Each year, managers and business owners must evaluate various budgetary items, and information technology (IT) expenditures generally comprise a large portion of their budgets. We are frequently asked questions regarding the format of IT expenditures and arrangements, the percentage of sales versus profit, and the amount that should go toward internal resources versus external.
Our answer to all of these questions is usually, “It depends!”
There really is no one-size-fits-all solution for IT planning and budgeting. It depends on several factors such as your company’s plans and your existing capabilities and resources. Given rapid changes in IT, it is recommended to leverage a “spirited” zero-based budgeting approach. We say “spirited” because there are certain items that you simply need to budget for, and there are items that are optional but still important to add to the list. It is a good practice to conduct an annual review, question earlier assumptions, and ensure that you will have what you need to capitalize on emerging market opportunities.
Planning is key when determining your IT spend. It is crucial to first plan for your business, and then plan for IT. Ultimately, IT should be an enabler of your business plan. What are your growth strategies? Do you have plans in place for new market entry or product introductions? Are you looking to sell the business or acquire new ones? Have you considered process improvement and efficiency initiatives? Do you have cyber and information security concerns?
Both your short- and long-term plans should address the determining factors for your IT planning and budgeting. Once you have nailed down your business objectives, take a critical look at your existing IT systems and resources and determine whether they are in alignment with your plans. Remember, these systems and resources may have been sufficient a year or two ago, but if you are contemplating significant changes in the business, it is likely that they are no longer in sync with your goals and a degree of recalibration will be necessary.
Reviewing and formulating your plans each year is a good business practice. Including IT experts in this planning process helps ensure that you are taking advantage of any potential IT opportunities that will support your goals. This kind of an integrated approach can help you define a realistic IT budget and enable you to maximize the ROI from your IT spend.
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