Before you wrap up your final budget for 2023, you should take a good look at your IT budget plan and make sure you are prioritizing the right expenditures. It’s all too easy to just phone in your IT budget, resulting in missed opportunities and setting your business up for disaster in the future.
The easiest way to address your IT budget is simply to work with a managed service provider. Instead of painstakingly researching and addressing the minutia of your IT department, you can hire an entire team of experts to handle your IT service and only add a single budget item to your 2023 Excel spreadsheet.
If you’re going it alone, this article covers 5 essential elements of your 2023 IT budget that all business owners need to consider:
The 3 most common ways to plan IT spending (and why they’re all wrong!)
There are three common ways that small businesses develop IT budgets, and sadly, each usually fails to adequately address your future IT needs.
1)Recycle Last Year’s Budget
If it worked last year, how far off could it be for the coming year? While it is true that your past year’s IT budget allocations are a decent way to come up with a baseline for spending, this method fails to account for growth, new technologies, and changing business environments.
2)The Christmas List
This method involves starting by listing everything you could possibly want from your IT department, separating the “absolutely essential” from the “nice to haves,” and then adding priority line items to your budget until you run out of money or exhaust your list. The problem here is that this method doesn’t help you determine which elements of your IT budget are essential or determine how much your overall budget should be.
3)Make an Educated Guess and Multiply By 2 (or 3!?)
This approach has a simple elegance to it – just guess how much your IT department will need, double or triple that amount, and rest easy knowing that you (probably) won’t exceed it. The problems here should be self evident – this leaves your budget to chance and means your company will be making ad hoc decisions instead of following a plan which supports long-term goals.
Your budget should align with your company’s overall strategic direction
The problem with each of the previous methods is that they don’t involve strategic planning. They don’t stop and ask “How is my IT department helping my company grow, and what can it do better?” When looked at from a holistic view instead of focusing on short-term needs, the IT budgeting process becomes easier and more effective.
We recommend starting with a good IT budgeting template – after all there is no value in reinventing this particular wheel. From there, you should further refine your budget by considering the following 5 criteria:
1)Your budget must include a Backup & Disaster Recovery Plan
One of the quickest ways for your business to fail is to not have an effective Backup & Disaster Recovery (BDR) plan in place. When it comes to daily operations, most modern businesses rely on their IT infrastructure for everything from payroll to scheduling to routing calls, and an outage is devastating.
- 94% of businesses that suffer catastrophic data loss go out of business within 2 years
- A 10 day data center outage causes 93% of businesses to fail
Despite these shocking numbers, according to FEMA, 1 in 5 businesses don’t have a BDR plan in place! Put simply, without a BDR, your company is sitting on a time bomb.
For this reason, it is absolutely imperative that your budget include provisions for a backup plan, including both on-site backups and a cloud backup. On-site backups are essential for getting your business back up and running quickly, as restoring your entire network from the cloud can easily take days.
Having a cloud backup is important too – and allows your business to resume operations after a fire or flood. Some cloud backup solutions even include the ability to operate as virtual machines, letting you get back up and running even if your business’s physical network has been damaged or destroyed.
When you’re planning your budget for a BDR, be sure to include time for testing your backups. Since backups are typically stored differentially (only new changes are saved on top of the previous backup) a bad backup can end up corrupting all of your data. It is best practice to verify the integrity of your backups quarterly and perform a test for a full disaster recovery scenario annually. These tests are time consuming and should be budgeted for accordingly. Anticipate allocating 30-40 hours of time to your IT department to run these tests.
Finally, on top of the provisions for backing up and restoring the data itself, you should have a plan that allows your employees to continue working from outside of the office. After all, a backup will be of little use if no one can access the necessary files!
In a perfect world these systems will never be called upon, but in the event that catastrophe does strike, these plans will ensure that your company can weather the storm.
