IT Budget Planning: Step-By-Step Guide, Common Mistakes + FAQ

Let’s talk money. 55% of project managers cite budget overruns as a reason for project failure. That’s over half the products, services, websites, etc. Many businesses often prioritize saving money when instead they should focus on planning their budgets better.

So, why is it so important? What are budget categories? What common IT budget planning mistakes are there and how to overcome them?

Well, first of all, read this ProCoders guide!

What is Information Technology Budgeting?

Information Technology (IT) budgeting is the strategic process of allocating financial resources to various IT needs within an organization to support and enhance business operations and objectives.

This budget covers expenses such as:

• hardware and software procurement

• system maintenance

• network upgrades

• cybersecurity measures

• staff training

It also accounts for the costs of new projects like digital transformations and cloud computing implementations. Effective IT budgeting ensures the optimal use of technology to facilitate business growth, manage risks, and prepare for future technological advancements.

Now we can see why 55% of PMs say projects fail due to budget issues. Proper planning prepares for scaling and helps manage risks, as it turns out.

Why is IT Budgeting Important?

Here are the key reasons why IT budgeting is essential:

• Resource Allocation and Availability: IT budgeting ensures that sufficient resources are available to achieve organizational goals. By planning financials in advance, managers can prioritize funding for essential projects and teams—such as hiring additional staff or scaling efforts—while identifying opportunities to reduce costs in other areas.

• Project Prioritization: The budgeting process involves evaluating and prioritizing projects based on their:
  • potential return on investment
  • alignment with corporate values
  • overall impact on financial goals

• Enabling Financing Opportunities: For startups and companies seeking external investment, a well-documented IT budget is crucial.

• Cost Management and Decision Making: IT budgeting aids in controlling IT and overall business expenses. It also supports better IT decisions by providing a clear framework of financial opportunities.

• Improved Communication and Risk Management: Establishing a budget improves transparency and aligns expectations across teams. This is very important for coordinated project planning and execution. Moreover, it helps identify and manage risks. Those include outdated technologies or potential security vulnerabilities, thereby minimizing the likelihood of accruing technical debt.

Overall, IT budgeting is not just about managing costs. It’s a comprehensive approach that supports strategic planning, enhances operational efficiency, fosters innovation, and secures financial health and sustainability in a rapidly evolving technological landscape.

7 Information Technology Budget Categories

What exactly do you budget for? What should an IT budget cover? There is no proper answer to this question without a good understanding of the various information technology budget categories. Of course, requirements vary by company and industry. However, these broad categories are a great guide to set out when planning your budget.

Hardware

Hardware includes all systems in use in the company, including:

• desktops

• laptops

• tablets

• mobile devices

Hardware is also used to support the company’s network infrastructure. This includes:

• routers

• switches

• firewalls

• wireless access points

Software

Software costs include the cost of purchasing software licenses, upgrades, and renewals for existing software. This category should also encompass any upgrades you anticipate and any support costs for software you may be considering.

Support and maintenance

Support costs include your internal support staff and any external vendors or consultants you use to provide support. These costs are typically broken out by vendor and by type of service provided, including cloud services. Because they are so routine, these costs are often overlooked. However, they are very much a part of the IT budget.

Backup and contingency costs

It’s important to know how much money you need to spend to keep your company up and running in case of a disaster. This refers to:

• the cost of the systems and solutions for backup

• disaster recovery

• business continuity

Information Security

This includes:

• allocation of resources towards strengthening information security

• enhancing cyber resilience

You should invest in various protective measures such as:

• firewalls

• intrusion detection and prevention systems

• antivirus software

• encryption tools

Additional security measures include:

• regular software updates and patching

• comprehensive security audits

• ongoing employee security training.

Resources are also devoted to developing robust security incident response plans to mitigate potential security breaches swiftly.

IT Department Staff

IT department staffing costs are what you need to fund to run your IT department. Cost to hire a website developer includes the salary, bonuses, allowances, and benefits. It also includes money for things like recruiting and onboarding new staff or providing IT training.

Outsourcing is a practical solution if you want to save money. ProCoders provides IT outsourcing services that can help reduce the costs associated with an in-house IT staff.

By partnering with ProCoders, you gain access to experienced IT professionals who can take care of security. This will save money on:

• recruiting

• vacations

• sick leaves

• equipment

• salary raises, and more

This approach lowers operational costs and allows you to focus your resources on core business activities.

Project Cost

If the company is launching a major IT initiative, such as developing software, it must budget for project-specific expenses. A company may be taking on a large project where it will need to hire app developers or other new employees, purchase new hardware and software, and contract outside help. If the company is not already budgeting for these expenses, they can add up quickly.

