A company’s IT budget is like fuel for a car. Just like how a car won’t start with an empty tank, an IT project can’t commence without funding.
However, getting a project approved requires developing a proper budget plan. Budget management requires careful planning and deliberation, with many things to consider: material and equipment costs, human resources, and revenue. Moreover, companies often fail to account for optimization tools, which should always be included within IT project budgeting.
How can teams develop effective and convincing IT budget plans that take all relevant variables into account?
The Main Purposes of an IT Project Budget
A project’s budget is the combined cost of every activity, task, and milestone that the project must achieve. When budgeting, companies must always consider IT spend as a percentage of revenue, and must find a way to set aside a substantial amount for future projects.
There are three basic reasons for creating an IT project budget:
- It helps secure project funding. Before undertaking a project, the budget appropriated for it must receive approval from the company’s stakeholders. A detailed budget plan tells stakeholders exactly how much, where, and when money is needed.
- It provides the basis for project cost control. With an end budget estimate in hand, you can measure the project’s actual cost and make sure you aren’t burning through your approved budget. This allows you to make adjustments as needed.
- It has a direct effect on a company’s financial viability. With resource constraints and calculated feasibility, a project budget helps increase the operating margin. This in turn improves the overall success of the project.
IT projects can be classified as either a CapEx (capital expense) or an OpEx (operating expense) project. An OpEx project involves expenses incurred during regular business, which includes general and administrative expenses, R&D, and product cost. Meanwhile, a CapEx project involves the purchase of new assets, such as equipment and facilities, that will produce a long-term benefit for the company.
For SaaS industries, CapEx projects are more commonly used to purchase physical servers and facilities to support on-prem infrastructures. In contrast, OpEx projects are often utilized by cloud-native or hybrid infrastructure companies because of the OpEx business model adopted by cloud service providers.
OpEx costs can become devastating to SaaS companies if not monitored properly. Learn more about this here.
The Four Stages of the IT Budget Process
Even though CapEx and OpEx business models vary in approach, care and scrutiny should be taken when budget planning using either model. This is especially true for cloud projects.
Enterprises operating in the cloud are in danger of runaway costs and wasted resources if careful planning is ignored. Many cloud-based companies have experienced surprisingly expensive cloud bills from their cloud providers because of overprovisioned resources and unoptimized clusters.
So how do you make an IT project budget?
The first step is to create the budget, starting with careful thought at the ground level. How much income is needed? What tasks are you budgeting on? Are there milestones you need to achieve? What new initiatives can be started? Create a scope and write down everything your team needs to do.
A typical IT budget breakdown involves the following:
- Human resources: salary rates of full- and part-time employees.
- Material resources: any items needed for the project, from software to hardware and everything in between.
- Research expenses: data and studies that support your project.
- Professional services: for legal advice, consultancy, market research, etc.
- Capital expenditures: equipment upgrades needed to complete the project.
- Contingencies: funds that allow flexibility and reduce budget overrun risks (usually about 5-10 percent of the allocated budget).
Not forgetting, pre- or post-Covid:
- Travel spend: expenses for staff who need to perform project work in another location (this should include meals and lodging, as necessary).
- Training fees: includes conferences, workshops, etc.
Before you take a project plan to the final decision-makers, consider running it by experienced people who can give you honest feedback. Then, before seeking final approval, take a minute. Here’s Charles W. McBride, Senior All-Source Space/Counterspace Intelligence Analyst at AT&T:
“Step away from the budget, sleep on it for a night, and take a hard look at each of those numbers again when you are fresh, asking a simple question: What did I/we miss? We all miss something at one time or another, sometimes it’s big, sometimes it’s small. Strive to take the appropriate amount of time to always double-check all of your budgetary assumptions. Your reputation and your blood pressure will thank you later.”
After review from stakeholders, you can also have an accountant or a trusted peer look at the IT budget management for your project before finally approving it.
After the budget’s approval, it’s time to execute the project. Implementing an IT project budget is not similar to how the federal government does it, where funding impounding is a norm to prevent overspending. For business owners, you can adjust your business tactics to handle spending increases based on your revenues.
Neil Woodger, a global transformation leader and senior project manager at American Recruiting & Consulting Group, advises enterprise owners to “ensure that you have very strong requirements and that they are fully agreed and signed-off. Scope creep is the biggest eater of the budget as a project moves forward.”
Keep in mind: A good budget is not a limitation on your company’s spend. Rather, it’s a financial embodiment of your company’s strategy and tactics.
Audit and Re-Evaluation
A perfectly planned budget is still subject to audits and re-evaluation. Budgets can also be revised as needed to add revisions such as revenue changes, cost adjustments, or any additional necessary information. You need to keep an eye on how you’re effectively spending the money while making sure the business is operating at profit.
An ongoing evaluation of risks is also necessary. “Project managers need to re-evaluate the risks on a regular basis and update the budget accordingly,” said Taoufik Samaka, a procurement executive and academic researcher. “A methodic risk management approach will help you cover risks related to all project process groups (most importantly: scope, schedule, cost, quality, resources, stakeholders).”
The re-evaluation phase of an IT project’s budget implementation also highlights an often overlooked facet of business operations: optimization. Organizations should invest in optimization tools to become more efficient in their IT project budgets.
Why Optimization Tools Are an Important Piece of Cloud IT Budgeting
From an optimization standpoint, a more optimized system leaves more money for budget management, plus more opportunities in terms of further projects. But also, optimization tools allow businesses to do more by spending less.
Take the Pepperdata Suite. The Pepperdata Suite provides observability and automated optimization for the big data analytics stack. It allows you to run more apps, track your spending, and manage costs. Some of our customers have even achieved $10M+ in infrastructure savings.
But another benefit of the Pepperdata Suite is the up to 50% automatic improvement in throughput. In other words, Pepperdata enables enterprises to improve their top-line growth through a more effective use of their clusters and knowledge generation.
Investors prefer seeing top-line growth because a steady or a shrinking top line can mean that the company will shrink over time. That’s why the prospect of increasing the top line and overall revenue makes optimization tools an important piece of the budget. Moreover, the data gathered from efficiently-ran clusters gives organizations a competitive advantage, leading to more innovations and more ways to catch revenue.
A company’s budget for their IT cloud projects ensures not only cost control, but also revenue in the long run. A properly prepared cloud budget will ensure that organizations can get the most out of their expenses. Investing in optimization tools like Pepperdata can help enterprises maximize their project’s output and benefits, effectively doing more with less.
See the Pepperdata Suite in action by requesting a free trial here. Learn how observability and automated optimization helps you earn more while helping get your IT budget for projects approved.