How to Apportion Your 2025 IT Budget

Welcome to our first blog post of February 2025. This month, we’ll be bringing you a whole host of content around IT financial planning as we look to uncover various news and insights regarding IT costs and how they should fit within your budget.

My name's Laura Westlake, Netitude's Company Accountant, and today I'll be guiding you through the essential elements of IT financial planning. We'll explore how to create an effective IT budget, allocate resources wisely, and avoid common pitfalls to ensure your business thrives in 2025 and beyond.

What is an IT Budget?

The first item on the agenda is to explain exactly what an IT financial plan is. Many people may have heard of it but may not know the intricacies of creating one or the various benefits a business can garner from having one in place.

Gartner refers to an IT budget as a ‘financial plan or allocation of funds that an organisation sets aside to cover IT expenses, planning, and investments.’ This financial plan covers everything IT-related, from hardware and software to cybersecurity solutions.

We like to think of our IT financial plan as a tool that helps us map out and allocate financial resources towards various IT projects and operations we’ve got coming up. For instance, if we plan to onboard three new clients in the first month of the year, we’ll apportion adequate funds and staffing to ensure the onboarding process goes as smoothly as possible.

We’d also have to consider how much of the budget and resources we have left to ensure our client's day-to-day operations don’t suffer. What’s more, if you get into the habit of creating and following an IT financial plan yearly, you can use it as a tool to accurately forecast future needs.

How Do Businesses Benefit from IT Financial Planning?

Ultimately, having a financial plan for IT in place will mean a business can gain the following:

• Financial Control: An IT financial plan will provide a clear and comprehensive overview of a business’s spending when it comes to IT. This can help companies avoid any unnecessary overspend and achieve cost savings.
• Strategic Planning: Planning ahead is crucial in business. Having a financial plan for IT will allow an organisation to plan strategically for future IT needs and investments, ensuring resources are allocated efficiently to reach the company’s business objectives.
• Performance Measurement: By tracking IT spending against a pre-defined budget, businesses can measure the performance and effectiveness of their IT investments in the future.

Importance of Regular IT Budget Reviews

Of course, it’s unlikely that your initial financial plan for IT will be perfect the first time around. That’s why it’s essential to periodically review and adjust it in accordance with internal factors (changing business needs) and external factors (technological advancements).

Common IT Budgeting Mistakes to Avoid

Making mistakes when constructing an IT financial plan is to be expected and, in some cases, should be encouraged, as these mistakes can often help you refine your plan going forward. However, there are some mistakes which we would discourage, and these include:

• Overlooking Hidden Costs: The success rate of an IT financial plan is determined by how thorough the implementation process is. If a cost (such as software licenses or training costs) fails to be accounted for, it can significantly impact the overall budget, leading to potential overspending or resource shortages.
• Ignoring Future Growth: Of course, future growth in any capacity must be celebrated and encouraged; however, it must not be ignored. Mitigate this by ensuring your financial plan accounts for potential expansion and increased future demand.
• Underestimating Security Needs: This is a common issue we encounter when working with clients. Inadequate investment in cybersecurity defences and infrastructure can leave your business vulnerable to attacks.
• Lack of Stakeholder Involvement: For an IT financial plan to work, key stakeholders must be able to provide their input relating to their area of expertise within the organisation. Clear communication between all departments will ultimately ensure that all needs and priorities are accounted for and addressed.
• Failing to Use Historical Data: If you generate a new financial plan annually without referring to data from previous years, you could be making a big mistake. Analysing past data can help to predict future needs more accurately.

How Should I Allocate My IT Budget?

Allocating an IT financial plan depends on a business's size, sector, and collective mindset. Here are some of the more notable costs that should take up the lion's share of the average business’s IT budget:

• (15%) Hardware Costs: No business will succeed without allocating a fair portion of its financial plan to hardware costs. This includes the purchase and maintenance of physical devices such as computers, servers, and networking equipment.
• (20%) Software Costs: Costs associated with software range from licenses such as Adobe Creative Cloud to business operating systems like Microsoft Windows.
• (35%) Personnel Costs: Businesses often fail to account for IT staff's benefits, salaries, or outsourcing. The budget allocated to your IT staff depends on how your personnel costs are structured. A general rule of thumb is to allocate about 35%.
• (15%) Maintenance & Support: As an MSP with over two decades of experience in IT support, we know the importance of ongoing device maintenance and support. Allocating around 15% of the budget should cover areas such as IT support and general technology repairs.
• (5%) Security Costs: Investing in cybersecurity is imperative for modern businesses. Failing to allocate spending here can result in more damaging costs later on, such as ransomware attacks or compliance failures.
• (10%) Cloud Services Costs: Another area that should be accounted for in IT financial planning is cloud services. This can range from cloud storage to computing resources, software as a service (SaaS) subscriptions, and cloud-based security solutions. Ensuring these costs are included in your budget helps maintain efficient and scalable IT operations.

We also recommend having a buffer in the budget set aside to cover any unexpected miscellaneous costs. This could range from emergency repairs to additional training for staff.

Closing Thoughts

In conclusion, creating an IT budget is essential for effective IT financial planning. By considering all aspects of IT costs, including hardware, software, and cloud computing, businesses can make informed decisions that align with their business strategy and objectives.