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Establishing an IT Budget for a Small Business?
tirthas asks: "I am the Information Manager of a small (20 person) architecture firm and have recently been asked by my employer to prepare a technology spending budget. While I have a good handle on what I would like to spend vs. what I must spend, I am having some difficulty establishing a justifiable budgeting method. I have seen examples of 'per employee' methods and 'percentage of revenue' methods, but the dollars and percentages vary widely. What methods do you use to establish your departmental/company-wide budgets, what are your monetary amounts or percentages, and what successes or failures did you have in establishing your budgets?"
Wow... this is a whole can of worms. You're not going to get an appropriate answer on semi-anonymous web forum. I operate my own technology consulting firm who specializes (coincidently enough) in professional service firms such as yours. I earn my living, in part, by answering these types of questions.
I'll need to know the current technological state of your company. How close to capacity is your IT dept running, both in manpower and equipment/services? What are your company's growth expecations over the next two years? 5-10 years? In what role does your company see the IT department, cost center or profit center? In the case of the former, how might we turn that around? How does your utilization of technology come to others in your industry? Etc, etc...
Take the sound bites that you're going to get here with a grain of salt. You're going to need answers that are specific to your business itself. I know it's probably not what you want to hear, but you really should call in some outside help so you can learn how to do it right. Patching together piecemeal advice might cost you your job in the end.
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And RIGHT NOW, start preparing for 06, 07, and 08 by listing in 08, a replacement for such things as the disk array which will be obsolete, Antivirus licenses, etc...
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> I have seen examples of 'per employee' methods and 'percentage of revenue'
> methods, but the dollars and percentages vary widely
What do they want? Ideally, you ask them what applications and services they want, the expected availability and lifetime of those apps and services, and then give them a conservative rough order of magnitude in dollars/quid/whatever + time (if appropriate). They will come back saying "thanks" or "too expensive, try again." Ask them what services they can get rid of or reduce in expected quality, and try again. Rinse, lather, repeat.
Don't gloss over things, but don't drown them in detail. Explain the current situation, benefits, problems, costs etc. Present a few options, status quo means this will probably happen. An additional x dollars means we could do this. An additional y means we could do this, etc. Reccommend one, that you honestly feel is the best investment of time and money, and don't be offended if they choose a different option.
Friend, I'll give you credit for actually asking the question. It's a smart person who admits when they don't have the info they need, and tries to find out the answer instead of winging it. But, you're going about the solution all wrong. Proper IT support is not just about numbers - there's soooo much more.
First, you need to get a handle on what you're employer actually expects out of it's information systems. Some firms want a glorified typewriter, some want it to do most everything. Some can't stand spending a dime on a machine, others only want the latest and greatest. Guaging the culture of an organisation is paramount.
Then there's risk. This is, IMHO, the biggest factor in actual budgeting. How much risk to the companies bottom line will any expendatures entail? How much risk is involved with doing nothing? How much risk is involved in your compeditors advancing further in IT efficiencies? You need to show that what you intend to spend will protect current operations, or there won't be a budget for anything, let alone IT. As well, if you can show that there's significant risk in not spending a certain amount, most CxO types will approve what you're asking for.
Then you can get into the numbers, and justify your expendetures with ROI.
OK, the problem? My experience lately has been that professionalism is sorely lacking in a lot of IT departments. I've heard people lament "They're driving the company into the ground anyway - why should I care?", or justify an over priced solution on what other departments get, while bitching about how under appreciated the IT department is. Your department is under appreciated because it isn't communicating properly with the people you serve. It's that simple.
We techies tend to look down on business users (they are just lusers, after all), but they're the people who drive the ship. How they're driving it should not matter one whit to you effectively doing your job. Hell, maybe some information that your systems provide will turn into a cluebat and wake up a sleeping bridge. You need to think a bit like them in order to effecitvely communicate what you're trying to do and why. You need to use thier terms and jargon, even the (YECH) buzzwords. This seems to be anethemia to a significant portion of the Slashdot crowd.
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I imagine if you're in charge of administering most of the daily tasks (backup, network maintenance, upgrades), there is no labor cost. This makes it very easy for you.
I would put something together where you talk about the existing infrastructure, and maybe some proposed changes. Rank these changes in priority from "Low" (we can live without them but they MIGHT provide efficiencies) to "Medium" (realistically these will be needed, provide a good benefit for the investment) to "Musts" (these have to be done in the next 12 months otherwise the business will not function as it does today).
For example, "Low" might be buying larger, better displays for the office and a plasma TV for the client presentation room. "Medium" might be to buy larger, better displays for some of the drafting people, if the current ones are already a bit old or unreliable. "Musts" might be the monthly costs of internet/voice service (make sure they're not double- or triple-counting anything) or replacing a monitor that you KNOW will be gone within three months.
