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Three Factors to Consider When Budgeting for IT

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Three Factors to Consider When Budgeting for IT

There’s no wrong or right when budgeting for IT. It’s just what’s best for you and your business.

One of the more common conversations I have with business leaders involves me trying to get them to think about IT as an asset rather than a cost. This bit of short-sighted thinking is one of the biggest mistakes they make with their IT and getting it wrong is nearly always very expensive. 

But once we’re over that hurdle, and they’re beginning to understand the benefits a little more clearly, attention typically turns to their budgets and how much they should be spending.

The answer of course depends.

There are three factors to consider when budgeting for IT; How big are you, what do you do and what are you planning to do?

How big are you?

The very rough rule of thumb used to be that small business should invest around 5% or 6% of gross revenue.  Mid-tier businesses would benefit from some economies of scale so that they could survive on 4% to 5%, and the guys at the big end of town get the best value for money. They can survive on as little as 2%. Still, as this is Smallville, I’ll pay them no further mind.

I said what the rule used to be, but times and technology are changing rapidly, and the price of technology continues to drop. The laptop I bought in 1999 cost the equivalent of A$5,000 in today’s money, while its contemporary would only set me back about A$1,500. This means that businesses with relatively few IT needs and wants can get away quite cheaply. 

This apparent saving, though, is tempered by the fact that the democratisation of IT through the profusion of cloud technologies and the many packages on offer means that most companies now have a greater exposure to IT.

Businesses are spending more than they used to on IT for the simple reason that there are more affordable solutions, all of which can help them increase their profit per person, for them to spend their money on.

Today, then, medium-sized businesses are in the 5% to 6% bracket, with smaller companies pushing up towards 7% and perhaps even more for the very forward thinking.

What do you do?

Some companies will need to leverage technology more than others. More traditional businesses such as manufacturers will have back-office systems and production technology, but many employees may never touch a computer at all.

Office and service-based organisations, such as insurance or accountancy companies, will have a PC or device on just about every desk. However, the gap between the two is shrinking. Mobile devices are rapidly replacing paper for many tasks such as printed warehouse picking lists and sales data for remote staff.

So, while the old ways are still very much the norm, technology is beginning to creep its way in, and with that will come a great percentage spend on technology.

What are you planning to do?

Are you expanding, shrinking or steady? It should go without saying, but if you’re looking to increase your turnover, you’ll probably need more people, and they’ll need more technology. If you’re scaling back, you will likely need fewer people and less technology. 

With any form of change, there are two guaranteed outcomes: it will come at a cost, and it will come with opportunities. If you’re changing offices, your old network infrastructure may benefit from an upgrade. If you’re experiencing high staff turnover or role changes, do you need different equipment?

When budgeting for IT, plan to spend it once and spend it wisely.

I know it seems obvious, but your current reliance and outgoings for technology should give you a clue as to how much you need to spend, and this is something you should review regularly. Ultimately though, there’s no wrong or right, just a handful of guiding principles and a whole heap of variables to muddy the waters.

But when all’s said and done, the rules for buying IT are the same as those you apply for many other activities. So, do your research and understand the value that your IT investment is going to deliver. Importantly, look beyond the price tag. Your IT delivers value in terms of efficiency, team morale, competitive edge and more, and often it is the less obvious, or unseen benefits that make the biggest difference

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