IT Budgeting in 2023: Tips and Best Practices for IT Professionals

Creating an IT budget has always been challenging, but arguably it’s now even more challenging in the post-pandemic world when cloud migration, remote working, live streaming, and cybersecurity are shifting to be necessities and should be carefully considered as priorities.

On the other hand, we’ll still need to allocate a budget for the day-to-day IT operations and growth, as well as future-proofing your infrastructure, making the whole process even more challenging.

So, what about 2023? Where should you focus your IT spending in the year when the world continues to recover from the COVID-19 pandemic with the looming recession? What’s the best approach to ensure effective decision-making?

In this guide, we will discuss all you need to know about IT budgeting in 2023 to ensure an ideal budgeting process while also avoiding common budgeting mistakes. 

By the end of this guide, you’d have learned about:

  • Key considerations in IT budgeting
  • Major IT budget considerations for 2023
  • Steps for a successful IT budgeting process
  • Common IT budgeting mistakes you should avoid        

And more.

Without further ado, let us begin this guide right away:

IT budgeting: the concept

IT budgeting refers to the process of a business creating a plan of how they are going to spend their budget on IT-related items (IT infrastructure, employees, supplies, etc.) The term “budget” refers to the written document that contains the spending plan.

The main purpose of the budget is to control our spending. Most, if not all, businesses must always deal with limited resources, and proper budgeting ensures that the IT department will always have enough money to achieve its objectives.

Budgeting allows the business (and, in this case, the IT department) to prioritize its spending and focus its resources on the most important things that can help the business achieve success and growth. At the same time, it prevents overspending on items that aren’t really important to the IT department.

Key considerations in 2023 IT budgeting

Before we start the budgeting process, it’s important to consider the following:

1. Creating an up-to-date IT master plan

It’s very important to have an updated and comprehensive IT master plan as your business’s foundation of the whole IT strategy.

The IT master plan should elaborate on the current state of your IT environment and your strategic-level IT plan for at least the next couple of years. Typically, the master plan contains a general timeline for future improvements and fixes, along with the required budget.

If your company does have a master plan, but it’s relatively old (made before the pandemic, ) consider updating it or creating a new plan while considering:

  • What is still relevant in the master plan?
  • Any updates needed to improve security to meet today’s cybersecurity standards?
  • Any updates needed to accommodate Work from Anywhere (WFA)?
  • What new initiatives will be added? What are the operational changes needed to support these initiatives?
  • Whether the existing team has the buy-in, skills, and experience needed to execute these initiatives.

2.  IT equipment lifecycle

It’s crucial to accurately understand which IT assets and platforms require updating or upgrading and which must be retired. Also, consider how to perform migration when upgrading older assets. 

Carefully build a list of which assets need to be updated or upgraded, and prioritize these initiatives when estimating your budget.       

3. Identify threats

One of the most common mistakes performed by IT departments when budgeting is not knowing and understanding the looming threats to the IT environment, while a significant portion of your budget should be allocated to protect your business from these threats.

Build a list of possible security threats and prioritize them from the most dangerous ones, and create Incident Response Plans (IRPs) for these threats.

Then, budget to resolve at least the top five threats.              

Make sure to consider cybersecurity best practices while considering common threats like data breaches, malware, ransomware, DDoS, and others before estimating your budget.

4. New technology trends

Are your current infrastructure and solutions up-to-date enough according to the most recent technology trends?

Outdated infrastructure can hurt your productivity and/or put your system and network at risk. Consider newer technologies and solutions and take your time to weigh which of them you should invest in, and get accurate cost estimates to include in your budget.

5. Don’t forget to include HR costs

Evaluate your talent requirement and make sure to include an adequate budget for your IT team salaries. You can also consider outsourcing for less critical roles and responsibilities to minimize overall costs. 

Depending on the size of your business and your available budget, you may also want to consider budgeting for the services of qualified consultants, for example, to help in cybersecurity and hiring. 

6.  Consider migration costs

When estimating and planning your budget, make sure to estimate the true cost to migrate and integrate new technology (i.e., cloud migration, mandatory training for new solutions, etc.) For each solution, also estimate the needed internet bandwidth, storage capacity, and redundancy requirement.

Three different types of IT budgets

In practice, day-to-day IT operations can involve so many different elements and variables, so estimating your budget to include all these elements can be very challenging in practice. 

Not to mention, even if you’ve successfully established your budget, keeping track of your expenses across all these different variables will pose another challenge.

With that being said, we can divide the IT budget into three different categories to make things easier:

  1. Run budget: budget for your day-to-day IT operations.
  2. Grow budget: budget for your initiatives to scale and expand the IT infrastructure and mechanism
  3. Transform budget: budget for IT investment that will help you transform business initiatives to approach the market       

Below, we will discuss them with a more in-depth approach, one by one.

1. Run Budget   

Budget for your day-to-day IT operations. The main concern of developing the run IT budget is to make sure your IT assets are secure while at the same time optimizing productivity. This is also why the run budget is also often known as MOOSE (Maintain and Operate the Organization, Systems, and Equipment) budget.

