IT administrators wear many hats: help desk hero, network engineer, database administrator, and even budget manager. Budgeting can be as simple as having a lunchtime conversation and using common sense if you’re a small organization, or you may have an operations-driven CEO and growing employee roles. A budget, in any case, isn’t an afterthought, and should reflect your priorities. It’s an opportunity to rationalize spending and make better decisions about IT resources and teams that also has a positive impact on the well-being and effectiveness of your staff.
Chances are that your trade school or college programs didn’t discuss this topic whatsoever: mine didn’t, and I was a business major … go figure. You may not have had the interest or exposure to the budgeting process to be knowledgeable enough to apply it to strengthen your department’s ability to execute. This article will transform budgeting from a mysterious, daunting must into an accessible, empowering process that will be useful and beneficial. Here are a few key takeaways that you’ll learn:
- How to determine what drives your expenses and how to categorize them
- How to look at IT as a service provider, responding to demand and growth
- How to use support tickets as a currency to determine the technology solutions and people that you’ll require
- How to assemble your data and appropriately budget given all of these factors
Budgeting Fundamentals: OPEX, CAPEX, and How to Determine What Drives Expenses
Let’s begin by acknowledging that every line of business is different: i.e., a department that primarily responds to support tickets is headcount driven while there are other inputs for other departments, for example CDN programming in manufacturing. This article will emphasize headcount as its growth factor. Your initial tasks as an IT administrator will be to baseline what’s presently being spent, the run rate over the budgeting period (after analyzing where and how your organization is growing and what support that requires), some real justification for spending all of the dough, and presenting a final budget from a level set once those pieces are in place. Establishing a baseline will rationalize where you are today prior to projecting any future requirements.
Start by asking yourself some basic questions to baseline what you already have (and require).
- Who’s using what?
- What support do they need (including equipment)?
- Do any of those things need to be replaced (now, in case of emergency, or periodically)?
Then start to ask yourself what trend(s) will impact it the most.
These trends are typically timebound, which means that you can establish a chronology of when you’ll need things. For example, there will be a glaring contrast between how services and license renewals are paid for. Keep in mind that big, annual software renewals contribute to the cost of overhead and managing contracts. Those come out of the capital expenditures (CAPEX) budget, which is a major long-term expenditure versus operating expenses (OPEX), the day-to-day operational budget. Accounting makes a distinction between software and services. Using services is a method for your organization to lower its income taxes and free up cash. Services may make it easier to budget when you already know what the ongoing costs will be.
Scrutinize What You’ve Been Spending
Adopting services over software is one example of how budgeting could be streamlined. The foundational activity of analyzing spending trends year over year may also help to determine where there’s potential budget savings that you could reallocate to newer company priorities.
Be on the lookout for overspending and underspending. For example, you could be overspending on enhanced ERP support when training an internal resource would cost less, or underspending on transitioning to a Zero Trust security posture. Scrutiny doesn’t necessarily mean more complexity; rather, it’s a combination of applying the structure of baselining activities and then turning to the wisdom and insights that you’ve accumulated throughout your career to make better decisions. “That’s the way we’ve always done it” doesn’t mean that it’s the right way.
Communication is paramount to getting the “lay of the land.” A good IT administrator will take the time to understand how other departments work and what the business goals are. During my time as an IT Director I observed that some systems never obtained buy-in within certain departments and that we wasted our money while basic IT needs weren’t serviced well enough. My shipping department was very good at estimating which carrier would cost the least based upon factors such as size, weight, and destination. They didn’t need expensive shipping solutions, but a conversation with the team (and knowing how they worked) revealed that a simple wireless barcode scanner would save them a lot of time and increase productivity.
IT Is a Service Provider, Responding to Demand
The next step involves getting from where you’ve been to where you’re going. You don’t determine every business decision or where the company is focusing its resources; rather, it’s your role to support areas of growth versus being viewed as a cost center. Growth determines where resources will go and will affect how your department functions and what it requires.
There’s no crystal ball and IT typically lacks full visibility and understanding of profit/loss and income statements, but your organization’s topline revenue goal is a good place to start mapping out demand for your services and support. Determine how your organization is going to meet that goal using inputs such as marketing and new product development, which will help to create a structured sequence of events. For example, new products may require more engineers and those engineers will need CAD licenses, laptops, and other line items specific to their role.
More advanced budgets will align spending to the respective departments that IT services. IT enables everyone else to do their work more efficiently. You may be spoon fed hiring plans from finance along with growth plans to understand the departmental-level needs. Use this budget template to tabulate those budget “asks.” because each department head will have their own wish list.
It’s on you to envision what “X” number of new hires in other departments (and what the department heads are asking of you) next year means to your team. Support tickets are the resource that’s at your disposal to break it all down into economic units. You can predetermine the level of support engineers will need and anticipate their needs. Different departments require different tools, which will help you to build up cost estimates. For instance, I knew that my new products required more off-site support and had an idea of who we were bringing on board next as well as a requirement to improve ERP efficiency. That knowledge drove investments in VoIP communications (to create a virtual call center), a CRM to record cases, and a near truckload of consultants to straighten out an ERP system that was never fully utilized and cobbled together over the years. IT drove business enablement, but didn’t make the calls on corporate strategy.
