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what is the best wat to build an IT budget.

Posted on 2011-09-29
Medium Priority
Last Modified: 2012-05-12
I am looking to gather expert network admin knowledge about their budgets and problems that arise with them. What it takes to build a solid budget and what methods work for you.

Thank you
Question by:Mavriikk

Accepted Solution

OOsorio earned 668 total points
ID: 36892068
There are basically two aspects to your question, one is creating the budget and two is administering the budget.

If there has never been a formal budget for the IT Dept then go to the Accounting Department and get at least all IT expenses for the last two years. This will give you a foundation to build upon. Using Excel or something similar, identify the expense categories and move forward by filling in a column titled Budget 2011 or 2012, which is the projected expense and create another column titled Real 2011 or 2012.

On top of the usually recurring expenses consider new projects, equipment,  training, new personnel, salary increases, etc. With time you get better at this.

On a month to month basis get the real IT expenses from Accounting and plug the numbers into your spread sheet for Real column for each category. Create another column (%) that will calculate a percentage for that Category. You will know immediately if you're below or above  the budgeted amount.

Simple explanation but I think you'll get the point.

LVL 39

Assisted Solution

ChiefIT earned 668 total points
ID: 36896139
The Key words for a budget is "Needs Assessment". The biggest problem with IT budgets is, IT is always growing/changing/or simply transforming. Within a year, most software will be outdated and computers will be second hand computers. IT is the most depreciating asset of any company, but also the focal point of all commerce.

For administrative computers, I like to replace each computer every four years. That means, replace a quarter of everything that I use. Admin computers do not need to be the best and greatest with all kinds of RAM, HD drive space, video cards.. Instead, look for PCs that have the basics.

For Software, I like to have accountability of what the staff needs, and what they wish to have. Licensing of software can become expensive. I always work with volume licensing (for control of the software library and expense), or I work with virtual/imaged machines.

For Salaries, this is pretty simple. But, don't forget Atta-boys or training of your employees.

Travel expenses can be reduced by teleconferencing. But, I had to travel many times to get first hand evaluation of performance.

One thing you will soon learn is to ensure you have an emergency fund... There's often times that if you don't budget for it, you will end up with a UPS failure, or a server failure and need to replace it.

Have you considered setting down with the executive officers of the company and figuring out the needs assessment? Yearly, I set down in a "work definition conference" to discuss such things. These are very informative meetings that keep you informed on what path the company wishes to follow. Even for the Chief Information Officer (who handles the IT budget), you can learn a great deal by learning what they want. Remember, a CIO is an executive officer but services the communications for every other department. So, your customers are the company's staff. This is how you base your budget. It's off what your customer wants to see.

Leave room for mass storage NAS servers, and your mail/domain servers.. Always keep those in good shape with spares on hand.

LVL 26

Assisted Solution

by:Fred Marshall
Fred Marshall earned 664 total points
ID: 36897743
I tend to look at things in a big picture framework.  So here goes:

You didn't tell us what you consider to be in or out of the "IT Budget".  So, some people included computers on their list - while many companies include computers in their department budgets.    But, I don't know that's how your organization views it.  A bit of guidance from you would be helpful.  Of course, you could work with "everything including the kitchen sink" and delte items that wouldn't be included.

Major outline:
Overhead  (e.g. cost of management, training, etc.)  ... if there is any or if it's spread into each of the categories below:
Labor (based on staff levels, pay levels, benefits costs, overhead time (e.g. maybe training) , etc.)
Include "labor yield" if time is charged out to customers (inside or out) and if headcount is part of the budget.
Typical yields in major industries are 75% if sick time, etc. is included in the count or 88% if sick time, etc. is not included in the count.  i.e. 88% of time on the job is spent on chargeable projects and the rest on training, corporate meetings, etc. and 75% of the time paid to the employee is spent on chargeable projects that includes the above as well as vacation and sick time, etc.
Contracts for labor, support, maintenance, licenses and subscriptions, etc.
Material - you should have a "short-leved assets" list and a schedule for replacement.  This can be spread over a number of years so that each year's numbers are clear (with the WHY?).
Conversion projects.  Best to list labor and materials for these separately.  But, sometimes can't if you expect to use current staff levels to implement.

A HUGE factor in IT budgeting is the philosophical approach being taken by the organization / the system architecture if you will.  I see many small organizations using "big glass house" approaches when peer-to-peer architectures works just fine for organizations of the same size ... at much less cost!  So, if you have control of that and if the absolute level of the budget is important then you may want to "keep it simple stupid" .. sort of thing.  In other words, avoid server OS-based architectures if possible.  If not possible or advisable then fine - just expect to spend more due to the ongoing complexities and higher license fees and differerent, more expensive, app's, etc.

Spread the budgets by month.
Do it straight-line (equal $s per month) at first.
Then adjust those items that occur in big lumps (like annual or semi-annual insurance payments).
The result should be a pretty good (not perfect) profile of expenses.

Then report against the budget monthly - relative to that profile.  
If something stands out, explain it.  (e.g. the insurance was paid a month early or a month late).
Without changing the intent of the budget or the bottom line, change the profile as you get new information.
I very often see people reporting "percentage spent" say at the end of July and compare that with 7/12 of the annual budget.  This could be conveying either a very good or a very bad picture because the profile isn't used at all.  It only works if * everything* is truly straight lined (equal each month).  Generally that's not the case.

Same approaches apply to revenue if you include revenue in your budget.  I presume this is likely a "cost center" and not a "profit center", eh?


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