Common expense elements included in the run budget are:                                                                                                      

  • All kinds of expenses related to the operations of physical and virtual components
  • IT support expenses
  • Lifecycle management expenses
  • End-point management expenses
  • Expenses related to clouds and cloud services
  • Expenses related to application integration, optimization, and management
  • Capacity tracking expenses
  • Expenses related to cybersecurity (both reactive and proactive protection) and data/network security
  • Disaster Recovery (DR) expenses
  • Compliance management expenses

Although it’s not set in stone, most companies spend around 50% to 60% of the total IT budget on the Run budget. 

However, an important consideration when planning your IT budget in 2023 is that the global pandemic has increased the overall cost to operate and insure IT assets, especially due to increased cybersecurity threats and the infrastructure requirement of the WFA condition. Expect up to a 25% increase in the cost of IT operations when planning your Run Budget for 2023 and onwards.

2.  Grow Budget

The Grow Budget should cover the costs to scale the IT assets, infrastructure, and team you already have to further grow your business. 

Common expense elements included in Grow Budget are:

  • Additional software licenses
  • Hiring additional staff (including outsourcing)
  • Increase in:
    • Computing power (including buying new devices)
    • Network capacity
    • Storage capacity
    • Cloud storage and cloud computing capacity

An important trend in recent years is for companies to invest more in cloud computing and cloud storage since it allows a more flexible Grow budget. With a cloud infrastructure, it’s much cheaper to purchase more storage or computing power than it would with adding new physical SSDs or new CPUs. This allows companies to grow at their own desired pace, and when the need for rapid growth does come, it won't require very large investments.

Keep in mind that in most cases, investing more in Grow Budget also means you need to increase Run Budget. If the Grow Budget is essentially about increasing capacity, then you’ll need a Run Budget to handle the increased capacity.

For example, if you are planning to take 50% of clients each week, then you’ll need IT assets, infrastructure, and team members that can handle this growth. Make sure to consider both types of budgets when developing initiatives to grow your business.

3. Transform Budget

The Transform Budget is, as the name suggests, the cost needed to fund business initiatives that allow you to do business in different ways. 

This description may seem vague, but for example, if your business at the moment doesn’t sell anything online, then investing in eCommerce initiatives should be a part of your Transform costs.

Common expenses in Transform Budget can include:

  • Research and development funding
  • Cost of building the test environment to test the developed solution 
  • Building integration components to support the new solution/initiative (i.e., API)
  • Cost for hiring and/or training existing staff to use the new solution
  • Research and planning costs for integrating the new solution with the existing system
  • Rolling out the new solution

Again, when a new solution has successfully been implemented, you’ll need to allocate a budget to operate it (increase in Run Budget) and, if possible, scale it (increase in Grow budget.)

Another common challenge when developing new initiatives is that your existing IT team may not have the required expertise or time to work on the new initiatives. In such cases, you may need to hire new staff or outsource the transformation initiative to outside experts, which will translate into additional costs. 

Successful IT budgeting for 2023: best practices

There are many different ways to approach IT budgeting, which should be unique for each organization.

However, below we will share the best practices you can use to successfully plan and execute your IT budgeting:

Start with the right participant

Who should be involved in the IT budgeting process? 

In a nutshell, everyone with budget authority should participate. Leaders and stakeholders of the IT team are the obvious participants, but you may also need to involve members of other departments based on their IT needs. The marketing and sales departments, for example, typically have more IT needs than your HR or finance departments. 

If there’s any risk assessment steering committee in your company, then they should also be involved in the IT budgeting process.

Responsibilities and preparation

People with budget authority that are going to be involved in the budgeting process should make the necessary preparation to:

  • Review the IT master plan (as discussed above) and whether their department is properly aligned with the master plan
  • (For those outside the IT department.) Consult with the IT department for feedback on planned initiatives and projects, especially those that will need to be supported by technology solutions
  • Assess whether their existing IT solutions, resources and infrastructure are adequate for 2023
  • Determine the start and end dates of activities (and new initiatives)
  • Prepare a report on activities and initiatives

On the other hand, if your team involves a risk assessment steering committee, they should prepare:

  • Evaluate the risk assessment findings and ensure the accuracy of the findings
  • Confirm the existence of the findings
  • Develop solutions and methods to address the risks
  • Prepare a report or proposed plan to address top-priority risks

The potential expenses for handling these risks should be considered when planning the budget, so it’s important to develop proposed risk-handling plans as early as possible.

Timing is key

Deciding when you should start budgeting and planning can be tricky. 

On the one hand, you wouldn’t want to start too early since you’ll most likely need to change and revise it along the way. On the other hand, you wouldn’t want to wait too long since you may not have enough time to prepare and ensure you can stay on budget.

As a general rule of thumb, you should start budgeting with specific pricing three to six months before the actual activity starts.  