At ProCoders, we offer a Discovery Phase that greatly assists in planning for such projects. This phase includes roadmap creation, budget planning, time estimates, setting priorities, developing prototypes, and more, ensuring that all aspects of the project are meticulously planned and budgeted for before full-scale development begins.

Miscellaneous

When setting up your IT budget, you should include a miscellaneous cost. This cost will allow for unexpected expenses that may come up during the year.

10 Steps of Successful IT Budget Planning by ProCoders

Here’s how we recommend building your budget for IT goals.

1. Define the IT Goals for Your Organization: Start by aligning IT goals with the overarching strategic objectives of your organization. Determine the level of funding IT will receive based on whether the organization views IT as a critical strategic component or is looking to cut costs.

Before starting any project at ProCoders, we collaborate with the client to understand their objectives and draw up an accurate plan. In a project for Roth River, understanding the requirements and objectives (building an app for web and mobile) helped us choose the right technology stack.

Thus, using React enabled us to cut the development costs by half. That’s a good example of how setting the right objectives can help you to optimize your budget.

2. Create an IT Roadmap: Develop a high-level visual plan that outlines your IT strategy. This IT roadmap should include all current and projected IT initiatives along a shared timeline to optimize resource sharing and enhance the implementation of strategic goals.
3. Identify Last Year’s IT Costs: Use previous budgets as a baseline to understand future costs. Of course, don’t forget to adjust for inflation and other economic factors.
4. Evaluate Your Asset Inventory: Conduct a review of all IT assets, including:
   • hardware
   • software
   • network devices

Before executing our project with Frontegg, we ensured that we not only set the right objectives but also strived to understand the company’s situation. For instance, we understood that they had a small local team, and we considered this in our infrastructure procurement.

5. Estimate Costs for Upcoming IT Projects: Forecast the financial requirements for impending projects, considering any new hardware or software that needs to be purchased.
6. Set Budget Management Roles: Assign clear roles and responsibilities within your team. This helps with budget management and addressing the challenges of digital transformation.
7. Create an IT Disaster Recovery Plan: Allocate funds for a disaster recovery plan. It should cover potential significant disruptions.
8. Determine Optimum IT Staffing Levels: Evaluate the necessary staffing levels to manage your IT efficiently, considering both current and projected needs.
9. Set Contingency Plans: Develop plans to address potential budget overruns or economic changes, ensuring flexibility and responsiveness in your budgeting process.

One of the advantages of hiring from ProCoders is that there are always backup plans. For instance, if any developer backs out, we just replace them with another suitably qualified web developer for hire without damaging the project’s progress.

In particular, our project with SDCN was successful because we had a detailed team structure in place to handle challenges. This enabled the project to progress flexibly, and the team could also fix gaps where they existed. This approach led to a 50% reduction in costs.

10. Collaborate with ProCoders: Before launching any project, collaborate with ProCoders to leverage our Discovery Phase, which helps in planning, roadmap creation, budget planning, time estimates, setting priorities, and developing prototypes. Our process ensures that you optimize your budget and align IT initiatives with business objectives effectively.

Common Mistakes in Information Technology Budget Planning

Here we’ve collected the most common, although not always obvious, mistakes one can make during IT budget planning.

Hidden Costs

IT budgets can be challenging to estimate, especially with large projects where hidden costs often emerge. These costs can stem from various factors, including the need for training staff on new technologies or unexpected issues arising from the use of technology. Maintenance and management of the technology itself can also accrue additional expenses.

At ProCoders, we ensure there are no hidden costs, providing clear pricing that helps you save money and plan your budget.

Example: Government of Queensland, Australia (Health Department, 2010) – The Queensland Health payroll system upgrade significantly exceeded its budget by hundreds of millions of dollars. This overrun was due to underestimating the project’s complexity and associated costs.

Delaying Upgrades/Replacements

Most businesses don’t think of IT as a long-term investment. Instead, they treat it as an expense to be minimized or avoided altogether.

As a result, business owners tend to delay upgrades or replacements to reduce costs instead of optimizing them. This can save money in the short term. However, running outdated hardware or software means greater risks to your IT security and performance.

Not Paying Attention to Business Needs

A common mistake in IT budget planning is failing to align it with the broad plans of your company.

This disconnect can lead to wasted resources if you spend funds on unnecessary tech. IT expenses must be closely tied to specific business objectives to maximize return on investment and support organizational growth.