There’s clear causality between what activities are happening elsewhere and how your department functions. The aforementioned support tickets are a factor in making budgeting decisions that will influence how smoothly IT functions and the impact it will have on your team.
Determining Whether to Hire More
Get as granular as possible in your planning to accommodate the company’s drive for morerevenue (or operations if you’re a nonprofit). For example, know how your staff is spending its time, whether it’s already overloaded with “asks,” and what the impact of those demands is on your team members. You should know what a realistic ratio of staff to end user is, and figure out whether you’ll need more people and tools to support the higher-level organizational goals.
The volume of support tickets will help with those projections. Is your staff able to handle those tickets? How much time is being spent handling tickets versus enabling value-added projects? The number of tickets will correspond to rising headcount within the departments that you service and the current ratio of tickets per employee can be used to calculate whether to hire more.
You should now have a general understanding of what you need in terms of people and technology to support your organization’s goals. Your baseline is going to change as you plan for what’s next as accurately as possible. We’ll now walk you through how that process works.
Calculating New Fixed Costs
The next step toward completing your budget is to assemble your department’s new fixed and ongoing operating expenses, given the growth projections, any IT hires, and present baseline level of spending. Hardware and software are typically some of the biggest line items.
Some of those include:
- Cell phones
- Working meals
- Cloud services and subscriptions
Don’t forget to account for employee and device churn as well as external partners. You may use historical information to project those numbers. There should be a list of assets and an aging schedule to know when to upgrade, replace, and securely dispose of outdated hardware.
Improving the employee onboarding experience may rank as a high priority in a time when there’s a lot of churn out in the workplace and it may be harder to attract and retain talent. Have a budget to maintain a stock of laptops; the new employee gets what’s on the shelf and the next hire will receive a future PC that you order to replenish. The cadence of hiring will guide you, which may differ among your organization’s departments. There’s also many known unknowns to consider.
Nothing Is Absolute
It’s my experience that accounting for inflation and rounding errors is important: have a built-in cushion in the form of a modest overestimation. You’re not “cheating,” because people are historically terrible at estimating (even fixed expenses) and just as terrible at future-proofing. Ask yourself: Is a budget what you know is going to happen or is it what you want to happen? Having a plan is preferable to an allowance if your goal is to fund projects, and that’s true even if you’re an advisor such as an MSP. It’s not your role to simply recommend “stuff” to buy.
You might luck out if accounting has given you a template that leaves empty line items for you to address, but there’s much more to budgeting than jockeying for an allowance. Your strategy and priorities should flow into your budget and rationalize your spending decisions. This will help to gain consensus about why investments and projects should be emphasized. You may also work within an organization that focuses on three to five year plans. It’s your responsibility to effectively communicate IT’s needs and avoid a variance between expectations and headcount.
Setting IT’s New Priorities
You’ve been given marching orders and projected the expenses for various cross-functional “asks” and goals, but that doesn’t mean all of those will be funded (or performed simultaneously). You’ll always have to decide which projects come first, new or old. A Priority Matrix will establish flexible, systems-based decision making that’s defensible and more palatable to the C-level, and may even help you say “no” to a particularly demanding department head whose team isn’t as strategic over the upcoming budgeting period. There will always be broader trends that your executives (and investors) will decide must be addressed ASAP, and a Priority Matrix will help you manage and determine what comes first as those pop up unexpectedly.
For example, meeting a corporate directive to enable work from anywhere (WFA) could be a vehicle to gain a greater slice of the budgeting pie for your department or additional resources when and if you need it. However, IT departments should always have a core strategy versus using tactics or being reactive, and that’s where prioritization factors in: you’re providing enablement to make work happen®. It’s also important to comprehend the executive mindset where modernization, automation, speed, cost-efficiency, and the employee experience drive more spending. Be proactive: data analysis in the form of an ROI statement/spreadsheet can also identify strengths and weaknesses.
It goes without saying that there are many stakeholders for projects, including any external partners and consultants involved with those implementations. They’ll have an idea of what your budget “should be,” which is another case to adopt a Priority Matrix. Don’t make a wish list or just try to “keep the lights on”: these aren’t only your imperatives and essentials when IT should be one of the operational linchpins that enable the organization to succeed in its mission. Department heads will have their own pressing wants and needs, which the Priority Matrix will help you distill into a comprehensive plan that will give you a 30,000 foot vantage point.
Budgeting Is Time Well Spent
Budgeting isn’t a last-minute endeavor, it’s also an opportunity to highlight your performance, ensure that priorities are followed up on, and exhibit remarkable foresight into the activities you’re undertaking and why your contributions are important. C-level managers would also benefit from retaining the right advisors for better fiscal planning.
You can become a budgeting hero: a holistic view and roadmap of your priorities, with reference to the prior year’s allocations, will help you sell your agenda, and gain a consensus behind it.
Budgeting is more work and seems restrictive, but it’s a core condition to execute (or not) your strategy in support of the broader organizational mission. That’s really not the case if you view it in the appropriate context: validation of your priorities and strategy. Having systems in place will help to manage growth as your department faces new challenges and demands. It will also ensure that your successes are recognized throughout the organization and beyond.