You can, however, involve the participants earlier to discuss potential IT needs, but you can take it easy, and you don’t have to estimate specific pricing until later on.

Communication and alignment session

To ensure an accurate and effective budget estimation, it’s crucial to include a lot of communication between participants and the IT department.

Not only should these communication sessions involve all participants of the planning team, but it’s also recommended to involve at least one C-level executive and key department heads who require technology support. These parties should review each participant’s needs while giving each other feedback.

At all times, the IT department should be ready to answer the needs of other departments by providing specific technical requirements while providing pricing estimation during these alignment sessions.

Planning to reuse, recycle, or resale your unused IT equipment

Another important element that is often overlooked while planning an IT budget is maximizing the value of older and unused IT equipment, especially if you are planning to upgrade or replace these older IT assets in 2023.

When replacing your older IT assets, you have to consider two things:

  • If the older IT assets store any data, and especially sensitive/confidential data (i.e., customers’ credit card details,) then the decommissioning process should ensure secure data eradication
  • We should strive to maximize the value of each IT asset as much as we can

With that being said, there are three basic options on how to maximize the value of used IT equipment while ensuring data security and integrity:

  1. Reuse: If the IT asset has low resale value but it’s still fully functional and is still in relatively good condition, then a viable option is to repurpose the asset. For example, we can sell used hard drives or repurpose for backup purposes, or to reuse them as external/portable hard drives.
  2. Resale: if the IT asset still has a relatively high resale value and if secure data deletion is possible, then selling that used IT equipment is typically the most valuable option. 
  3. Recycle: the last resort option if the IT asset has low to no value and/or if data deletion/eradication is a concern is to recycle or dispose of the IT asset.

To maximize the value of your used IT assets, you can leverage the help of IT decommissioning specialist companies like Big Data Supply Inc. 

Big Data Supply Inc. is an R2 and RIOS-certified electronics recycling company that:

  • Buy electronics and IT equipment in bulk from companies
  • Resell used IT assets and data storage equipment
  • Perform permanent, secure data eradication
  • Recycle and dispose of used IT equipment in a safe and ecologically responsible manner

Invest enough time to ensure accurate pricing

Often the most important challenge in budgeting is to gather accurate pricing for each expense.

Accurate pricing is rarely available online, and while you can request quotes from vendors, you may not get the information quickly enough since they may not prioritize your request if you aren’t actively buying from them.

Another common mistake is to use the value-added costs you get from salespeople as the line items in your budget—which is not always an accurate, true cost since it doesn’t take the cost to implement and operate the IT initiative into account. The cost of purchasing an IT asset alone isn’t always the true cost. 

In most cases, typically, it’s better to ask other businesses you know or an MSP (Managed Service Provider) about the true cost of certain items. Another viable option is to hire an experienced consultant to do the research for accurate pricing. 

Staying on the budget: tracking actual expenses 

Ensuring your actual expenses stay on track to the agreed budget can also be challenging in practice, and you’ll need to keep track of IT costs and expenses all year long.

Here are some tips:

  • Keep all IT expenses in a central location, so it’s easier to monitor each activity accurately
  • Keep track of contract dates and other details
  • For any unplanned expenses along the way, observe and take notes of the details
  • Keep track of unexpected price changes, and try to identify the cause
  • Keep track of IT costs related to new hires. Sort them by department

Common IT budgeting mistakes and how to avoid them

Planning an IT budget and making sure you stay on track to this budget can be challenging in practice, especially if you don’t avoid the common IT budgeting mistakes below:

1. Not budgeting according to potential security risks

Incoming cybersecurity attacks will cost you. So, if you don’t plan your budget to address these security risks, even a single successful attack can ruin your whole budget.

2. Not addressing the potential cost of technical debt

Technical debt is the cost you incur when you correct IT assets currently used in your environment that need to be replaced. If you don’t address potential technical debt when planning your budget, it can be a problematic issue in the future. 

Evaluate possibilities of:

  • End-of-life migrations  
  • IT Asset replacement
  • Problematic software updates 
  • Infrastructure hardening

3. Not anticipating hidden costs of IT initiatives

You’ll need to take related fees and additional charges on top of the cost of purchasing a solution. Also, budget for the cost of ongoing management and maintenance. 

4. Relying on old, inaccurate quotes

Unfortunately, it can take weeks to get accurate and actionable quotes from your vendors, so it’s important to allow an adequate amount of time when estimating your prices. Don’t rely on previously quoted fees, as prices can change dramatically even in just a matter of weeks, if not days.

Wrapping Up

While IT budgeting in 2023 can be a very challenging process, the actionable tips we’ve shared above should provide you with a solid foundation to ensure an IT budget that’s properly aligned with your IT master plan.

Make sure to involve the right participants when you start planning your budget—involve everyone with budget authority—, and maintain communication between participants to ensure proper IT/business strategy alignment. 

Also, when it comes to collecting accurate pricing, it’s important to start early and allow ample time since it can take weeks before you can get accurate, actionable quotes from vendors.

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