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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?"
Make a spreadsheet of all expected/likely purchases for the next year. Give rough min and max ranges for quantity and price for each line item. Include things like new systems, servers, upgrades, replacements, software licensing, network hardware, the unexpected, etc. Try to keep IT wages and contract work seperate from hardware/licensing costs. Then use the spreadsheet totals to figure out a good range of expected costs for the year.
I too work for a small company that does not pull a lot of profits. The cash flow is very seasonal and the budget is kind of mystical.
What we do is just sit down and assess who needs new computers that year. How much you spent last year on incidentals (CD's, cables, RAM, etc).
A rough guess is to add 20% to what you have down on paper. Of course you can only make an accurate budget knowing your past spending habits and what things are on the horizon.
One thing of note. I worked for a big hospital a few years ago, they had a multimillion dollar budget that grew every year. The mentality was that you had to use it or lose it, so the budget always grew. Some guys (including myself) offered some F/OSS solutions that would have save many thousands of dollars. We were soundly rejected. When I worked at Discover Card, they gave incentives to those that could save money, not tell them to take a hike.
Anyway, for a small business like mine, just make a list, look back at your previous purchase orders and see what history tells you.
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You need to understand what your business does firts... what applications does it use, what sort of workflows, types of documents produced, versioning requirements, etc. and then look at the system you have and see where the holes are.
I have done this for myself (started back in 01/2003) and also for clients (as a side) and to be honest, for a small business like you talk about, there is not really an IT budget. The point is to spend only exactly what you need to do the job, and if additional benefits can be realised for no extra cash, then that is a bonus.
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You need to itemize your budget into categories such as "Software purchases and maintenance", "Hardware", "Supplies", "Communications", "Training", and so on. Your first time making the budget, this will be an extremely tough process. Rely on reviewing the past years' spending and think of those purchases have not been made that should have (Think backup power, corporate antivirus solution, license audit, backup solution, workstation and server refreshes). This list can be quite long, depending on the company. Make sure you get buy off on this list by talking to all those involved and getting their approval in writing. As an example, make sure everyone is agreeing on the same software products so you don't get blindsided half way into the year by some $10,000 package that you weren't expecting another manager would require. You'll be held accountable for your department's spending compared to what was budgeted, so you absolutely MUST aim high on the estimated cost of everything, even more so on items that are tough to pinpoint the cost on. If there's something that has a fluctuating cost, look at a several year history to recognize growth and aim for the highest cost month at the current growth rate.
Make your proposal as simplified and easy to understand as possible. Leave out the techie stuff and tell him what he is going to get out of each item. For items that you know will be a tough sell, bring statistics and case studies of other, big name companies that use said item. When your boss sits down with you to review your proposal, you're going to have to fight for your budget. If he/she wants a more granular view into the proposal, give it to him. If he comments that certain items seem a little high, tell him that you put it a little high to give cushion and provide breathing room for unseen costs. During this process, fight for the things that are most important and give him victories on the smaller things. This way, you get the money for the things that matter most and if the boss comes to you later asking for something not so important, you can refer to the budget and ask what he wants bumped. If he backs out and drops his ad-hoc request, save that as ammo for the next budget review in case you need it. If your boss wants to give you an unreasonably low amount, you must set expectations and clarify the items that will have to be bumped from the review. If he's trying to give you your own budget, remind him that you're the one responsible for the budget and that responsibility cannot be given without also giving authority. Most people understand this line of reasoning and those that don't shouldn't be running a business and you're better off finding an employer that you can grow under. There are plenty of companies out there that would hire an experienced individual that puts a real effort into their job and stands behind what they bring to the company.
When the dust settles, there may be important items that got bumped due to the high costs in catching up to where your department should be at. Do NOT try and squeeze money out of other items to make room for those items that are being bumped early in the year. If crap hits the fan due to that item not being approved in the budget, it's not your fault and your boss made the decision on his own knowing the possible consequences as you explained them. On the other hand, if you get to Q3 and have a little extra money, you'll be in a much better position to purchase that item as a bonus and sleep comfortably knowing that you'll still make budget. Keep in mind though that you'll rarely find yourself getting more breathing room on your budget as the year progresses, so don't count on this happening.
This process may at
Here's a tip that often gets lost on people: Everything in business spending -- and by that I mean EVERYTHING IN BUSINESS SPENDING -- comes down to one thing: Return On Investment. How much do you get back for what you spend, and how fast?
Of course, quantifing things like worker productivity, morale, and community image can be hard, but you can make a good go at it. Look at how much time people spend waiting for the computer, bitching about the computer, or otherwise Not Getting Stuff Done Because Of The Computer.
It's amazing how many people don't get this. User: "I want this, and this, and this." Me: "Will it help you do your job?" User: "No." Me: "Buh-bye now." Salesdroids, too: "Our new Plasmomatic 6000 SUX can make copies and solve the halting problem!" Me: "But I just want to make copies. Why should I pay for more?"
More serious examples: When evaluating new network printers, I look up how much paper we bought for the thing over the past couple years and figured out average pages per month. Cost-per-page is easy to find in spec sheets these days. I picked a few models, got the costs and calculated differences in same, and then figured out how long the savings would take to pay for the price differences. This pointed right at the model to buy.
I found the QA people were doing diagrams for their procedures in, $DEITY help me, Microsoft Paint. Getting approval for a vector graphics program was simple once I showed how much faster it would make things.
Conversely, when the new CAD guy wants a high-performance laptop but will only be on the road three times a year, it's easy to point out that the ROI is not there. He gets a much cheaper high-performance desktop, and he can limp along with one of the "floater" laptops if he has to.
If an investment can't pay for itself, you don't buy it.
A lot of budget decisions become a lot easier once you understand this concept.
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