When you consider that IT spending in 2023 topped $4.6 trillion globally and is forecast to reach $5.1 trillion in 2024, making sure you manage your IT budget effectively and get a fair price for what you’re buying is crucial.
Unfortunately, most enterprises are overpaying. NPI’s objective price benchmark analysis turns up savings on more than 85% of the quotes we examine. Savings can range from 10% to 50% and higher. In this article, we’ll take a look at some IT budgeting best practices and tangible ways to reduce your costs while ensuring you get the technology you need to succeed.
What is IT Budgeting and What Role Does IT Procurement Play?
IT budgeting is the process of planning and allocating funding for an enterprise’s tech infrastructure, systems and operations. It includes anything related to technology to support the organization, including staffing, hardware, software, maintenance, and more.
IT procurement teams execute the budget, make sourcing selections, execute contracts, ensure compliance with internal and industry regulations, and work with vendors for smooth integration. They also work to control purchase and renewal costs.
What is Included in an IT Budget?
IT budgets lay out your plan for spending in the coming cycle and act as a strategic tool for driving business growth. Here are some of the key items within IT budgets.
IT Personnel
The IT personnel budget includes the salaries, benefits, bonuses, and training for staff, including IT managers, software developers, systems analysts, database administrators, security analysts, network engineers, technical support, and other technology roles across the organization.
IT Infrastructure
The infrastructure portion of the IT budget covers physical servers, networking hardware, data centers, cloud computing services, hosting, storage, backup, disaster recovery sites, and the maintenance of these systems.
Hardware
Hardware spending encompasses computers, laptops, tablets, phones, printers, monitors, docking stations, networking gear, cables, and any other devices that employees utilize day-to-day.
Software
There are costs for purchasing and renewing software licenses or subscriptions, including operating systems, productivity suites, business applications, databases, analytics tools, security software, and developer tools.
Services
The services category includes professional fees for installing, migrating, maintaining, supporting, customizing, or optimizing the organization’s various IT systems and infrastructure.
Subscriptions
Ongoing subscriptions need to be accounted for whether it is software-as-a-service, platform-as-a-service, infrastructure-as-a-service, or any IT capability that is delivered using a subscription model.
IT Expenditures
This category includes IT expenses that don’t fall neatly into other categories, such as IT staff training and certification, related travel, disposal, and any general operating expenses.
How Often Should IT Budgeting Take Place?
Most organizations plan their IT budget at the end of the year or fiscal year for the next budget cycle. Working with an IT roadmap helps to define goals for the long term to keep budgets on track. However, with constantly evolving technology, many companies are also doing quarterly or monthly budget reviews to realign spending as opportunities or challenges arise.
IT Budgeting Best Practices
Effective IT budgeting starts by making sure spending is aligned with business strategy. Organizations need to plan carefully to maximize spending to achieve goals. So, look first at your business objectives and then identify the technology needed to achieve them.
Here are some of the other key IT budgeting best practices.
Conduct an Audit of All Enterprise IT
By creating an inventory of your hardware, software, and licenses, you can often find hidden savings from unused licenses or redundant subscriptions. Don’t forget telecom! yet research shows that the majority of enterprises overspend by 30% or more.
An audit also becomes critical when you are considering adding components to your legacy equipment to ensure seamless integration.
Involve Key Stakeholders
Successful adoption of technology relies heavily on end users, so you need to make sure you get buy-in from key stakeholders throughout your organization. You don’t want to spend your IT budget on things that won’t get used — or valued — by employees.
Practice Value-Based Budgeting
When budgeting for acquisitions, focus on the total cost of ownership (TCO). This includes the hard costs as well as benefits such as increased productivity, dealing with competitive threats, and increased customer satisfaction. You can’t afford to save a few bucks upfront if the tech won’t deliver on your goals. On the flipside, savings on the front-end are meaningless if those savings are later spent troubleshooting areas that should have been accounted for earlier (e.g. integration, process re-engineering, etc.).
Be Flexible
Technology is constantly evolving, and so are business goals. While you want to build a solid IT budget plan, you want to be able to shift spending as priorities change. You need some flexibility in your budget to fund such shifts when needed.
Track and Analyze
IT budgets are rarely — if ever — “set it and forget it.” You should monitor your IT spending at least monthly, analyze variances, and look for areas for improvement. IT budgeting best practices would be to compare designated spend against plans to make sure you are hitting the mark on company goals.
Our Advice to Procurement
Overspending on enterprise IT is common and costly. When evaluating purchases, procurement teams struggle with several challenges that make it difficult to assess whether you’re getting a fair price. For example:
- Pricing is inconsistent and often less than transparent.
- Licensing terms are increasingly complex and volatile.
- It’s challenging to stay on top of thousands of vendors and their constantly changing offerings.
Add in the time pressure to keep projects on track and vendor sales teams that are trained to get maximum revenue from customers, and it’s no surprise that enterprises overpay for over 85% of their IT purchases.
Benchmark Pricing to Ensure Fair Deals
You need an independent way to benchmark quotes to see how they stack up against pricing for peer purchases in the market. NPI analyzes deals from nearly every major supplier and can help make sure the price you’re being quoted is best-in-class and within fair market value range.
Optimize Software Licensing on Large Software Estates
Not only will performing a comprehensive software license review help you minimize risk in case of a software audit, but it often finds unused or underutilized licenses that can produce significant cost savings. For example, NPI’s Microsoft Licensing and Cost Optimization regularly delivers seven and eight-figure savings on volume licensing costs.
Evaluate Maintenance Costs
Not everybody is paying the same price for software maintenance and support. As support costs have risen to about 22% of licensing fees, it adds up quickly. You can typically find significant savings by doing IT benchmark analysis on support fees, eliminating support fees at renewal for unused software, and evaluating third-party support options.
Contact NPI
NPI provides a range of services to help you manage your IT spending more efficiently, including IT price benchmark and negotiation intel, license agreement optimization consulting, software license audit services, and more.
Contact NPI today to ensure that you are optimizing the individual purchase transactions that add to your IT budget.
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