Also, make an approximate tally of the current value of items in the office, as far as IT is concerned. What if a file server went down? How much is the replacement? How much would a new bells-and-whistles replacement be?
I would probably draft up a "recommended" budget:
Recommended Budget: Medium
Then, above and beyond that, ESTIMATE the "Oh, crap" budget, for example:
Clearly spell out that the first part is "in your control" and the other part is BEYOND your control. You may find that the "in control" budget is $11,000, while the "beyond control" budget is $25,000. Or the "in control" budget is $35,000 and the "beyond control" budget is only $7,000. Approach each of these scenarios differently.
Once this is all done, write a half-page summary on the front page. One paragraph explaining the "in control" budget and a realistic range, plus the benefits. Then a second paragraph with the "Oh, crap" stuff.
I'm making the assumption that your employer wants to know the following:
Succesfully and accurately answering the first three questions will make the fourth one easy.
Small potatoes make the steak look bigger.
responses by IT insiders who really have no understanding of the business picture.
You want responses from people who understand the small professional services firm.
My experience as an IT fence sitter in a small professional service firm is that if you were to recommend it, as the expert in the firm, the principals will be willing to pay for it.
I would simply make a list of your expected needs and spread it out over the best time periods to implement the changes.
If your owners are "cheap," don't try and be "strategic" into manipulating them into any more than they need. If they want the least expensive solution then your job is to find and make the least expesive solution work.
If they think throwing gobs of money at the systems will guarantee zero problems, then make sure and keep their expectations in check.
I like to point out that 4 hours of downtime costs X amount of employee time in $.
We use an outside consultant who we have basically full confidence in, and we simply just follow his suggestions.
If your company were to shorten your life-cycle on your hardware to exactly two years, then donate the hardware to schools, you get to write off the entire purchase price of the hardware as a tax deduction even if you have already written it off (in full, or only partially) once.
Read about it here.
If your company is profitable and paying ~25% taxes (number pulled out of my butt, I have no idea what the top tax rates are for corporations) you get to deduct the full purchase price the first year (for 25%) up to like a $100k cap, and again the next year when you donate it (for another 25% savings in taxes.)
Glonoinha the MebiByte Slayer
Big picture though. Paying an extra $100 each for a warranty on 20 PC's is $2000. You could buy 3 spare PC's for that amount. In reality, most business PC warranties start at about $200 per pc for 3 years. Considering you can get a bare bones desktop system for about $500-600, you could buy 6 spare PC's for the 20 you need as hot spares and forget the extended warrenty and have less downtime with a broken PC waiting for repair. Even better would be to buy 2 spares and budget the rest of the money for anything that may break. ;)
The base 1 year warranty would still apply. Of course a lot of small businesses only have a secretary/PC person/materials person so it really depends on the ability of that person. If that person sucks at computers, you could cheat the system and buy 5 extended warranties and use those serial numbers when any of them break
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And extended warranties are rarely 'cheap' insurance, they are very lucrative insurance for sales assistants and insurance companies. As far as cost vs risk goes, extended warranties are rather expensive insurance.
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New employees don't get new machines. If they stick around, then they're slotted into the priority list as appropriate to their capability to really push the machine. Autocad licenses are network managed, so we don't need a 1:1 ratio of licenses to staff, though new hires are likely to require some amount of new licensing. The biggest cost of new employees is really on the HR side.
Plotters are expensive as hell, particulary if you ditch the slow inkjet world dominated by HP. But we can't operate without the ability to do lots of check plots; it's just part of the design process. We only bill back drawings that actually get published, which is probably 20%.
$7k / staff is awfully damn high. You must use REALLY expensive software...Architectural Desktop runs $4800/license, and I manage to keep our costs ~ $2k, with good hardware, servers, plotter with multi-roll and wide format scanning, etc.
Joel
If your company were to shorten your life-cycle on your hardware to exactly two years, then donate the hardware to schools, you get to write off the entire purchase price of the hardware as a tax deduction even if you have already written it off (in full, or only partially) once.
Read about it here.
OK, I read about it and the 8 year old piece of "news" says:
1) This only works for "only large companies" which was not defined, but the title of the article says "multi-million dollar" companies. The title of the ask.slashdot question is "Establishing an IT Budget for a Small Business".
2) Being an 8 year old tax law, this law could either not exist anymore, could have changed significantly, or maybe apply to people like you and I now. More current information would be helpful.
3) The tax article also says that the equipment must be less than two years, not exactly two years.
But, what do I know? The parent gets modded informative, and I'll probably get flamebate for being so mean.