The worldwide IT spending has been continuously increasing over the years. As forecasted by Gartner, the worldwide IT spending is expected to grow 5.1% in 2023. With accelerated digital transformation, IT budgets are significantly increasing worldwide.
IT plays a crucial role in every organization, especially as it keeps the business connected both externally and internally. So, when it comes to IT spending, effective budgeting and planning are essential. In order to maintain efficient deliveries and continue innovation, proper funding and budget allocations are necessary.
Countless companies end up making some repetitive mistakes that render their IT budgets inadequate. In this article, we have discussed some IT budgeting and planning mistakes to avoid. Let’s begin.
- Limited Visibility
Many times, leaders tend not to have visibility into the finer elements of the organization’s IT spending. This can be due to the presence of business units or teams that control their own budgets. It can be troublesome, especially in organizations with enormous technology spending, as it can lead to multiple challenges like:
- Duplicate costs
- Underinvestment in some areas
- Overinvestment in some areas
- Hard to maintain accuracy in the central accounting
- Lack of granularity in IT spending
IT budgets have increased in complexity over the years. Today’s scenarios make it exceptionally critical to have proper visibility into the IT budget. Proper visibility and granularity help with better budget allocations, making IT budgeting more effective and accurate.
- Not Budgeting for the Unexpected
Unexpected situations are inevitable. A sudden system failure, security breach, or natural disaster can occur at any time. It is important to allocate funds toward the unexpected happenings so that if a problem arises, it can be handled with minimal financial disruption.
Additionally, allotting money towards the unexpected problems right when you’re planning the budget will give you a stronger sense of control over the sudden situation if it arises.
- Not Encapsulating All Expected Costs
There are many costs that leaders can miss out on while planning budgets. These expenses don’t get included in the initial budgets but later on become much more evident as they make spending exceed the budget.
Some costs that leaders don’t calculate in their budgets often are:
- Mid-year increases in service contracts
- Taxes for purchases
- Temporary labor costs
Adding up these incidentals into budget planning right from the beginning can make budgeting more diligent and effective. Additionally, it stops leaders from finding themselves out of budget in the middle of the year.
- Recycling the Budget
While the impulse to recycle the budget by transferring one year’s numbers over to the next year can be substantial, it is vital not to give into it. Every year is different. One year can be heavily investment-intensive, where you end up adapting to several newly emerging technologies. On the other hand, the following year may not be that intensive regarding technological investments and might also turn out to be rather depreciative.
It is important to take past budgets into account, but it is not wise to recycle the same budget as years change. Every year brings on a new set of requirements, challenges, and industry trends. So, it is critically essential to treat each year independently with new goals, budgets, and objectives.
- Ignoring Costs of Unintended Consequences
Existing technology in your business can always have unintended consequences or indirect costs. Such expenses need to be considered while budgeting and planning, along with the lost opportunity costs, in order to ensure effective budgeting.
For example, VPNs often incur related costs like:
- Patching personal devices to ensure compatibility with acceptable configuration standards.
- Increased number of help desk staff.
- Installing clients on home systems.
- Added resources for all VPN-related problems.
Additionally, other organizational initiatives that might be able to deliver added value to the company can go unfunded due to extra funding being required by one specific technological investment. Such lost opportunity costs are also unintended consequences of your existing technological assets.
Ignoring such unintended costs can also contribute to inefficient and inaccurate budgeting.
- Postponing Investments
Postponing investments is probably one of the worst steps business leaders can take while planning and budgeting for IT expenditures. Some commonly postponed investments are:
- Technology upgrades
- Revised backup plans
- System and software updates
- Disaster recovery plans
- Optimization opportunities
As a business or IT leader, do you really want to wait for a system to fail or a disaster to occur? Realizing that these investments are critical to the organization before actually facing the downfalls of these can help with efficient IT budgeting.
Plan ahead and include these items in IT budgets for long-term success powered by effective and accurate budgets.
- Keeping Rigid Budgeting Expectations
Setting rigid budgeting expectations without taking immovable fixed costs into account is an irresponsible approach to IT budgeting and planning. When you place an expected percentage of savings or cuts across divisions, you trigger an enterprise-wide midyear tussle to move or cut money. Such scrambles can not only stimulate room for chaos among divisions, but also lead to unintentional mismanagement and errors. Additionally, it can limit innovation or optimal execution of other initiatives.
Leaders must understand that there are certain fixed costs that work alongside many variable costs in the budgets. So, setting rigid budgeting expectations is not feasible, and there must always be room for some flexibility in IT budgets.
IT budgeting and planning is a challenging task. An effectively designed IT budget significantly contributes to a business’ healthy financial future. Many companies tend to make mistakes while preparing their IT budgets or during the planning stage itself. Some of these mistakes can have grave impacts on the company.
By avoiding the mistakes mentioned in this article, you can ensure the development of an adequate IT budget for your organization.