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?"

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Seek assistance

[XorNand]

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.

Keep It Real... Simple

[The-Bus]

I think the main idea here is to get an idea of what the goal is of the employer. Is it to try and predict profitability? Are they selling or divesting the company in any way? Do they need to allocate some bonus funds they just found? Is it for tax reasons?

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

1. Replace six machines in back office. Cost $9000.
   
2. Upgrade network to gigabit ethernet + wireless. Cost $1500.
   
3. Acquire new scanner and printer for front office. Cost $500
   

Then, above and beyond that, ESTIMATE the "Oh, crap" budget, for example:

Assuming 6-8% of all current equipment will be destroyed/lost/not working, this will cost $6,000 - 8,000.

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:

• What do I need to spend to keep this company running?
  
• What do I need to spend to make us more competitive?
  
• If I upped my IT investment by $20,000, what could I get? (all the "Low Priority" stuff)
  
• Do I need this guy on my staff?
  

Succesfully and accurately answering the first three questions will make the fourth one easy.

Re:Keep it real

[Glonoinha]

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.)