2)Eliminate as much uncertainty from your budget as possible
A common problem with IT budgets is that they are based on best case scenarios. If your server that is running your primary line of business application has been out of warranty for 2 years, it is a liability that needs to be accounted for in your budgetary considerations.
While getting another year of use out of it would be great, unexpected failures tend to happen at the worst possible time. Emergency replacements are expensive, resulting in overtime for your IT staff and downtime for the rest of the company!
Instead of waiting for mission-critical equipment to fail, your budget should include provisions for proactively upgrading or replacing these components.
3)Prioritize employee productivity
Underperforming technology is a huge source of wasted time for businesses, with the average employee losing over 11 business days worth of productivity per year to IT related issues.
To get the most out of your IT budget, you should ensure that it includes line items which boost productivity. For example, a budget internet plan might be costing your business money as a few extra seconds of page load times multiplied by thousands of clicks rapidly turns into lost hours of productivity.
Beyond slow internet service, keep an eye out for applications that have a tendency to hang or crash. These ‘minor annoyances’ might only rob your business of a few minutes each time they manifest, but if your entire team experiences even a few of these interruptions each week the missed opportunities quickly add up.
Finally, a benefit which cannot be overstated is the impact of hardware on employee morale. Nothing saps enthusiasm faster than slow workstations which constantly freeze or crash. Similarly, issuing your team new and fast equipment is a great way to make your team feel supported and appreciated.
4)Consider switching software vendors
It’s easy to carry over the same software vendors from year to year – after all, if it’s not broken don’t fix it. There are some merits to this approach – but failing to critically consider your IT choices is a great way to spend more money than you have to and miss out on new developments in your field.
One line item that has skyrocketed in the past few years is VMWare’s virtual machine pricing. This year saw a 10% increase in prices, on top of price hikes which they’ve rolled out over the last few years.
Thankfully, VMWare is by no means the only game in town, and competitors, like Microsoft’s Hyper-V, offer viable alternatives at a considerable cost savings.
Another benefit of reassessing your software solutions is that you’ll be able to take advantage of new, or more accessible technologies. While it might not have made sense for your business to choose Microsoft Azure or AWS a few years ago, cloud computing has become more affordable over time while offering increased functionality.
Other cost saving approaches to consider include switching from a locally hosted Exchange email server to an alternative like Microsoft Office 365. The licensing costs for Exchange, in combination with Microsoft Office, the necessary hardware, and keeping an Exchange expert on payroll, can easily eclipse the cost of a cloud-based service which provides the same features.
Ultimately, critically assessing your partnerships with software providers is a great way to ensure that you’re not overpaying for services or missing out on new innovations.
Minimize your cyber security risk
A commonly neglected component of small business IT budgets is cybersecurity. This is a dangerous area to try to save money on as small businesses are increasingly being targeted by cybercriminals and cyberattacks can be devastating. In fact, 60% of companies go out of business after falling victim to a major cyberattack!
Your IT budget should include provisions for cybersecurity training initiatives, hardware firewalls, and antivirus software at the bare minimum. Other considerations include effective network segmentation, particularly for voice over IP transmissions. VoIP is usually sent via unencrypted channels, making it important to confine these signals to their own subnet and VLAN.
When choosing cybersecurity hardware, make sure that you select equipment which won’t serve as a performance bottleneck. A budget hardware firewall may not be able to handle the bandwidth that a data-intensive business requires, resulting in slow downs.
If your customers are entrusting you with their private data then your security measures need to scale accordingly. A data breach which compromises customer data is incredibly challenging to recover from and exposes your company to tremendous liability.
Ultimately, it is something of an understatement to say that the planning process for creating your IT operating budget will be time consuming. To get the most from your IT service you need to ensure that your budget focuses on boosting productivity and mitigating risk. Simultaneously, you’ll want to ensure that your IT budget aligns with your business’s overall strategic plan.
Alternatively, you can reduce your IT budget to a single line item with our managed IT services plan. A managed IT service plan reduces your downtime, boosts productivity, increases security, and eliminates the guesswork of budget planning!