Budget for IT Spend – A Critical and Crucial Question
With each passing year, technology is taking a bigger and much more important place in the lives of individuals as well as businesses. Information Technology possibilities for businesses and companies are developing at a very rapid pace and bring with them several opportunities through increased operational efficiencies, cutting down costs, bringing transparency through advanced computers, tablet-sized gadgets, POS Systems, smartphones, cloud storage, and data backup possibilities. Growth of the internet, digital media, and social media in addition to simple yet effective and ever-advancing software make the future look full of possibilities.
For many firms, such developments are exciting yet not easy to reckon with. It gets difficult to understand what to invest in, at what frequency and in how much amount. Allocation of the technology budget, therefore, is an essential aspect that needs careful thought and planning. Deciding on a budget or spend is not just about entering numbers in a spreadsheet but must encompass careful trend analysis of the past, a deep view of developments in the present and a vigilant forecast of likely requirements in the future. Technology, therefore, has the cost of doing business and at the same time offers opportunities to develop further.
IT spend by firms is rising year on year. In the last five years, it has moved from 3 % to 5 % from 2013 to 2018. The question still remains “What should be your IT spend?” Several elements need to be taken into consideration in this regard. As per a survey was done by Deloitte in the year 2018, mid-sized companies from different industries in the USA spend an average of 5% of their annual revenue on IT.
While spend on IT is an important metric used by firms to benchmark their spending levels. This differs from one industry to another. Banking and securities firms spend approximately 7%, the construction industry spends about 1.5%. It has also been observed in research that high performing firms increase their IT spending on a yearly basis even though it may be in small percentages.
Following criteria and steps can be considered when setting a budget for IT to spend of your firm.
First, IT budgets include purchase and repair of computers, updating, and development of servers, applications, using cloud services, investing in web hosting, overall maintenance and security measures, paying for telecommunications, purchase of audio visual equipment, outsourcing and consulting, IT staffing and travel budget. A noteworthy aspect as per a report by Gartner on worldwide IT spending forecast is that in 2018 the likely spend on IT had risen to $3.76 trillion in 2019 from $3.6 trillion in 2018. Of these, Enterprise Software and devices are growing the fastest with Enterprise Software at 9.3% in 2018 and 8.5% in 2019, Of Devices at 1.6% in 2019 and IT Services at 4.7% in 2018.
In order to decide on your IT spend, the alignment of your IT strategy with specific business goals is of utmost importance as this lays the foundation for setting the budget. Once there is clarity on this, the first task is to decide on an amount that you have available and can budget for IT purposes.
Second, while your business objectives and problems faced by your enterprise are the base for building an IT strategy, doing your homework on both internal and the external front can open ones strategic horizons. Hence, do your homework before deciding where to allocate the available budget. One way to do this is by attending various industry events, increasing your understanding of industry happenings and their impact on your business and finally analyzing your options.
Third, keep in mind that your investments should be in areas that decrease repetitive tasks, improve data storage and security and improve productivity. For more established firms and from a strategic planning perspective, your IT spend can be as a percentage of revenue by industry, by region or by the size of your firm. In some cases, firms also plan the budget based on the number of employees, number of users or even the number of computers in the firm.
Strategically planning your IT budgeting and monitoring its spend can go a long way in designing structured budget points to identify money making and money spending assets. Regular and accurate budget planning can also help in decision making in relation to conservation or expansion of the business.