Example: Hewlett-Packard (2011) – HP invested $11 billion in acquiring Autonomy Corp, which proved catastrophic. The failure was partly attributed to a misalignment between IT and business strategies, resulting in an $8.8 billion write-down.

Not Considering Total Cost of Ownership (TCO)

Organizations sometimes focus solely on upfront costs when budgeting for IT projects, neglecting to consider the total cost of ownership over the solution’s lifecycle. This can include factors such as maintenance, upgrades, and eventual replacement.

Not Having a Disaster Recovery Plan

Disaster planning involves ensuring that your backup systems are up to date, that critical systems are accessible, and that employees know their roles in an emergency. A cyberattack is an example of a disaster for which a contingency plan must be in place. The DRP is also a business continuity plan. In the event of a disaster, your DRP should outline the best practices your company will take to keep operating.

Lack of Training Investment

IT managers need to examine their budgets for staff training and development and the tools they use. In some cases, allocating more money to training and development will be necessary as part of a broader effort to invest in new technologies that can improve productivity and efficiency.

Mind you, training is not a one-time event. It should be a continuous process of keeping your employees up to date on security threats and the latest information technology solutions.

Neglecting Cybersecurity

With the recent surge in cyberattacks, you need to prioritize cybersecurity during the IT budget planning process. IT departments are under pressure to deliver more with less.

This is especially true in security, where budgets are tighter than ever. But it isn’t just another IT expense—it’s an investment that can pay dividends far beyond anything you can imagine.

At the very least, it can prevent you from making unnecessary losses. Cyberattacks are more frequent than ever, costing an organization tens of thousands of dollars to recover from.

Example: Target Corporation (2013-2014) – Target experienced a significant data breach, largely due to inadequate resources and attention allocated to cybersecurity in their IT budget. This breach resulted in considerable financial losses and reputational damage for the company.

Poor Communication and Collaboration 

Effective IT budget planning requires collaboration between IT leaders, finance teams, and other stakeholders. Poor communication and collaboration can lead to misunderstandings, unrealistic expectations, and misaligned priorities.

How ProCoders Can Help by IT Department Budget Planning

ProCoders has a decade of experience assisting companies with IT budget planning, design, development, testing, and maintenance. We provide essential tools for comprehensive budget planning year-round and share our expertise in your domain.

Strategic Forecasting and Resource Allocation

At ProCoders, we specialize in forecasting, allocating, and pricing software to alleviate the strain on IT budgets. Our approach helps IT departments plan proactively for the future, ensuring resources are allocated efficiently before they are needed. This strategic foresight prevents budget overruns and enhances financial planning.

Cost Optimization through Outsourcing

Our track record of cost optimization is a key reason clients choose ProCoders. For example, by outsourcing the development of their healthcare logistics app to us, HANDLE Global saved up to 40% in consulting fees compared to what they would have spent outsourcing to a company in a different country. Our ability to significantly reduce costs without sacrificing quality has earned us numerous positive testimonials.

The Discovery Phase at ProCoders

Our Discovery Phase is critical in setting the foundation for successful IT budget planning. We collaborate closely with clients during this phase to fully understand their project requirements and constraints. This in-depth consultation and planning phase allows us to outline a complete budget and develop a tailored strategy that addresses specific client needs, from cost management to technology implementation.

Experienced Consultants and Comprehensive Services

ProCoders’ consultants bring over ten years of industry experience, providing a knowledgeable framework for managing your IT expenditures. We offer planning consultation and expertise to help network your business, introduce new features, and increase productivity. We aim to elevate your business to a new level, leveraging our comprehensive IT services to foster growth and innovation.

Choose ProCoders for Transparent and Effective IT Budget Management

Choosing ProCoders means opting for transparency and effectiveness in managing technology costs throughout the year. Our commitment to no hidden costs and our strategic budget planning ensure that your IT investments are maximized for the best possible outcomes.

Conclusion

Effective IT budget planning is crucial for organizations leveraging technology to drive business success. Understanding that over half of project failures are due to budget overruns makes it clear why meticulous planning is not just beneficial but necessary. A well-planned IT budget ensures resources are available where they are most needed, aligns with company goals, and prepares for future needs through careful prioritization and allocation of funds.

At ProCoders, we understand the nuances of IT budget planning. Our Discovery Phase helps clients outline a comprehensive roadmap and budget, taking into account all potential costs and strategic objectives. This process includes creating detailed time estimates, setting priorities, and developing prototypes to ensure every aspect of IT spending is transparent and aligned with your business outcomes. By choosing ProCoders, you choose a partner committed to optimizing your IT expenditures without hidden costs, ensuring your projects are set up for success from the start.