "two kinds of IT budgeting--traditional budgeting and sensible budgeting."
According to Meyer, traditional budgeting focuses on technical categories that mean nothing to business managers--often not in alignment with important corporate initiatives. Sensible budgeting follows four basic principles:
* Treat the IT department as a vendor. Have The IT department becomes an internal vendor that earns its funding by providing sound advice and a return on investment.
* Base the budget on deliverables (services and projects), not technologies. Non-IT executives understand functionality, capability and profit opportunities much more easily than hardware, software and bandwidth.
* The IT department should include direct costs (equipment costs, software licensing) and indirect costs (training, support) in budget estimates. This links anything business leaders pay for to a concrete deliverable.
* Pay premium rates for premium service. You get what you pay for. Business leaders should request pricing options--standard rates for standard service or higher rates for peak performance and availability. Then the business units will have trust and control over their IT destiny.
There are certain major pitfalls to avoid, when planning an IT budget. According to John Orlando in "Budgeting for IT" on SearchCIO.com, not understanding the company's strategic goals is a big one.
Another pitfall can be going over budget as a result of other departments' needs. Interdepartmental communication should be encouraged so that IT knows early on the needs of the business units--and can work them into the budget plan.
Failure to research and analyze new technologies and services can be a cosily mistake.
Also to be avoided is the oversight of not using tools that are available to you, namely budgeting software tools. There are many options out there.
IT budgeting in tough times
In view of these tough economic times, we would be remiss if we did not mention some basic ways to cut your IT budget.
Doug Heestand of Vital Networks Inc, offers some good ones in his article," (10) Tips for Trimming Your Small IT Budget":
* Ditch the inkjets--they are cheap to purchase but expensive to keep running.
* Consolidate servers--it's cheaper and more effective to operate a few powerful servers rather than a bunch of older, single-function servers.
* Get rid of T-1. DSL, cable and other options offer more bandwidth for less money.
* Save on office space by allowing some employees to work remotely.
* Consider "thin clients" if you're thinking about purchasing new computers. These are small devices that let users share a central server rather than each having a dedicated PC. They cost less and are easier to manage than PCs.
* Cut phone bills: VoIP is perfect for conference calls with employees, interoffice calls, or calls to remote employees.
* Most small businesses host their Web site with a hosting company. Consider other applications you could host externally. You may be able to reduce the number of servers you manage
* Web-based applications are easy to deploy and require almost no maintenance Consider using services like Salesforce.com for CRM, PayCycle.com for payroll and FreshBooks.com for invoicing.
* Open source software may be appropriate for some companies and some applications, but they are well worth checking out. Examples are 7-Zip (a ZIP utility), WebHuddle (alternative to WebEX), FileZilla (an FTP program), Paint.net (alternative to Photoshop) and OpenOffice org (alternative to MS Office).
* If you are paying a full- or part-time person to manage your network, consider outsourcing to a professional IT support company. It offers 24/7 support, a higher level of expertise and professionalism, fewer management headaches, and better IT support for less money.
Marc Berthiaume is president and chief executive of Manchester-based MJB Technology Solutions, a vendor-neutral technology adviser and partner for small to medium-sized businesses. He can be reached at email@example.com.