Quantifying IT spend in small and medium sized businesses seems to be a constant struggle. Methodologies for the optimal budget and how it should be allocated seem to vary. One study will show 4%-6% of revenue appropriated for IT, another will suggest 1%, while even another will say it should be budgeted as a per employee dollar amount per year. To add to the confusion, the control of technology sometimes moves outside of the IT department, into individual business units (Shadow IT). At best making the line gray, at worst, making overall spend a moving target comprised of both Cap-Ex and Op-Ex monies. It’s no wonder companies approach their technology budgets with a little hesitancy. In a world where “companies are supposed to be tech companies” (for more fodder: check out this, this, and this too), how do we wrap our heads around what is the best financial model to get there?
I think first we need to accept that IT is no longer an isolated department. Technology is intertwined into our products, services, delivery mechanisms and business models. It is no longer something that can be compartmentalized. This is why it is so difficult to answer the question; what should an IT budget even include? Do we include SaaS (software as a service) in use by only one department, or does it have to touch multiple departments to be included in the IT budget? What about our employees’ smartphones? If they are given a stipend to be accessible outside of the office, does the stipend go into the IT budget? What about PowerPoint training for the sales team, is that a general expense, a training expense, a sales expense or an IT expense? What about our websites? If we build a support site or tool for our customers, does it go into the customer service budget, the operations budget, or the technology budget? The fact is – the rules have changed. IT is no longer stand-alone. It is the cardiovascular system of the organization, it connects everything we do, and it is used ubiquitously by everyone throughout the company.
So maybe, instead of trying to define what “should” and “should not” be a part of the technology budget, we instead break it apart. With cloud based systems, online software tools and managed service providers, we can pretty easily make the shift from a traditional in-house IT to an external model that is priced per user. This gives us the ability to truly break apart and examine IT spend. Each department can contribute a percentage to the overall cost based upon their specific usage. Components that are necessary for one or two departments can be budgeted for by those one or two departments. As an added bonus you’ll be able to push general break/fix, infrastructure management out of the business, so your internal IT resources can focus on what is more important, technology strategy and efficiency. When a department is planning a new roll-out, or needs help optimizing a process through technology, they can utilize them for a percentage of their costs. By managing the budget in this way, you can start to address the important questions, like how do we measure the impact of the technology we are using? And isn’t that the point of a budget? To identify what is working for the business and appropriating the necessary resources to support it.
The key with the model is that you must measure the impact as it relates to each initiative. The success or failure needs to be determined by a straight forward guidelines; like: did it help the company achieve a strategic initiative, did it allow the company to scale, or did it increase profit margin? If the result doesn’t fall into one of those categories, then why are you doing it? Ultimately IT is an enabler for innovation, business growth and increased profit and it should be viewed as such. So maybe it’s about time we ditch the old model and focus on new ways to hold our companies accountable for technology spending.